-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wq6OrKA7nA31K2lqPdav4xmfD3uo6jMareFPDtvqNiUeVmdHOTx8Qj02wQKJtIOD TIZIV6Y+hVjinF4eEr3igA== 0000950136-96-001165.txt : 19961204 0000950136-96-001165.hdr.sgml : 19961204 ACCESSION NUMBER: 0000950136-96-001165 CONFORMED SUBMISSION TYPE: N-1A EL PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19961203 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: 787 TRUST CENTRAL INDEX KEY: 0001027263 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-1A EL SEC ACT: 1933 Act SEC FILE NUMBER: 333-17217 FILM NUMBER: 96675465 FILING VALUES: FORM TYPE: N-1A EL SEC ACT: 1940 Act SEC FILE NUMBER: 811-07953 FILM NUMBER: 96675466 BUSINESS ADDRESS: STREET 1: 1755 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019-3743 BUSINESS PHONE: 2125543743 MAIL ADDRESS: STREET 1: 1755 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019-3743 N-1A EL 1 REGISTRATION STATEMENT Registration Nos. 33-__________ 811-__________ AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1996. 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. / / and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/ Amendment No. / / (Check appropriate box or boxes) 787 TRUST (Exact name of registrant as specified in charter) 787 Seventh Avenue New York, New York 10019 (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 787 Seventh Avenue, 47th Floor New York, New York 10019 (Name and address of agent for service) Please send copies of all communications to: Jane A. Kanter Naomi Friedland-Wechsler Katten Muchin & Zavis General Counsel 1025 Thomas Jefferson Street, N.W. EQ Financial Consultants, Inc. East Lobby, Suite 700 787 Seventh Avenue Washington, D.C. 20007 New York, New York 10019 Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of 1940, an indefinite number of shares of common stock is being registered by this Registration Statement. 787 TRUST Contents of Registration Statement This registration statement consists of the following papers and documents: Cover Sheet Contents of Registration Statement Cross Reference Sheet Part A - Prospectus Part B - Statement of Additional Information Part C - Other Information Signature Page Exhibits 787 TRUST:
CROSS REFERENCE SHEET PART A. ITEM NO. AND CAPTIONS CAPTION IN PROSPECTUS 1. Cover Page Cover Page 2. Synopsis Not Applicable 3. Condensed Financial Information Not Applicable 4. General Description of Registrant The Trust; Description of the Trust and Trust's Shares -- The Trust 5. Management of the Fund Management of the Trust 5A. Management's Discussion of Fund Not Applicable Performance 6. Capital Stock and Other Securities Dividends, Distributions And Taxes 7. Purchase of Securities Being Offered Description of the Trust and Trust's Shares -- Purchase and Redemption of Shares 8. Redemption or Repurchase Description of the Trust and Trust's Shares -- Purchase and Redemption of Shares 9. Pending Legal Proceedings Not Applicable PART B. ITEM NO. AND CAPTIONS CAPTION IN STATEMENT OF ADDITIONAL INFORMATION 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History General Information and History 13. Investment Objectives and Policies Description of Certain Securities In Which the Portfolios May Invest; Investment Restrictions 14. Management of the Fund Management of the Trust 15. Control Persons and Principal Holders of General Information and History Securities 16. Investment Advisory and Other Services Investment Management and Other Services 17. Brokerage Allocation and Other Practices Brokerage Allocation 18. Capital Stock and Other Securities General Information and History 19. Purchase, Redemption, and Pricing of Purchase and Pricing of Securities; Securities Being Offered Redemption of Shares 20. Tax Status Certain Tax Considerations 21. Underwriters Investment Management and Other Services 22. Calculation of Performance Data Not Applicable 23. Financial Statements Not Applicable PART C. Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement.
787 TRUST 787 SEVENTH AVENUE NEW YORK, NEW YORK 10019 787 Trust ("Trust") is a diversified, open-end management investment company, that offers a selection of professionally managed investment portfolios ("Portfolios"). Each Portfolio has its own investment objective and policies that are designed to meet different investment goals. This Prospectus describes the following five Portfolios currently offered by the Trust. * T. Rowe Price International Stock Portfolio * T. Rowe Price Equity Income Portfolio * Putnam Growth and Income Portfolio * Putnam International Growth Portfolio * MFS Research Portfolio The Trust offers two classes of shares on behalf of each Portfolio: Class IA shares offered hereby and Class IB shares offered pursuant to another prospectus. This Prospectus sets forth concisely the information about the Trust and the Portfolios that a prospective investor should know before investing. Please read the Prospectus and retain it for future reference. Additional information contained in a Statement of Additional Information also dated __________, 1997 has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to the Trust at the address noted above or calling 1-800-__________. The Statement of Additional Information is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Date of This Prospectus is ________________, 1997. THE TRUST The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"). As a "series" type of mutual fund, the Trust issues shares of beneficial interest that are currently divided among five Portfolios. Each Portfolio is a separate diversified series of the Trust with its own objective and policies. The Trustees of the Trust may establish additional Portfolios at any time. Each Portfolio is managed by EQ Financial Consultants, Inc. ("Manager") which directs the day-to-day operations of each Portfolio. Rowe Price-Fleming International, Inc., T. Rowe Price Associates, Inc., Putnam Investment Management, Inc., and Massachusetts Financial Services Company serve as the advisers (each an "Adviser" and, together the "Advisers") to one or more of the Portfolios, as detailed in the table below. PORTFOLIO ADVISER T. Rowe Price International Stock Rowe Price-Fleming International, Portfolio Inc. T. Rowe Price Equity Income T. Rowe Price Associates, Inc. Portfolio Putnam Growth and Income Putnam Investment Management, Portfolio Inc. Putnam International Growth Putnam Investment Management, Portfolio Inc. MFS Research Portfolio Massachusetts Financial Services Company The Trust offers two classes of shares on behalf of each Portfolio: Class IA shares and Class IB shares. EQ Financial Consultants, Inc. ("Distributor"), the Trust's Manager, also serves as the distributor for the Class IA shares of the Trust offered by this Prospectus. 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 (collectively, the "Contracts") issued by The Equitable Life Assurance Society of the United States ("Equitable"). Both classes of shares are offered and redeemed at their net asset value without the imposition of any sales load. Class IB shares are offered pursuant to another prospectus and are subject to the same expenses as the Class IA shares, but unlike the Class IA shares they are subject to distribution fees imposed pursuant to a distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act. -2- Inquiries regarding Class IB shares should be addressed to Equitable, at 1290 Avenue of the Americas, New York, NY 10104 (Attention: ____________). INVESTMENT OBJECTIVES AND POLICIES The following is a brief description of the investment objectives and policies of each of the Portfolios. All of the objectives and policies of each Portfolio, unless otherwise noted, are not fundamental and may be changed by the Board of Trustees of the Trust without the approval of shareholders. Certain investment strategies and instruments discussed below are described in greater detail in the Statement of Additional Information. Because of the uncertainty inherent in all investments, there can be no assurance that the Portfolios will be able to achieve their respective investment objectives. T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO The investment objective of the T. Rowe Price International Stock Portfolio is to seek long-term growth of capital through investment primarily in common stocks of established non-U.S. companies. The Adviser intends to invest substantially all of the Portfolio's assets outside the United States and to diversify broadly among countries throughout the world--developed, newly industrialized and emerging--by having at least five different countries represented in the Portfolio. The Portfolio may invest in countries of the Far East and Europe as well as South Africa, Australia, Canada, and other areas (including developing countries). No more than 20% of the Portfolio's net assets will be invested in securities of issuers located in any one country with the exception of issuers located in Australia, Canada, France, Japan, the United Kingdom or Germany (where the investment limitation is 35%). In determining the appropriate distribution of investments among various countries and geographic regions, the Adviser ordinarily considers the following factors: prospects for relative economic growth between foreign countries; expected levels of inflation; government policies influencing business conditions; the outlook for currency relationships; and the range of individual investment opportunities available to international investors. The Portfolio expects to invest substantially all of its assets in common stocks. However, the Portfolio may also invest in a variety of other equity-related securities (such as preferred stocks, warrants and convertible securities) as well as corporate and governmental debt securities, when considered consistent with the Portfolio's investment objective and program. The Portfolio may also invest in certain foreign investment portfolios or trusts commonly referred to as passive foreign investment companies. These entities have been authorized by the governments of certain countries specifically to permit foreign investment in securities of companies listed or traded on the stock exchanges in those countries. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and engaging in foreign currency exchange contracts and may invest up to 10% of its total assets in hybrid instruments, which are a type of high-risk instrument that can combine the characteristics of securities, futures contracts and options. -3- Under normal conditions, the Portfolio's investment in securities other than common stocks is limited to no more than 35% of its total assets. However, for temporary defensive purposes, the Portfolio may invest all or a significant portion of its assets in United States government securities and corporate debt obligations. The Portfolio will not purchase any debt security which, at the time of purchase, is rated below investment grade by a nationally recognized statistical rating organization ("NRSRO"). This restriction would not prevent the Portfolio from retaining a security downgraded to below investment grade after purchase. In addition, the Portfolio may invest without limitation in high-quality U.S. and foreign dollar-denominated money market securities for temporary defensive purposes or to meet redemption requests. In analyzing companies for investment, the Adviser uses a "bottom up" approach. A company's prospects for achieving and sustaining above-average, long-term earnings growth is generally the Adviser's primary focus. However the Adviser also considers certain other factors in making its investment decisions, including: above-average earnings growth per share; high return on invested capital; healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research, product development and marketing; efficient service; pricing flexibility; strength of management; and general operating characteristics that should enable the companies to compete successfully in their market place. While current dividend income is not a prerequisite in the selection of portfolio companies, the companies in which the Portfolio invests normally will have a record of paying dividends, and will generally be expected to increase the amounts of such dividends in future years as earnings increase. It is expected that the Portfolio's investments will ordinarily be made on exchanges located at least in the respective countries in which the various issuers of such securities are principally based. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, hybrid instruments, foreign securities, foreign currency transactions, passive foreign investment companies, securities loans and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. T. ROWE PRICE EQUITY INCOME PORTFOLIO The investment objective of the T. Rowe Price Equity Income Portfolio is to seek to provide substantial dividend income and also capital appreciation by investing primarily in dividend-paying common stocks of established companies. In pursuing its objective, the Portfolio emphasizes companies with favorable prospects for increasing dividend income and capital appreciation. Over time, the income component (dividends and interest earned) of the Portfolio's investments is expected to be a significant contributor to the Portfolio's total return. The Portfolio's yield is expected to be significantly above that of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). Total return will consist primarily of dividend income and secondarily of capital appreciation (or depreciation). -4- The investment program of the Portfolio is based on several premises. First, the Adviser believes that over time, dividend income can account for a significant component of the total return from equity investments. Second, dividends are normally a more stable and predictable source of return than capital appreciation. While the price of a company's stock generally increases or decreases in response to short-term earnings and market fluctuations, its dividends are generally less volatile. Finally, the Adviser believes that stocks that distribute a high level of current income tend to have less price volatility than those that pay below average dividends. Under normal circumstances, the Portfolio will invest at least 65% of its total assets in income-producing common stocks of established companies paying above-average dividends. The Adviser uses a "value" approach and invests in common stocks and other equities-related securities it believes are temporarily undervalued by various measures, such as price/earnings ratios. The Portfolio's investments will generally be made in companies that share some of the following characteristics: established operating histories; above-average current dividend yields relative to the S&P 500; low price/earnings ratios relative to the S&P 500; sound balance sheets and other financial characteristics; and low stock price relative to company's underlying value as measured by assets, earnings, cash flow or business franchises. Although the Portfolio will invest primarily in U.S. common stocks, it may also purchase other types of securities (for example, foreign securities, preferred stocks, convertible securities and warrants) when considered consistent with the Portfolio's investment objective and program. The Portfolio may invest up to 25% of its total assets in foreign securities. These include non- dollar denominated securities traded outside the U.S. and dollar-denominated securities traded in the U.S. (such as American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs")). Such investments increase a portfolio's diversification and may enhance return, but they may represent a greater degree of risk than investing in domestic securities. The Portfolio may also engage in a variety of investment practices, such as buying and selling options and futures contracts and engaging in foreign currency exchange transactions. In addition, the Portfolio may invest up to 10% of its total assets in hybrid instruments. The Portfolio may also invest a portion of its assets in United States government securities and high-quality United States and foreign dollar-denominated money market securities (i.e., within the two highest rating categories assigned by a NRSRO) including certificates of deposit, bankers' acceptances, commercial paper, short-term corporate securities and repurchase agreements. For temporary defensive purposes or to meet redemption requests, the Portfolio may invest without limitation in such securities. The Portfolio may also invest in debt securities of any type including municipal securities, without regard to quality or rating. Such securities would be purchased in companies that meet the investment criteria for the Portfolio. The price of a bond generally fluctuates with changes in interest rates, rising when interest rates fall and falling when interest rates rise. The Portfolio, however, will not invest more than 10% of its total assets in securities rated below investment grade (commonly known as "junk bonds"). -5- Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, foreign securities, hybrid instruments, securities loans, illiquid securities and junk bonds) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. PUTNAM GROWTH AND INCOME PORTFOLIO The investment objective of the Putnam Growth and Income Portfolio is capital growth. Current income is a secondary objective. The Adviser intends to invest primarily in common stocks that offer potential for capital growth and may, consistent with the Portfolio's investment objective, invest in common stocks that offer potential for current income. The Portfolio may also purchase corporate bonds, notes and debentures, preferred stocks and convertible securities (which include both debt securities and preferred stocks). The types of securities held by the Portfolio may vary from time to time in light of the Portfolio's investment objective, changes in interest rates, and economic and other factors. In analyzing companies for investment, the Adviser will seek to identify companies whose securities are significantly undervalued in relation to their underlying asset values or earnings potential. Attractively priced, dividend-paying common stocks that offer the strongest potential for total return are generally the primary investments of this Portfolio. At times, the Adviser may judge that conditions in the securities markets may make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of the Portfolio's shareholders. At such times, the Adviser may temporarily use alternative strategies that are primarily designed to reduce fluctuations in the value of the Portfolio's assets. In implementing these defensive strategies, the Portfolio may invest without limit in debt securities or preferred stocks, or may invest in any other securities the Adviser considers consistent with such defensive strategies. It is impossible to predict when, or for how long, the Adviser will use these alternative defensive strategies. The Portfolio may invest up to 20% of its total assets in foreign securities. The Portfolio may also purchase Eurodollar certificates of deposit (i.e., short-term time deposits issued by European banks) without regard to this 20% limit. Such investments increase the Portfolio's diversification and may enhance return, but they may represent a greater degree of risk than investing in domestic securities. In addition, the Portfolio may also invest a portion of its assets in United States government securities and high-quality United States and foreign dollar-denominated money market securities (i.e., within the two highest rating categories assigned by a NRSRO) including certificates of deposit, bankers' acceptances, commercial paper, short-term corporate securities and repurchase agreements. For temporary defensive purposes or to meet redemption requests, the Portfolio may invest without limitation in such securities. -6- The Portfolio may also invest in investment grade debt securities and may invest a portion of its total assets in debt securities rated below investment grade (commonly known as "junk bonds"). The price of a bond generally fluctuates with changes in interest rates, rising when interest rates fall and falling when interest rates rise. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and engaging in foreign currency exchange contracts. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, hybrid instruments, foreign securities, securities loans, illiquid securities, "zero-coupon" bonds, "payment-in-kind" bonds, and junk bonds) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. PUTNAM INTERNATIONAL GROWTH PORTFOLIO The investment objective of the Putnam International Growth Portfolio is capital appreciation. The Portfolio is designed for investors seeking capital appreciation primarily through a diversified portfolio of equity securities of companies located outside North America. Such equity securities normally will include common stocks, preferred stocks, securities convertible into common or preferred stocks, and warrants. The Portfolio may also invest to a lesser extent in debt securities and other types of investments if the Adviser believes that purchasing them would help to achieve the Portfolio's objective. The Portfolio may hold a portion of its assets in cash or money market instruments. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and engaging in foreign currency exchange contracts. Under normal circumstances the Portfolio will invest at least 65% of its assets in issuers located in at least three different countries outside North America. The Portfolio will consider an issuer to be located outside North America if (i) the issuer is organized under the laws of a country outside North America and (ii) if the issuer derives 50% or more of its total revenues from business outside North America. The Portfolio may invest in securities of issuers in emerging markets, as well as more developed markets. Investing in securities of issuers in emerging markets generally involves more risks than investing in securities of issuers in developed markets. The Adviser believes that the securities markets of many countries move relatively independently of one another because business cycles and other economic or political events that influence one country's securities markets may have little effect on securities markets in other countries. By investing in a diversified portfolio of securities of issuers located in different foreign countries, the Adviser attempts to reduce the risks associated with being invested in the securities of issuers within the economy of only one country. Countries that the Adviser believes offer attractive opportunities for investment may change from time to time. -7- CAPITAL PRINTING SYSTEMS] The Portfolio will not limit its investments to any particular type of company. The Portfolio may invest in companies, large or small, whose earnings are believed by the Adviser to be in a relatively strong growth trend or it may invest in companies that are not expected to experience significant further growth but whose market value per share is considered by the Adviser to be undervalued. The Portfolio also may invest in small and relatively less well-known companies that meet these characteristics. At times, the Adviser may believe that conditions in the international securities markets may make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of its shareholders. At such times, the Portfolio may temporarily use alternative strategies that are primarily designed to reduce fluctuations in the value of the Portfolio's assets. In implementing these defensive strategies, the Portfolio may invest, without limitation, in securities of any kind, including securities traded primarily in United States markets and in cash and money market instruments. It is impossible to predict when, or for how long, the Portfolio will use these alternative strategies. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, foreign securities, foreign currency transactions, securities loans and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MFS RESEARCH PORTFOLIO The investment objective of the MFS Research Portfolio is to provide long-term growth of capital and future income. In pursuing its objective, the Portfolio invests a substantial portion of its assets in the common stock or securities convertible into common stock of companies believed by the Adviser to possess better than average prospects for long-term growth. A smaller proportion of the assets of the Portfolio may be invested in bonds, short-term debt obligations, preferred stocks or common stocks whose principal characteristic is income production rather than growth. Such securities may also offer opportunities for growth of capital as well as income. In the case of both growth stocks and income securities, the Adviser emphasizes progressive, well-managed companies. Investment research analysts in the Adviser's Equity Research Group select the portfolio securities of the Portfolio. The assets of the Portfolio are allocated to specific industry groups (e.g., pharmaceuticals, retail and computer software) depending on the determinations made by the Adviser's investment research analysts as a group. Individual analysts for each industry group are responsible for selecting those securities within their particular industry group that they consider to be the best suited to meet the objective of the Portfolio. In addition, the Adviser, from time to time, will exercise its judgment with respect to the proportion of assets of the Portfolio invested in growth stocks, income producing securities or cash (including foreign currency) and cash equivalents, depending on the Adviser's view of the relative attractiveness of each type of security. -8- To the extent that such investments comply with the Portfolio's investment objective, the Portfolio may invest up to 20% of its total assets in foreign securities, including those in emerging markets. These securities include non-United States dollar-denominated securities traded outside the United States and dollar denominated securities traded in the United States (such as ADRs). Such foreign investments increase a portfolio's diversification and may enhance return, but they may represent a greater degree of risk than investing exclusively in domestic securities. The Portfolio may invest in investment grade debt securities and may invest up to 10% of its total assets in securities rated below investment grade (commonly known as "junk bonds"). The price of a bond generally fluctuates with changes in interest rates, rising when interest rates fall and falling when interest rates rise. Certain investment strategies and practices which may be employed by the Portfolio (such as foreign securities, repurchase agreements, forward commitments, securities loans, illiquid securities and junk bonds) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. INVESTMENT STRATEGIES In addition to making investments directly in securities, to the extent described above, each of the Portfolios (except for MFS Research Portfolio) may purchase and sell call and put options, engage in transactions in futures contracts and related options, and invest in hybrid instruments. All of the Portfolios may engage in forward foreign currency exchange transactions and may invest in ADRs, EDRs and other similar instruments. They may also enter into repurchase agreements, make forward commitments to purchase securities, lend their portfolio securities, and borrow funds under certain limited circumstances. The investment strategies and instruments referred to above and the risks related to them are summarized below and certain of these strategies and instruments are described in more detail in the Statement of Additional Information. OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research Portfolio) may invest in futures contracts and options. Futures (a type of potentially high-risk security) enable the investor to buy or sell an asset in the future at an agreed upon price. Options (another type of potentially high-risk security) give the investor the right, but not the obligation, to buy or sell an asset at a predetermined price in the future. Each Portfolio may utilize futures contracts and related options for other than hedging purposes to the extent that aggregate initial margin deposits and premiums paid do not exceed 5% of the Portfolio's net assets. Each Portfolio 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. 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 -9- efficient means of adjusting its overall exposure to certain markets; in an effort to enhance income; and to protect the value of portfolio securities. Each Portfolio may purchase, sell, or write call and put options on securities, financial indices, and foreign currencies. The risk of loss in trading futures contracts can be substantial because of the low margin deposits required and the extremely high degree of leveraging involved in futures pricing. As a result, a relatively small price movement in a futures contract may cause an immediate and substantial loss or gain. The primary risks associated with the use of futures contracts and options are: (i) imperfect correlation between the change in market value of the stocks held by a Portfolio and the prices of futures contracts and options; and (ii) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures position prior to its maturity date. HYBRID INSTRUMENTS. Each Portfolio (except the MFS Research Portfolio) may invest in hybrid instruments. Hybrid instruments have recently been developed and combine the elements of futures contacts or options with those of debt, preferred equity or a depository instrument. Often these hybrid instruments are indexed to the price of a commodity, particular currency, or a domestic or foreign debt or equity securities index. Hybrid instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Hybrid instruments may bear interest or pay dividends at below market (or even relatively nominal) rates. Under certain conditions, the redemption value of such an instrument could be zero. Hybrid instruments can have volatile prices and limited liquidity and their use by a Portfolio may not be successful. FOREIGN SECURITIES. Foreign investments involve certain risks that are not present in domestic securities. Because each of the Portfolios may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of a Portfolio's assets and income. In addition, although a portion of a Portfolio's investment income may be received or realized in such currencies, the Portfolio will be required to compute and distribute its income in U.S. dollars. Therefore, if the exchange rate for any such currency declines after a Portfolio's income has been earned and computed in U.S. dollars but before conversion and payment, the Portfolio could be required to liquidate portfolio securities to make such distributions. 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 U.S. 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 U.S. and foreign interest rates. -10- There may be less information publicly available about a foreign issuer than about a U.S. issuer, and a foreign issuer is not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the U.S. 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 U.S. markets and a Portfolio's investment securities may be less liquid and subject to more rapid and erratic price movements than securities of comparable U.S. companies. Equity securities may trade at price/earnings multiples higher than comparable U.S. securities and such levels may not be sustainable. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the U.S. Moreover, settlement practices for transactions in foreign markets may differ from those in U.S. markets. Such differences may include delays beyond periods customary in the U.S. and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to the Portfolio. In less liquid and well developed stock markets, such as those in some Asian and Latin American countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect stock prices and, therefore, share prices. Foreign brokerage commissions, custodial expenses and other fees are also generally higher than for securities traded in the United States. Consequently, the overall expense ratios of international funds are usually somewhat higher than those of typical domestic stock funds. In addition, the economies, markets and political structures of a number of the countries in which the Portfolios can invest do not compare favorably with the United States and other mature economies in terms of wealth and stability. Therefore, investments in these countries may be riskier, and will be subject to erratic and abrupt price movements. Some economies are less well developed and less diverse (for example, Latin America, Eastern Europe and certain Asian countries), and more vulnerable to the ebb and flow of international trade, trade barriers and other protectionist or retaliatory measures (for example, Japan, southeast Asia and Latin America). Some countries, particularly in Latin America, are grappling with severe inflation and high levels of national debt. 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. FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios may purchase foreign currency on a spot (or cash) basis, and may enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts"). Each of the Portfolios (except MFS Research Portfolio) may also purchase and sell foreign currency futures contracts and may purchase exchange traded and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. 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"). -11- Hedging transactions involve costs and may result in losses. Each of the Portfolios (except MFS Research Portfolio) may also write covered call options on foreign currencies to offset some of the costs of hedging those currencies. A Portfolio will engage in over-the-counter options transactions on foreign currencies only when appropriate exchange traded transactions are unavailable and when, in the Adviser's opinion, the pricing mechanism and liquidity are satisfactory and the participants are responsible parties likely to meet their contractual obligations. A Portfolio's ability to engage in hedging and related option transactions may be limited by tax considerations. Transactions and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Portfolios own or intend to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in the value of such currency. PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock Portfolio may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Such entities have been the only or primary way to invest in certain countries. In addition to bearing their proportionate share of the Trust's expenses (management fees and operating expenses), shareholders will also indirectly bear similar expenses of such entities. AMERICAN AND EUROPEAN DEPOSITARY RECEIPTS. The Portfolios may purchase foreign securities in the form of ADRs, EDRs or other securities convertible into securities of corporations in which the Portfolios are permitted to invest pursuant to their respective investment objectives and policies. These securities may not necessarily be denominated in the same currency into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe typically by banks or depositories which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in United States securities markets and EDRs, in bearer form, are designed for use in European securities markets. BORROWINGS. The Portfolios may borrow money from banks or other lenders as a temporary measure for emergency purposes, to facilitate redemption requests, or for other purposes consistent with each Portfolio's investment objective and program. Borrowings for the T. Rowe Price International Stock and T. Rowe Price Equity Income Portfolios may not exceed 33 1/3% of any Portfolio's total assets. Borrowings for the Putnam Growth and Income Portfolio and the Putnam International Growth Portfolio may not exceed 10% of each Portfolio's total assets. Borrowings for the MFS Research Portfolio may not exceed 5% of such Portfolio's total assets. Each Portfolio may pledge its assets to secure these permissible borrowings. No Portfolio may purchase additional securities when its borrowings exceed 5% of its total assets. -12- REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements with a bank, broker-dealer or other financial institution as a means of earning a fixed rate of return on its cash reserves for periods as short as overnight. A repurchase agreement is a contract pursuant to which a Portfolio, against receipt of securities of at least equal value including accrued interest, agrees to advance a specified sum to the financial institution which agrees to reacquire the securities at a mutually agreed upon time (usually one day) and price. Each repurchase agreement entered into by a Portfolio will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest. A Portfolio's right to liquidate such securities in the event of a default by the seller could involve certain costs, losses or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase are less than the repurchase price, the Portfolio could suffer a loss. FORWARD COMMITMENTS. Each Portfolio may make contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") if it holds, and maintains until the settlement date in a segregated account, cash or high-grade debt obligations 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. SECURITIES LOANS. The T. Rowe Price International Stock and T. Rowe Price Equity Income Portfolios may seek to obtain additional income by making secured loans of portfolio securities with a value up to 331/3% of their respective total assets. The Putnam Growth and Income Portfolio and Putnam International Growth Portfolio may lend portfolio securities amounting to not more than 25% of their respective total assets. The MFS Research Portfolio may lend portfolio securities in an amount up to 30% of its total assets. All securities loans will be made pursuant to agreements requiring the loans to be continuously secured by collateral in cash or high-grade debt obligations at least equal at all times to the market value of the loaned securities. The borrower pays to the Portfolios an amount equal to any dividends or interest received on loaned securities. The Portfolios retain all or a portion of the interest received on investment of cash collateral or receives 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. ILLIQUID SECURITIES. The MFS Research Portfolio may invest up to 10% of its assets and each other Portfolio may invest up to 15% of their respective net assets in illiquid securities and other securities which are not readily marketable, including non-negotiable time deposits, certain restricted securities not deemed by the Trust's Board of Trustees to be liquid, and repurchase agreements with maturities longer than seven days. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended, which have been determined by the -13- Board of Trustees to be liquid, will not be considered by the Adviser to be illiquid or not readily marketable and, therefore, are not subject to the 15% limit. The inability of a Portfolio to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Portfolio's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Portfolio which are eligible for resale pursuant to Rule 144A will be monitored by each Portfolio's Adviser on an ongoing basis, subject to the oversight of the Board of Trustees of the Trust. In the event that such a security is deemed to be no longer liquid, a Portfolio's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Portfolio's having more than 15% of its assets invested in illiquid or not readily marketable securities. INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio (except the T. Rowe Price International Stock Portfolio) may invest a portion of its total assets in investment grade and lower quality fixed income securities. Investment grade fixed income securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Service ("S&P") and comparable unrated securities, while normally exhibiting adequate protection parameters, have speculative characteristics; consequently, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade fixed income securities. Fixed income investments that are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's or BB or lower by S&P) or are unrated securities of comparable quality are known as "junk bonds" and are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Each NRSRO's descriptions of these bond ratings are set forth in the Appendix to the Statement of Additional Information. Because investment in these lower quality junk bonds 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 junk bonds 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 junk bonds may be less liquid than the market for investment grade bonds. This potential lack of liquidity may make it more difficult for the Adviser to value accurately certain portfolio securities. PAYMENT-IN-KIND BONDS. The Putnam Growth and Income Portfolio may invest in payment-in- kind bonds. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. The value of payment-in-kind bonds is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, the Portfolio is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Putnam Growth and Income Portfolio could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. -14- ZERO-COUPON BONDS. The Putnam Growth and Income Portfolio may invest in zero-coupon bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. The value of zero-coupon bonds is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Zero-coupon bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, the Portfolio is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Putnam Growth and Income Portfolio could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Portfolio is known as "portfolio turnover." Each Portfolio's turnover rate is not expected to exceed 100% during its first year of operation. A high turnover rate increases transaction costs (e.g., brokerage commissions) and increases realized gains and losses. MANAGEMENT OF THE TRUST THE BOARD OF TRUSTEES The Board of Trustees of the Trust provides broad supervision over the business and affairs of the Portfolios and the Trust as provided in the Trust's Declaration of Trust and By-Laws. THE MANAGER The Trust is managed by EQ Financial Consultants, Inc. which, subject to the supervision and direction of the Trustees of the Trust, has overall responsibility for the general management and administration of the Trust. The Manager is an investment adviser registered under the Investment Advisers Act of 1940, as amended, and a broker-dealer registered under the Securities Exchange Act of 1934, as amended ("1934 Act"). The Manager currently furnishes specialized investment advice to other clients, including individuals, pension and profit sharing plans, trusts, charitable organizations, corporations and other business entities. The Manager is a Delaware corporation and an indirect, wholly-owned subsidiary of Equitable, a New York stock life insurance company. The Manager is responsible for providing investment management and administrative services to the Trust and in the exercise of such responsibility selects the investment advisers for the Trust's Portfolios and monitors the Advisers' investment programs and results, reviews brokerage matters, oversees compliance by the Trust with various federal and state statutes, and carries out the directives of the Board of Trustees. The Manager is responsible for providing the Trust with office space, office equipment, and personnel necessary to operate and administer the -15- Trust's business, and also supervises the provision of services by third parties such as the Trust's custodian. As compensation for managing the T. Rowe Price Equity Income Portfolio, the Trust pays the Manager a monthly fee at the annual rate of .80% of the Portfolio's average daily net assets. As compensation for managing the T. Rowe Price International Stock Portfolio, the Trust pays the Manager a monthly fee at the annual rate equal to: 1.15% of the Portfolio's average daily net assets up to and including $20 million; 1.00% of the Portfolio's average daily net assets over $20 million and up to and including $50 million; and .90% of the Portfolio's average daily net assets in excess of $50 million. As compensation for managing the Putnam Growth and Income Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal to: .90% of the Portfolio's average daily net assets up to and including $150 million; .85% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .75% of the Portfolio's average daily net assets in excess of $300 million. As compensation for managing the Putnam International Growth Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal to: 1.05% of the Portfolio's average daily net assets up to and including $150 million; .95% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .85% of the Portfolio's average daily net assets in excess of $300 million. As compensation for managing the MFS Research Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal to: .80% of the Portfolio's average daily net assets up to and including $150 million; .775% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .75% of the Portfolio's average daily net assets in excess of $300 million. The management fees paid by the Portfolios, although higher than the fees paid by other investment companies in general, are comparable to management fees paid for similar services by many investment companies with similar investment objectives and policies. From the management fees, the Manager pays the expenses of providing investment advisory services to the Portfolios, including the fees of the Adviser of each Portfolio. In addition to the management fees, the Trust pays all expenses not assumed by the Manager, including, without limitation: the fees and expenses of its independent auditors 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 -16- Class IB shares may pay for certain distribution related expenses in connection with activities primarily intended to result in the sale of its shares. THE ADVISERS Pursuant to an investment advisory agreement with the Manager, each Adviser to a Portfolio furnishes continuously an investment program for the Portfolio, makes investment decisions on behalf of the Portfolio, places all orders for the purchase and sale of investments for the Portfolio's account with brokers or dealers selected by such Adviser and may perform certain limited related administrative functions in connection therewith. For its services, the Manager pays each Adviser a fee based on a percentage of the average daily net assets of the Portfolio that it advises. The Trust has filed an exemptive application with the Securities and Exchange Commission ("SEC") that would permit the Trust's Board of Trustees, in consultation with the Manager and without the approval of shareholders to: (a) employ a new Adviser for any Portfolio pursuant to the terms of a new Advisory Agreement, 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 contact terms where a contract has been assigned because of a change in control of the Adviser. Shareholders would receive notice of such action, including the information concerning the Adviser that normally is provided in the Prospectus. There can be no assurance that the SEC will grant the Trust's application. T. Rowe Price Associates, Inc. ("T. Rowe Price") is the Adviser to the T. Rowe Price Equity Income Portfolio. As compensation for services as the Portfolio's Adviser, the Manager pays T. Rowe Price a monthly fee at the annual rate of .40% of the Portfolio's average daily net assets. T. Rowe Price was incorporated in Maryland in 1947 as successor to the investment counseling business founded by the late Thomas Rowe Price, Jr., in 1937. As of December 31, 1996, T. Rowe Price and its affiliates managed more than $__ billion of assets. T. Rowe Price serves as investment manager to a variety of individual and institutional investor accounts, including limited and real estate partnerships and other mutual funds. Investment decisions with respect to the T. Rowe Price Equity Income Portfolio are made by an Investment Advisory Committee composed of the following members: Brian C. Rogers, Chairman, Thomas H. Broadus, Jr., Richard P. Howard, and William J. Stromberg. The Committee Chairman has day-to-day responsibility for managing the Portfolio and works with the Committee in developing and executing the Portfolio's investment program. Mr. Rogers has been Chairman of the Committee since 1993. He joined T. Rowe Price in 1982 and has been managing investments since 1983. Rowe Price-Fleming International, Inc. ("Price-Fleming") is the Adviser to the T. Rowe Price International Stock Portfolio. As compensation for services as the Portfolio's Adviser, the Manager pays Price-Fleming a monthly fee at the annual rate equal to: .75% of the Portfolio's average daily net assets up to and including $20 million; .60% of the Portfolio's average daily -17- net assets over $20 million and up to and including $50 million; and .50% of the Portfolio's average daily net assets in excess of $50 million. Price-Fleming was incorporated in Maryland in 1979 as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited ("Flemings"). As of December 31, 1996, Price-Fleming managed the U.S. equivalent of approximately $___ billion. Flemings was incorporated in 1974 in the United Kingdom as successor to the business founded by Robert Fleming in 1873. Flemings is a diversified investment organization which participates in a global network of regional investment offices in New York, London, Zurich, Geneva, Tokyo, Hong Kong, Manila, Kuala Lumpur, South Korea and Taiwan. The common stock of Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings and 25% by Jardine Fleming Group Limited ("Jardine Fleming"). (Half of Jardine Fleming is owned by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of the board of directors of Price-Fleming, and Flemings has the right to elect the remaining directors, one of whom will be nominated by Jardine Fleming. Investment decisions with respect to the T. Rowe Price International Stock Portfolio are made by an investment advisory group composed of the following members: Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Richard J. Bruce, Mark J. T. Edwards, John R. Ford, Robert C. Howe, James B. M. Seddon, Benedict R. F. Thomas and David J. L. Warren. Martin Wade joined Price-Fleming in 1979 and has 27 years of experience with the Fleming Group in research, client service and investment management. (Fleming Group includes Flemings and/or Jardine Fleming.) Christopher Alderson joined Price-Fleming in 1988 and has 10 years of experience with the Fleming Group in research and portfolio management. Peter Askew joined Price-Fleming in 1988 and has 21 years of experience managing multi-currency fixed income portfolios. Richard Bruce joined Price-Fleming in 1991 and has eight years of experience in investment management with the Fleming Group in Tokyo. Mark Edwards joined Price-Fleming in 1986 and has 15 years of experience in financial analysis. John Ford joined Price-Fleming in 1982 and has 16 years of experience with Fleming Group in research and portfolio management. Robert Howe joined Price Fleming in 1986 and has 15 years of experience in economic research, company research and portfolio management. James Seddon joined Price-Fleming in 1987 and has nine years of experience in investment management. Benedict Thomas joined Price-Fleming in 1988 and has seven years of portfolio management experience. David Warren joined Price-Fleming in 1984 and has 16 years of experience in equity research, fixed income research and portfolio management. Putnam Investment Management, Inc. ("Putnam Management") is the adviser to the Putnam Growth and Income Portfolio and Putnam International Growth Portfolio. As compensation for services as the Putnam Growth and Income Portfolio's Adviser, the Manager pays Putnam Management a monthly fee at an annual rate equal to: .50% of the Portfolio's average daily net assets up to and including $150 million; .45% 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. As compensation for services as the Putnam International Growth Portfolio's Adviser, the Manager pays Putnam Management a monthly fee at the annual -18- rate equal to: .65% of the Portfolio's average daily net assets up to and including $150 million; .55% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .45% of the Portfolio's average daily net assets in excess of $300 million. Putnam Management was incorporated in ___________, and has been managing mutual funds since 1937. As of December 31, 1996, Putnam Management managed more than $___ billion of assets. Putnam Management is a subsidiary of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. Anthony I. Kreisel is responsible for the day-to-day management of the Putnam Growth and Income Portfolio, which includes investment decisions made on behalf of the Portfolio. Mr. Kreisel has been employed by Putnam Management as an investment professional since 1986. Justin Scott is responsible for the day-to-day management of the Putnam International Growth Portfolio, which includes investment decisions made on behalf of the Portfolio. Mr. Scott has been employed by Putnam Management as an investment professional since 1988. Massachusetts Financial Services Company ("MFS") is the adviser to the MFS Research Portfolio. As compensation for services as the Portfolio's Adviser, the Manager pays MFS a monthly fee at an annual rate equal to: .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 will waive its management fees for the first six months after the commencement of the Portfolio's investment 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. As of December 31, 1996, MFS managed more than $___ billion on behalf of over 1.8 million investors accounts. MFS is a wholly-owned subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned subsidiary of Sun Life Assurance Company of Canada. The Portfolio is currently managed by a committee comprised of various equity research analysts employed by MFS. MFS has established a strategic alliance with Foreign & Colonial Management Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's oldest financial services institutions, the London-based Foreign & Colonial Investment Trust PLC, which pioneered the idea of investment management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest publicly listed bank in Germany, founded in 1835. As part of this alliance, the portfolio managers and investment analysts of MFS and Foreign & Colonial share their views on a variety of investment related issues, such as the economy, securities markets, portfolio securities and their issuers, investment recommendations, strategies and techniques, risk analysis, trading strategies and other portfolio management matters. -19- THE ADMINISTRATOR Pursuant to an administrative agreement ("Administrative Services Agreement"), ______________ (the "Administrator") assists the Manager in the performance of its administrative responsibilities to the Trust and provides the Trust with other 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. For these administrative services, the Trust pays the Administrator a monthly fee at the annual rate of ___% of the average daily net assets of the Trust. 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. EXPENSE LIMITATION AGREEMENTS In the interest of limiting expenses of the Portfolios, the Manager has entered into expense limitation agreements with the Trust ("Expense Limitation Agreements"), with respect to each Portfolio, pursuant to which the Manager has agreed to waive or limit its fees and total annual operating expenses (expressed as a percentage of the Portfolios' average daily net assets) to [____]%. The Portfolios may at a later date reimburse to the Manager the management fees waived or limited and other expenses paid by the Manager pursuant to the Expense Limitation Agreements provided the Portfolios have reached a sufficient asset size to permit such reimbursement to be made without causing the total annual expense rate of each Portfolio to exceed [____]%. Consequently, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's assets exceed [$__] million; (ii) the Portfolio's total annual expense ratio is less than [____]%; and (iii) the payment of such reimbursement has been approved by the Trust's Board of Trustees on a quarterly basis. BROKERAGE PRACTICES In selecting brokers and dealers, the Manager and each Adviser may consider research and brokerage services furnished to either company and their affiliates. Subject to seeking the most favorable price and execution available, the Manager and each Adviser may also consider sales of shares of the Trust as a factor in the selection of brokers and dealers. TRANSACTIONS WITH AFFILIATES In December 1984, Equitable 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 -20- execution and clearance services to financial intermediaries including broker-dealers and banks. To the extent permitted by law, the Trust may engage in securities and other transactions with the above entities or may invest in shares of the investment companies with which those entities have affiliations. The Adviser to the T. Rowe Price International Stock and T. Rowe Price Equity Income Portfolios may execute portfolio transactions through certain affiliates of Robert Fleming Holdings Limited and Jardine Fleming Group Limited, persons indirectly related to the Adviser, acting as an agent in accordance with procedures established by the Trust's Board of Trustees. The 1940 Act generally prohibits the Trust from engaging in principal securities transactions with an affiliate of the Manager or Advisers unless pursuant to an exemptive order from the SEC. The Trust may apply for such exemptive relief. The Trust has adopted procedures, prescribed by Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which are reasonably designed to provide that any commission it pays to affiliates of the Manager or Advisers does not exceed the usual and customary broker's commission. In addition, the Trust will adhere to Section 11(a) of the 1934 Act and any applicable rules thereunder governing floor trading. The Trust has adopted procedures permitting it to purchase securities, under certain restrictions prescribed by a rule under the 1940 Act, in a public offering in which an affiliate of the Manager or Advisers is an underwriter. DESCRIPTION OF THE TRUST AND TRUST'S SHARES THE TRUST The Trust is a registered open-end management investment company that was organized as a Delaware business trust on October 31, 1996. As of __________ __, 1997, Equitable owned 100% of the shares of each Portfolio and through such ownership may be deemed a controlling person of each Portfolio. The Trust currently is divided into [five] portfolios, each of which has Class IA and Class IB shares. The Board of Trustees may establish additional portfolios and additional classes of shares. CHARACTERISTICS OF TRUST'S SHARES The Board of Trustees of the Trust has authority to issue an unlimited number of shares of beneficial interest, without par value. Each share of each class of a Portfolio shall be entitled to one vote (or fraction thereof in respect of a fractional share) on matters that such shares (or class of shares) shall be entitled to vote. Shareholders of each Portfolio shall vote together on any matter, except to the extent otherwise required by the 1940 Act, or when the Board of Trustees of the Trust has determined that the matter affects only the interest of shareholders of one or more classes, in which case only the shareholders of such class or classes shall be entitled to vote thereon. Any matter shall be deemed to have been effectively acted upon with respect to each Portfolio if acted upon as provided in Rule 18f-2 under the 1940 Act, or any successor rule, and in the Declaration of Trust. The Trust is not required to hold annual shareholder meetings, but special meetings may be called for purposes such as electing or removing -21- Trustees, changing fundamental policies or approving an investment management or advisory agreement. Under the Trust's multi-class system, shares of each class of a Portfolio represent an equal pro rata interest in that Portfolio and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each class shall have a different designation; (b) each class of shares shall bear its "Class Expenses;" (c) each class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its distribution arrangements; (d) each class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class; (e) each class may have separate exchange privileges, although exchange privileges are not currently contemplated; and (f) each class may have different conversion features, although a conversion feature is not currently contemplated. Expenses currently designated as "Class Expenses" by the Trust's Board of Trustees under the plan pursuant to Rule 18f-3 are currently limited to payments made to the distributor for the Class IB shares, pursuant to the distribution plan for the Class IB shares adopted pursuant to Rule 12b-1 under the 1940 Act. PURCHASE AND REDEMPTION OF SHARES EQ Financial Consultants, Inc., formerly Equico Securities, Inc., a wholly-owned subsidiary of Equitable, serves as distributor for the Trust's Class IA shares pursuant to a distribution agreement with the Trust. The Distributor's address is 1755 Broadway, New York, New York 10019. Class IA shares are offered and redeemed without a sales charge, at net asset value. The price at which a purchase or redemption is effected is based on the next calculation of net asset value after an order is placed by an insurance company investing in or redeeming from the Trust. Net asset value per share is calculated for purchases and redemption of shares of each Portfolio by dividing the value of total Portfolio assets, less liabilities (including Trust expenses, which are accrued daily), by the total number of outstanding shares of that Portfolio. The net asset value per share of each Portfolio is determined each business day at 4:00 p.m. Eastern time. Net asset value per share is not calculated on national business holidays. All shares are purchased and redeemed in accordance with the Trust's 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 normally will 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. -22- HOW ASSETS ARE VALUED Values are determined according to accepted accounting practices and all laws and regulations that apply. The assets of each Portfolio are generally valued as follows: o Stocks and debt securities which mature in more than 60 days are valued on the basis of market quotations. o Foreign securities not traded directly in the U.S. are valued at representative quoted prices in the currency of the country of origin. Foreign currency amounts are translated into U.S. dollars at the bid price last quoted by a composite list of major U.S. banks. o Short-term debt securities in the Portfolios which mature in 60 days or less are valued at amortized cost, which approximates market value. o Other securities and assets for which market quotations are not readily available or for which valuation cannot be provided are valued in good faith by the Valuation Committee of the Board of Trustees of the Trust using its best judgment. DIVIDENDS, DISTRIBUTIONS AND TAXES Under current federal income tax law, the Trust believes that each Portfolio is entitled, and the Trust intends that each Portfolio shall qualify each year and elect, to be treated as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"). As a RIC, a Portfolio will not be subject to federal tax on its net investment income and net realized capital gains to the extent such income and gains are timely distributed to its insurance company shareholders. Accordingly, each Portfolio intends to distribute all of its net investment income and net realized capital gains to its shareholders. An insurance company that is a shareholder of a Portfolio will generally not be taxed on distributions from that Portfolio. All dividend distributions will be reinvested in full and fractional shares of the Portfolio to which they relate. Although the Trust intends that it and the Portfolios will be operated so that they will have no federal income or excise tax liability, if any such liability is nevertheless incurred, the investment performance of the Portfolio or Portfolios incurring such liability will be adversely affected. In addition, Portfolios investing in foreign securities and currencies may be subject to foreign taxes which could reduce the investment performance of such Portfolio. In addition to meeting investment diversification rules applicable to regulated investment companies under Subchapter M of the Internal Revenue Code, each Portfolio is also subject to the investment diversification requirements of Subchapter L of the Internal Revenue Code. Were any Portfolio to fail to comply with those requirements, owners of Contracts (other than -23- "pension plan contracts") funded through the Trust would be taxed immediately on the accumulated investment earnings under their Contracts and would thereby lose any benefit of tax deferral. Compliance is therefore carefully monitored by the Manager. Certain additional tax information appears in the Statement of Additional Information. For more information regarding the tax implications for owners of Contracts investing in the Trust, refer to the prospectuses for those Contracts. PERFORMANCE INFORMATION From time to time, the Trust may advertise the "average annual or cumulative total return" and may compare the performance of the Portfolios with that of other mutual funds with similar investment objectives as listed in rankings prepared by Lipper Analytical Services, Inc., or similar independent services monitoring mutual fund performance, and with appropriate securities or other relevant indices. The "average annual total return" of a Portfolio refers to the average annual compounded rate of return over the stated period that would equate an initial investment in that Portfolio at the beginning of the period to its ending redeemable value, assuming reinvestment of all dividends and distributions and deduction of all recurring charges, other than charges and deductions which may be imposed under the Contracts. Performance figures will be given for the recent one, five and ten year periods and for the life of the Portfolio if it has not been in existence for any such periods. When considering "average annual total return" figures for periods longer than one year, it is important to note that a Portfolio's annual total return for any given year might have been greater or less than its average for the entire period. "Cumulative total return" represents the total change in value of an investment in a Portfolio for a specified period (again reflecting changes in Portfolio share prices and assuming reinvestment of Portfolio distributions). The methods used to calculate "average annual and cumulative total return" are described further in the Statement of Additional Information. The performance of each Portfolio will vary from time to time in response to fluctuations in market conditions, interest rates, the composition of the Portfolio's investments and expenses. Consequently, a Portfolio's performance figures are historical and should not be considered representative of the performance of the Portfolio for any future period. Such performance does not reflect fees and charges imposed under the Contracts, which fees and charges will reduce such performance figures; therefore, these figures may be of limited use for comparative purposes. No Portfolio will use information concerning its investment performance in advertisements or sales materials unless appropriate information concerning the relevant separate account is also included. PRIOR PERFORMANCE OF EACH ADVISER The following table provides information concerning the historical performance of another registered investment company managed by each Adviser, that has investment objectives, -24- policies, strategies and risks substantially similar to those of its respective Portfolio(s) of the Trust. The data is provided to illustrate the past performance of each Adviser in managing a substantially similar investment vehicle as measured against specified market indices and does not represent the future performance of any of the Portfolios 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. Each Adviser's performance data shown below for the [name of other fund] was calculated in accordance with standards proscribed by the SEC for the calculation of average annual total return information for registered investment companies. Share prices and investment returns will fluctuate reflecting market conditions as well as changes in company-specific fundamentals of portfolio securities. In the table below, the only account that is included is another registered investment company, i.e., [name of other fund] that is managed by the Adviser. However, such other investment company may be subject to different expenses than the Portfolios. The investment results of [name of other fund] presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Portfolios or an individual investor investing in such Portfolios. NAME OF PORTFOLIO [NAME OF [S&P 500 YEAR OTHER FUND1, 2] INDEX3] One Year4 Three Years4 Five Years4 Since inception4 - ---------------------------------- [1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses.] [2 The expense ratio of [name of fund] was capped at ____% for the period __________ to __________ (reflecting annualized reimbursement of expenses of ____%). Thereafter the expense ratio declined from _____% to ____%, reflecting, in general, economies of scale associated with an increase in assets under management. The expense ratio of the [name of fund] is capped at ____% through December 31, 1996.] [3 The S&P 500 Index ("Index") is an unmanaged index containing common stocks of 500 industrial, transportation, utility and financial companies, regarded as generally representative of the U.S. stock market. The Index 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 Through December 31, 1996.] -25- 787 TRUST 787 SEVENTH AVENUE NEW YORK, NEW YORK 10019 787 Trust ("Trust") is a diversified, open-end management investment company, that offers a selection of professionally managed investment portfolios ("Portfolios"). Each Portfolio has its own investment objective and policies that are designed to meet different investment goals. This Prospectus describes the following five Portfolios currently offered by the Trust. * T. Rowe Price International Stock Portfolio * T. Rowe Price Equity Income Portfolio * Putnam Growth and Income Portfolio * Putnam International Growth Portfolio * MFS Research Portfolio The Trust offers two classes of shares on behalf of each Portfolio: Class IA shares, offered pursuant to another prospectus, and Class IB shares offered hereby. This Prospectus sets forth concisely the information about the Trust and the Portfolios that a prospective investor should know before investing. Please read the Prospectus and retain it for future reference. Additional information contained in a Statement of Additional Information also dated __________, 1997 has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to the Trust at the address noted above or calling 1-800-__________. The Statement of Additional Information is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Date of This Prospectus is ________________, 1997. THE TRUST The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"). As a "series" type of mutual fund, the Trust issues shares of beneficial interest that are currently divided among five Portfolios. Each Portfolio is a separate diversified series of the Trust with its own objective and policies. The Trustees of the Trust may establish additional Portfolios at any time. Each Portfolio is managed by EQ Financial Consultants, Inc. ("Manager") which directs the day-to-day operations of each Portfolio. Rowe Price-Fleming International, Inc., T. Rowe Price Associates, Inc., Putnam Investment Management, Inc., and Massachusetts Financial Services Company serve as the advisers (each an "Adviser" and, together the "Advisers") to one or more of the Portfolios, as detailed in the table below. PORTFOLIO ADVISER T. Rowe Price International Stock Rowe Price-Fleming International, Portfolio Inc. T. Rowe Price Equity Income T. Rowe Price Associates, Inc. Portfolio Putnam Growth and Income Putnam Investment Management, Portfolio Inc. Putnam International Growth Putnam Investment Management, Portfolio Inc. MFS Research Portfolio Massachusetts Financial Services Company The Trust offers two classes of shares on behalf of each Portfolio: Class IA shares and Class IB shares. Equitable Distributors, Inc. ("Distributor") serves as the distributor for the Class IB shares of the Trust offered by this Prospectus. 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 (collectively, the "Contracts") issued by The Equitable Life Assurance Society of the United States ("Equitable"). Both classes of shares are offered and redeemed at their net asset value without the imposition of any sales load. Class IA shares are offered pursuant to another prospectus and are subject to the same expenses as the Class IB shares, but unlike the Class IB shares they are not subject to distribution fees imposed pursuant to a distribution plan. Class IB shares are subject to distribution fees imposed under a distribution plan (the "Distribution Plan") adopted pursuant to Rule 12b-1 under the -2- 1940 Act. Inquiries regarding Class IA shares should be addressed to Equitable, at 1290 Avenue of the Americas, New York, NY 10104 (Attention: ____________). INVESTMENT OBJECTIVES AND POLICIES The following is a brief description of the investment objectives and policies of each of the Portfolios. All of the objectives and policies of each Portfolio, unless otherwise noted, are not fundamental and may be changed by the Board of Trustees of the Trust without the approval of shareholders. Certain investment strategies and instruments discussed below are described in greater detail in the Statement of Additional Information. Because of the uncertainty inherent in all investments, there can be no assurance that the Portfolios will be able to achieve their respective investment objectives. T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO The investment objective of the T. Rowe Price International Stock Portfolio is to seek long-term growth of capital through investment primarily in common stocks of established non-U.S. companies. The Adviser intends to invest substantially all of the Portfolio's assets outside the United States and to diversify broadly among countries throughout the world--developed, newly industrialized and emerging--by having at least five different countries represented in the Portfolio. The Portfolio may invest in countries of the Far East and Europe as well as South Africa, Australia, Canada, and other areas (including developing countries). No more than 20% of the Portfolio's net assets will be invested in securities of issuers located in any one country with the exception of issuers located in Australia, Canada, France, Japan, the United Kingdom or Germany (where the investment limitation is 35%). In determining the appropriate distribution of investments among various countries and geographic regions, the Adviser ordinarily considers the following factors: prospects for relative economic growth between foreign countries; expected levels of inflation; government policies influencing business conditions; the outlook for currency relationships; and the range of individual investment opportunities available to international investors. The Portfolio expects to invest substantially all of its assets in common stocks. However, the Portfolio may also invest in a variety of other equity-related securities (such as preferred stocks, warrants and convertible securities) as well as corporate and governmental debt securities, when considered consistent with the Portfolio's investment objective and program. The Portfolio may also invest in certain foreign investment portfolios or trusts commonly referred to as passive foreign investment companies. These entities have been authorized by the governments of certain countries specifically to permit foreign investment in securities of companies listed or traded on the stock exchanges in those countries. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and engaging in foreign currency exchange contracts and may invest up to 10% of its total assets in hybrid instruments, which are a type of high-risk instrument that can combine the characteristics of securities, futures contracts and options. -3- Under normal conditions, the Portfolio's investment in securities other than common stocks is limited to no more than 35% of its total assets. However, for temporary defensive purposes, the Portfolio may invest all or a significant portion of its assets in United States government securities and corporate debt obligations. The Portfolio will not purchase any debt security which, at the time of purchase, is rated below investment grade by a nationally recognized statistical rating organization ("NRSRO"). This restriction would not prevent the Portfolio from retaining a security downgraded to below investment grade after purchase. In addition, the Portfolio may invest without limitation in high-quality U.S. and foreign dollar-denominated money market securities for temporary defensive purposes or to meet redemption requests. In analyzing companies for investment, the Adviser uses a "bottom up" approach. A company's prospects for achieving and sustaining above-average, long-term earnings growth is generally the Adviser's primary focus. However the Adviser also considers certain other factors in making its investment decisions, including: above-average earnings growth per share; high return on invested capital; healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research, product development and marketing; efficient service; pricing flexibility; strength of management; and general operating characteristics that should enable the companies to compete successfully in their market place. While current dividend income is not a prerequisite in the selection of portfolio companies, the companies in which the Portfolio invests normally will have a record of paying dividends, and will generally be expected to increase the amounts of such dividends in future years as earnings increase. It is expected that the Portfolio's investments will ordinarily be made on exchanges located at least in the respective countries in which the various issuers of such securities are principally based. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, hybrid instruments, foreign securities, foreign currency transactions, passive foreign investment companies, securities loans and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. T. ROWE PRICE EQUITY INCOME PORTFOLIO The investment objective of the T. Rowe Price Equity Income Portfolio is to seek to provide substantial dividend income and also capital appreciation by investing primarily in dividend-paying common stocks of established companies. In pursuing its objective, the Portfolio emphasizes companies with favorable prospects for increasing dividend income and capital appreciation. Over time, the income component (dividends and interest earned) of the Portfolio's investments is expected to be a significant contributor to the Portfolio's total return. The Portfolio's yield is expected to be significantly above that of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). Total return will consist primarily of dividend income and secondarily of capital appreciation (or depreciation). -4- The investment program of the Portfolio is based on several premises. First, the Adviser believes that over time, dividend income can account for a significant component of the total return from equity investments. Second, dividends are normally a more stable and predictable source of return than capital appreciation. While the price of a company's stock generally increases or decreases in response to short-term earnings and market fluctuations, its dividends are generally less volatile. Finally, the Adviser believes that stocks that distribute a high level of current income tend to have less price volatility than those that pay below average dividends. Under normal circumstances, the Portfolio will invest at least 65% of its total assets in income-producing common stocks of established companies paying above-average dividends. The Adviser uses a "value" approach and invests in common stocks and other equities-related securities it believes are temporarily undervalued by various measures, such as price/earnings ratios. The Portfolio's investments will generally be made in companies that share some of the following characteristics: established operating histories; above-average current dividend yields relative to the S&P 500; low price/earnings ratios relative to the S&P 500; sound balance sheets and other financial characteristics; and low stock price relative to company's underlying value as measured by assets, earnings, cash flow or business franchises. Although the Portfolio will invest primarily in U.S. common stocks, it may also purchase other types of securities (for example, foreign securities, preferred stocks, convertible securities and warrants) when considered consistent with the Portfolio's investment objective and program. The Portfolio may invest up to 25% of its total assets in foreign securities. These include non- dollar denominated securities traded outside the U.S. and dollar-denominated securities traded in the U.S. (such as American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs")). Such investments increase a portfolio's diversification and may enhance return, but they may represent a greater degree of risk than investing in domestic securities. The Portfolio may also engage in a variety of investment practices, such as buying and selling options and futures contracts and engaging in foreign currency exchange transactions. In addition, the Portfolio may invest up to 10% of its total assets in hybrid instruments. The Portfolio may also invest a portion of its assets in United States government securities and high-quality United States and foreign dollar-denominated money market securities (i.e., within the two highest rating categories assigned by a NRSRO) including certificates of deposit, bankers' acceptances, commercial paper, short-term corporate securities and repurchase agreements. For temporary defensive purposes or to meet redemption requests, the Portfolio may invest without limitation in such securities. The Portfolio may also invest in debt securities of any type including municipal securities, without regard to quality or rating. Such securities would be purchased in companies that meet the investment criteria for the Portfolio. The price of a bond generally fluctuates with changes in interest rates, rising when interest rates fall and falling when interest rates rise. The Portfolio, however, will not invest more than 10% of its total assets in securities rated below investment grade (commonly known as "junk bonds"). -5- Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, foreign securities, hybrid instruments, securities loans, illiquid securities and junk bonds) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. PUTNAM GROWTH AND INCOME PORTFOLIO The investment objective of the Putnam Growth and Income Portfolio is capital growth. Current income is a secondary objective. The Adviser intends to invest primarily in common stocks that offer potential for capital growth and may, consistent with the Portfolio's investment objective, invest in common stocks that offer potential for current income. The Portfolio may also purchase corporate bonds, notes and debentures, preferred stocks and convertible securities (which include both debt securities and preferred stocks). The types of securities held by the Portfolio may vary from time to time in light of the Portfolio's investment objective, changes in interest rates, and economic and other factors. In analyzing companies for investment, the Adviser will seek to identify companies whose securities are significantly undervalued in relation to their underlying asset values or earnings potential. Attractively priced, dividend-paying common stocks that offer the strongest potential for total return are generally the primary investments of this Portfolio. At times, the Adviser may judge that conditions in the securities markets may make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of the Portfolio's shareholders. At such times, the Adviser may temporarily use alternative strategies that are primarily designed to reduce fluctuations in the value of the Portfolio's assets. In implementing these defensive strategies, the Portfolio may invest without limit in debt securities or preferred stocks, or may invest in any other securities the Adviser considers consistent with such defensive strategies. It is impossible to predict when, or for how long, the Adviser will use these alternative defensive strategies. The Portfolio may invest up to 20% of its total assets in foreign securities. The Portfolio may also purchase Eurodollar certificates of deposit (i.e., short-term time deposits issued by European banks) without regard to this 20% limit. Such investments increase the Portfolio's diversification and may enhance return, but they may represent a greater degree of risk than investing in domestic securities. In addition, the Portfolio may also invest a portion of its assets in United States government securities and high-quality United States and foreign dollar-denominated money market securities (i.e., within the two highest rating categories assigned by a NRSRO) including certificates of deposit, bankers' acceptances, commercial paper, short-term corporate securities and repurchase agreements. For temporary defensive purposes or to meet redemption requests, the Portfolio may invest without limitation in such securities. -6- The Portfolio may also invest in investment grade debt securities and may invest a portion of its total assets in debt securities rated below investment grade (commonly known as "junk bonds"). The price of a bond generally fluctuates with changes in interest rates, rising when interest rates fall and falling when interest rates rise. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and engaging in foreign currency exchange contracts. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, hybrid instruments, foreign securities, securities loans, illiquid securities, "zero-coupon" bonds, "payment-in-kind" bonds, and junk bonds) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. PUTNAM INTERNATIONAL GROWTH PORTFOLIO The investment objective of the Putnam International Growth Portfolio is capital appreciation. The Portfolio is designed for investors seeking capital appreciation primarily through a diversified portfolio of equity securities of companies located outside North America. Such equity securities normally will include common stocks, preferred stocks, securities convertible into common or preferred stocks, and warrants. The Portfolio may also invest to a lesser extent in debt securities and other types of investments if the Adviser believes that purchasing them would help to achieve the Portfolio's objective. The Portfolio may hold a portion of its assets in cash or money market instruments. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and engaging in foreign currency exchange contracts. Under normal circumstances the Portfolio will invest at least 65% of its assets in issuers located in at least three different countries outside North America. The Portfolio will consider an issuer to be located outside North America if (i) the issuer is organized under the laws of a country outside North America and (ii) if the issuer derives 50% or more of its total revenues from business outside North America. The Portfolio may invest in securities of issuers in emerging markets, as well as more developed markets. Investing in securities of issuers in emerging markets generally involves more risks than investing in securities of issuers in developed markets. The Adviser believes that the securities markets of many countries move relatively independently of one another because business cycles and other economic or political events that influence one country's securities markets may have little effect on securities markets in other countries. By investing in a diversified portfolio of securities of issuers located in different foreign countries, the Adviser attempts to reduce the risks associated with being invested in the securities of issuers within the economy of only one country. Countries that the Adviser believes offer attractive opportunities for investment may change from time to time. -7- The Portfolio will not limit its investments to any particular type of company. The Portfolio may invest in companies, large or small, whose earnings are believed by the Adviser to be in a relatively strong growth trend or it may invest in companies that are not expected to experience significant further growth but whose market value per share is considered by the Adviser to be undervalued. The Portfolio also may invest in small and relatively less well-known companies that meet these characteristics. At times, the Adviser may believe that conditions in the international securities markets may make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of its shareholders. At such times, the Portfolio may temporarily use alternative strategies that are primarily designed to reduce fluctuations in the value of the Portfolio's assets. In implementing these defensive strategies, the Portfolio may invest, without limitation, in securities of any kind, including securities traded primarily in United States markets and in cash and money market instruments. It is impossible to predict when, or for how long, the Portfolio will use these alternative strategies. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, foreign securities, foreign currency transactions, securities loans and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MFS RESEARCH PORTFOLIO The investment objective of the MFS Research Portfolio is to provide long-term growth of capital and future income. In pursuing its objective, the Portfolio invests a substantial portion of its assets in the common stock or securities convertible into common stock of companies believed by the Adviser to possess better than average prospects for long-term growth. A smaller proportion of the assets of the Portfolio may be invested in bonds, short-term debt obligations, preferred stocks or common stocks whose principal characteristic is income production rather than growth. Such securities may also offer opportunities for growth of capital as well as income. In the case of both growth stocks and income securities, the Adviser emphasizes progressive, well-managed companies. Investment research analysts in the Adviser's Equity Research Group select the portfolio securities of the Portfolio. The assets of the Portfolio are allocated to specific industry groups (e.g., pharmaceuticals, retail and computer software) depending on the determinations made by the Adviser's investment research analysts as a group. Individual analysts for each industry group are responsible for selecting those securities within their particular industry group that they consider to be the best suited to meet the objective of the Portfolio. In addition, the Adviser, from time to time, will exercise its judgment with respect to the proportion of assets of the Portfolio invested in growth stocks, income producing securities or cash (including foreign currency) and cash equivalents, depending on the Adviser's view of the relative attractiveness of each type of security. -8- To the extent that such investments comply with the Portfolio's investment objective, the Portfolio may invest up to 20% of its total assets in foreign securities, including those in emerging markets. These securities include non-United States dollar-denominated securities traded outside the United States and dollar denominated securities traded in the United States (such as ADRs). Such foreign investments increase a portfolio's diversification and may enhance return, but they may represent a greater degree of risk than investing exclusively in domestic securities. The Portfolio may invest in investment grade debt securities and may invest up to 10% of its total assets in securities rated below investment grade (commonly known as "junk bonds"). The price of a bond generally fluctuates with changes in interest rates, rising when interest rates fall and falling when interest rates rise. Certain investment strategies and practices which may be employed by the Portfolio (such as foreign securities, repurchase agreements, forward commitments, securities loans, illiquid securities and junk bonds) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. INVESTMENT STRATEGIES In addition to making investments directly in securities, to the extent described above, each of the Portfolios (except for MFS Research Portfolio) may purchase and sell call and put options, engage in transactions in futures contracts and related options, and invest in hybrid instruments. All of the Portfolios may engage in forward foreign currency exchange transactions and may invest in ADRs, EDRs and other similar instruments. They may also enter into repurchase agreements, make forward commitments to purchase securities, lend their portfolio securities, and borrow funds under certain limited circumstances. The investment strategies and instruments referred to above and the risks related to them are summarized below and certain of these strategies and instruments are described in more detail in the Statement of Additional Information. OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research Portfolio) may invest in futures contracts and options. Futures (a type of potentially high-risk security) enable the investor to buy or sell an asset in the future at an agreed upon price. Options (another type of potentially high-risk security) give the investor the right, but not the obligation, to buy or sell an asset at a predetermined price in the future. Each Portfolio may utilize futures contracts and related options for other than hedging purposes to the extent that aggregate initial margin deposits and premiums paid do not exceed 5% of the Portfolio's net assets. Each Portfolio 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. 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 -9- efficient means of adjusting its overall exposure to certain markets; in an effort to enhance income; and to protect the value of portfolio securities. Each Portfolio may purchase, sell, or write call and put options on securities, financial indices, and foreign currencies. The risk of loss in trading futures contracts can be substantial because of the low margin deposits required and the extremely high degree of leveraging involved in futures pricing. As a result, a relatively small price movement in a futures contract may cause an immediate and substantial loss or gain. The primary risks associated with the use of futures contracts and options are: (i) imperfect correlation between the change in market value of the stocks held by a Portfolio and the prices of futures contracts and options; and (ii) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures position prior to its maturity date. HYBRID INSTRUMENTS. Each Portfolio (except the MFS Research Portfolio) may invest in hybrid instruments. Hybrid instruments have recently been developed and combine the elements of futures contacts or options with those of debt, preferred equity or a depository instrument. Often these hybrid instruments are indexed to the price of a commodity, particular currency, or a domestic or foreign debt or equity securities index. Hybrid instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. Hybrid instruments may bear interest or pay dividends at below market (or even relatively nominal) rates. Under certain conditions, the redemption value of such an instrument could be zero. Hybrid instruments can have volatile prices and limited liquidity and their use by a Portfolio may not be successful. FOREIGN SECURITIES. Foreign investments involve certain risks that are not present in domestic securities. Because each of the Portfolios may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of a Portfolio's assets and income. In addition, although a portion of a Portfolio's investment income may be received or realized in such currencies, the Portfolio will be required to compute and distribute its income in U.S. dollars. Therefore, if the exchange rate for any such currency declines after a Portfolio's income has been earned and computed in U.S. dollars but before conversion and payment, the Portfolio could be required to liquidate portfolio securities to make such distributions. 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 U.S. 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 U.S. and foreign interest rates. -10- There may be less information publicly available about a foreign issuer than about a U.S. issuer, and a foreign issuer is not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the U.S. 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 U.S. markets and a Portfolio's investment securities may be less liquid and subject to more rapid and erratic price movements than securities of comparable U.S. companies. Equity securities may trade at price/earnings multiples higher than comparable U.S. securities and such levels may not be sustainable. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the U.S. Moreover, settlement practices for transactions in foreign markets may differ from those in U.S. markets. Such differences may include delays beyond periods customary in the U.S. and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to the Portfolio. In less liquid and well developed stock markets, such as those in some Asian and Latin American countries, volatility may be heightened by actions of a few major investors. For example, substantial increases or decreases in cash flows of mutual funds investing in these markets could significantly affect stock prices and, therefore, share prices. Foreign brokerage commissions, custodial expenses and other fees are also generally higher than for securities traded in the United States. Consequently, the overall expense ratios of international funds are usually somewhat higher than those of typical domestic stock funds. In addition, the economies, markets and political structures of a number of the countries in which the Portfolios can invest do not compare favorably with the United States and other mature economies in terms of wealth and stability. Therefore, investments in these countries may be riskier, and will be subject to erratic and abrupt price movements. Some economies are less well developed and less diverse (for example, Latin America, Eastern Europe and certain Asian countries), and more vulnerable to the ebb and flow of international trade, trade barriers and other protectionist or retaliatory measures (for example, Japan, southeast Asia and Latin America). Some countries, particularly in Latin America, are grappling with severe inflation and high levels of national debt. 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. FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios may purchase foreign currency on a spot (or cash) basis, and may enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts"). Each of the Portfolios (except MFS Research Portfolio) may also purchase and sell foreign currency futures contracts and may purchase exchange traded and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. 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"). -11- Hedging transactions involve costs and may result in losses. Each of the Portfolios (except MFS Research Portfolio) may also write covered call options on foreign currencies to offset some of the costs of hedging those currencies. A Portfolio will engage in over-the-counter options transactions on foreign currencies only when appropriate exchange traded transactions are unavailable and when, in the Adviser's opinion, the pricing mechanism and liquidity are satisfactory and the participants are responsible parties likely to meet their contractual obligations. A Portfolio's ability to engage in hedging and related option transactions may be limited by tax considerations. Transactions and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Portfolios own or intend to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in the value of such currency. PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock Portfolio may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Such entities have been the only or primary way to invest in certain countries. In addition to bearing their proportionate share of the Trust's expenses (management fees and operating expenses), shareholders will also indirectly bear similar expenses of such entities. AMERICAN AND EUROPEAN DEPOSITARY RECEIPTS. The Portfolios may purchase foreign securities in the form of ADRs, EDRs or other securities convertible into securities of corporations in which the Portfolios are permitted to invest pursuant to their respective investment objectives and policies. These securities may not necessarily be denominated in the same currency into which they may be converted. ADRs are receipts typically issued by a United States bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe typically by banks or depositories which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in United States securities markets and EDRs, in bearer form, are designed for use in European securities markets. BORROWINGS. The Portfolios may borrow money from banks or other lenders as a temporary measure for emergency purposes, to facilitate redemption requests, or for other purposes consistent with each Portfolio's investment objective and program. Borrowings for the T. Rowe Price International Stock and T. Rowe Price Equity Income Portfolios may not exceed 33 1/3% of any Portfolio's total assets. Borrowings for the Putnam Growth and Income Portfolio and the Putnam International Growth Portfolio may not exceed 10% of each Portfolio's total assets. Borrowings for the MFS Research Portfolio may not exceed 5% of such Portfolio's total assets. Each Portfolio may pledge its assets to secure these permissible borrowings. No Portfolio may purchase additional securities when its borrowings exceed 5% of its total assets. -12- REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements with a bank, broker-dealer or other financial institution as a means of earning a fixed rate of return on its cash reserves for periods as short as overnight. A repurchase agreement is a contract pursuant to which a Portfolio, against receipt of securities of at least equal value including accrued interest, agrees to advance a specified sum to the financial institution which agrees to reacquire the securities at a mutually agreed upon time (usually one day) and price. Each repurchase agreement entered into by a Portfolio will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest. A Portfolio's right to liquidate such securities in the event of a default by the seller could involve certain costs, losses or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase are less than the repurchase price, the Portfolio could suffer a loss. FORWARD COMMITMENTS. Each Portfolio may make contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") if it holds, and maintains until the settlement date in a segregated account, cash or high-grade debt obligations 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. SECURITIES LOANS. The T. Rowe Price International Stock and T. Rowe Price Equity Income Portfolios may seek to obtain additional income by making secured loans of portfolio securities with a value up to 331/3% of their respective total assets. The Putnam Growth and Income Portfolio and Putnam International Growth Portfolio may lend portfolio securities amounting to not more than 25% of their respective total assets. The MFS Research Portfolio may lend portfolio securities in an amount up to 30% of its total assets. All securities loans will be made pursuant to agreements requiring the loans to be continuously secured by collateral in cash or high-grade debt obligations at least equal at all times to the market value of the loaned securities. The borrower pays to the Portfolios an amount equal to any dividends or interest received on loaned securities. The Portfolios retain all or a portion of the interest received on investment of cash collateral or receives 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. ILLIQUID SECURITIES. The MFS Research Portfolio may invest up to 10% of its assets and each other Portfolio may invest up to 15% of their respective net assets in illiquid securities and other securities which are not readily marketable, including non-negotiable time deposits, certain restricted securities not deemed by the Trust's Board of Trustees to be liquid, and repurchase agreements with maturities longer than seven days. Securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933, as amended, which have been determined by the -13- Board of Trustees to be liquid, will not be considered by the Adviser to be illiquid or not readily marketable and, therefore, are not subject to the 15% limit. The inability of a Portfolio to dispose of illiquid or not readily marketable investments readily or at a reasonable price could impair the Portfolio's ability to raise cash for redemptions or other purposes. The liquidity of securities purchased by a Portfolio which are eligible for resale pursuant to Rule 144A will be monitored by each Portfolio's Adviser on an ongoing basis, subject to the oversight of the Board of Trustees of the Trust. In the event that such a security is deemed to be no longer liquid, a Portfolio's holdings will be reviewed to determine what action, if any, is required to ensure that the retention of such security does not result in a Portfolio's having more than 15% of its assets invested in illiquid or not readily marketable securities. INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio (except the T. Rowe Price International Stock Portfolio) may invest a portion of its total assets in investment grade and lower quality fixed income securities. Investment grade fixed income securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Service ("S&P") and comparable unrated securities, while normally exhibiting adequate protection parameters, have speculative characteristics; consequently, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade fixed income securities. Fixed income investments that are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's or BB or lower by S&P) or are unrated securities of comparable quality are known as "junk bonds" and are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Each NRSRO's descriptions of these bond ratings are set forth in the Appendix to the Statement of Additional Information. Because investment in these lower quality junk bonds 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 junk bonds 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 junk bonds may be less liquid than the market for investment grade bonds. This potential lack of liquidity may make it more difficult for the Adviser to value accurately certain portfolio securities. PAYMENT-IN-KIND BONDS. The Putnam Growth and Income Portfolio may invest in payment-in- kind bonds. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. The value of payment-in-kind bonds is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, the Portfolio is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Putnam Growth and Income Portfolio could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. -14- ZERO-COUPON BONDS. The Putnam Growth and Income Portfolio may invest in zero-coupon bonds. Zero-coupon bonds are issued at a significant discount from their principal amount and pay interest only at maturity rather than at intervals during the life of the security. The value of zero-coupon bonds is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest in cash currently. Zero-coupon bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, the Portfolio is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Putnam Growth and Income Portfolio could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Portfolio is known as "portfolio turnover." Each Portfolio's turnover rate is not expected to exceed 100% during its first year of operation. A high turnover rate increases transaction costs (e.g., brokerage commissions) and increases realized gains and losses. MANAGEMENT OF THE TRUST THE BOARD OF TRUSTEES The Board of Trustees of the Trust provides broad supervision over the business and affairs of the Portfolios and the Trust as provided in the Trust's Declaration of Trust and By-Laws. THE MANAGER The Trust is managed by EQ Financial Consultants, Inc. which, subject to the supervision and direction of the Trustees of the Trust, has overall responsibility for the general management and administration of the Trust. The Manager is an investment adviser registered under the Investment Advisers Act of 1940, as amended, and a broker-dealer registered under the Securities Exchange Act of 1934, as amended ("1934 Act"). The Manager currently furnishes specialized investment advice to other clients, including individuals, pension and profit sharing plans, trusts, charitable organizations, corporations and other business entities. The Manager is a Delaware corporation and an indirect, wholly-owned subsidiary of Equitable, a New York stock life insurance company. The Manager is responsible for providing investment management and administrative services to the Trust and in the exercise of such responsibility selects the investment advisers for the Trust's Portfolios and monitors the Advisers' investment programs and results, reviews brokerage matters, oversees compliance by the Trust with various federal and state statutes, and carries out the directives of the Board of Trustees. The Manager is responsible for providing the Trust with office space, office equipment, and personnel necessary to operate and administer the -15- Trust's business, and also supervises the provision of services by third parties such as the Trust's custodian. As compensation for managing the T. Rowe Price Equity Income Portfolio, the Trust pays the Manager a monthly fee at the annual rate of .80% of the Portfolio's average daily net assets. As compensation for managing the T. Rowe Price International Stock Portfolio, the Trust pays the Manager a monthly fee at the annual rate equal to: 1.15% of the Portfolio's average daily net assets up to and including $20 million; 1.00% of the Portfolio's average daily net assets over $20 million and up to and including $50 million; and .90% of the Portfolio's average daily net assets in excess of $50 million. As compensation for managing the Putnam Growth and Income Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal to: .90% of the Portfolio's average daily net assets up to and including $150 million; .85% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .75% of the Portfolio's average daily net assets in excess of $300 million. As compensation for managing the Putnam International Growth Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal to: 1.05% of the Portfolio's average daily net assets up to and including $150 million; .95% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .85% of the Portfolio's average daily net assets in excess of $300 million. As compensation for managing the MFS Research Portfolio, the Trust pays the Manager a monthly fee at an annual rate equal to: .80% of the Portfolio's average daily net assets up to and including $150 million; .775% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .75% of the Portfolio's average daily net assets in excess of $300 million. The management fees paid by the Portfolios, although higher than the fees paid by other investment companies in general, are comparable to management fees paid for similar services by many investment companies with similar investment objectives and policies. From the management fees, the Manager pays the expenses of providing investment advisory services to the Portfolios, including the fees of the Adviser of each Portfolio. In addition to the management fees, the Trust pays all expenses not assumed by the Manager, including, without limitation: the fees and expenses of its independent auditors 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 -16- Class IB shares may pay for certain distribution related expenses in connection with activities primarily intended to result in the sale of its shares. THE ADVISERS Pursuant to an investment advisory agreement with the Manager, each Adviser to a Portfolio furnishes continuously an investment program for the Portfolio, makes investment decisions on behalf of the Portfolio, places all orders for the purchase and sale of investments for the Portfolio's account with brokers or dealers selected by such Adviser and may perform certain limited related administrative functions in connection therewith. For its services, the Manager pays each Adviser a fee based on a percentage of the average daily net assets of the Portfolio that it advises. The Trust has filed an exemptive application with the Securities and Exchange Commission ("SEC") that would permit the Trust's Board of Trustees, in consultation with the Manager and without the approval of shareholders to: (a) employ a new Adviser for any Portfolio pursuant to the terms of a new Advisory Agreement, 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 contact terms where a contract has been assigned because of a change in control of the Adviser. Shareholders would receive notice of such action, including the information concerning the Adviser that normally is provided in the Prospectus. There can be no assurance that the SEC will grant the Trust's application. T. Rowe Price Associates, Inc. ("T. Rowe Price") is the Adviser to the T. Rowe Price Equity Income Portfolio. As compensation for services as the Portfolio's Adviser, the Manager pays T. Rowe Price a monthly fee at the annual rate of .40% of the Portfolio's average daily net assets. T. Rowe Price was incorporated in Maryland in 1947 as successor to the investment counseling business founded by the late Thomas Rowe Price, Jr., in 1937. As of December 31, 1996, T. Rowe Price and its affiliates managed more than $__ billion of assets. T. Rowe Price serves as investment manager to a variety of individual and institutional investor accounts, including limited and real estate partnerships and other mutual funds. Investment decisions with respect to the T. Rowe Price Equity Income Portfolio are made by an Investment Advisory Committee composed of the following members: Brian C. Rogers, Chairman, Thomas H. Broadus, Jr., Richard P. Howard, and William J. Stromberg. The Committee Chairman has day-to-day responsibility for managing the Portfolio and works with the Committee in developing and executing the Portfolio's investment program. Mr. Rogers has been Chairman of the Committee since 1993. He joined T. Rowe Price in 1982 and has been managing investments since 1983. Rowe Price-Fleming International, Inc. ("Price-Fleming") is the Adviser to the T. Rowe Price International Stock Portfolio. As compensation for services as the Portfolio's Adviser, the Manager pays Price-Fleming a monthly fee at the annual rate equal to: .75% of the Portfolio's average daily net assets up to and including $20 million; .60% of the Portfolio's average daily -17- net assets over $20 million and up to and including $50 million; and .50% of the Portfolio's average daily net assets in excess of $50 million. Price-Fleming was incorporated in Maryland in 1979 as a joint venture between T. Rowe Price and Robert Fleming Holdings Limited ("Flemings"). As of December 31, 1996, Price-Fleming managed the U.S. equivalent of approximately $___ billion. Flemings was incorporated in 1974 in the United Kingdom as successor to the business founded by Robert Fleming in 1873. Flemings is a diversified investment organization which participates in a global network of regional investment offices in New York, London, Zurich, Geneva, Tokyo, Hong Kong, Manila, Kuala Lumpur, South Korea and Taiwan. The common stock of Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings and 25% by Jardine Fleming Group Limited ("Jardine Fleming"). (Half of Jardine Fleming is owned by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of the board of directors of Price-Fleming, and Flemings has the right to elect the remaining directors, one of whom will be nominated by Jardine Fleming. Investment decisions with respect to the T. Rowe Price International Stock Portfolio are made by an investment advisory group composed of the following members: Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Richard J. Bruce, Mark J. T. Edwards, John R. Ford, Robert C. Howe, James B. M. Seddon, Benedict R. F. Thomas and David J. L. Warren. Martin Wade joined Price-Fleming in 1979 and has 27 years of experience with the Fleming Group in research, client service and investment management. (Fleming Group includes Flemings and/or Jardine Fleming.) Christopher Alderson joined Price-Fleming in 1988 and has 10 years of experience with the Fleming Group in research and portfolio management. Peter Askew joined Price-Fleming in 1988 and has 21 years of experience managing multi-currency fixed income portfolios. Richard Bruce joined Price-Fleming in 1991 and has eight years of experience in investment management with the Fleming Group in Tokyo. Mark Edwards joined Price-Fleming in 1986 and has 15 years of experience in financial analysis. John Ford joined Price-Fleming in 1982 and has 16 years of experience with Fleming Group in research and portfolio management. Robert Howe joined Price Fleming in 1986 and has 15 years of experience in economic research, company research and portfolio management. James Seddon joined Price-Fleming in 1987 and has nine years of experience in investment management. Benedict Thomas joined Price-Fleming in 1988 and has seven years of portfolio management experience. David Warren joined Price-Fleming in 1984 and has 16 years of experience in equity research, fixed income research and portfolio management. Putnam Investment Management, Inc. ("Putnam Management") is the adviser to the Putnam Growth and Income Portfolio and Putnam International Growth Portfolio. As compensation for services as the Putnam Growth and Income Portfolio's Adviser, the Manager pays Putnam Management a monthly fee at an annual rate equal to: .50% of the Portfolio's average daily net assets up to and including $150 million; .45% 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. As compensation for services as the Putnam International Growth Portfolio's Adviser, the Manager pays Putnam Management a monthly fee at the annual -18- rate equal to: .65% of the Portfolio's average daily net assets up to and including $150 million; .55% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .45% of the Portfolio's average daily net assets in excess of $300 million. Putnam Management was incorporated in ___________, and has been managing mutual funds since 1937. As of December 31, 1996, Putnam Management managed more than $___ billion of assets. Putnam Management is a subsidiary of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly-owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. Anthony I. Kreisel is responsible for the day-to-day management of the Putnam Growth and Income Portfolio, which includes investment decisions made on behalf of the Portfolio. Mr. Kreisel has been employed by Putnam Management as an investment professional since 1986. Justin Scott is responsible for the day-to-day management of the Putnam International Growth Portfolio, which includes investment decisions made on behalf of the Portfolio. Mr. Scott has been employed by Putnam Management as an investment professional since 1988. Massachusetts Financial Services Company ("MFS") is the adviser to the MFS Research Portfolio. As compensation for services as the Portfolio's Adviser, the Manager pays MFS a monthly fee at an annual rate equal to: .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 will waive its management fees for the first six months after the commencement of the Portfolio's investment 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. As of December 31, 1996, MFS managed more than $___ billion on behalf of over 1.8 million investors accounts. MFS is a wholly-owned subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned subsidiary of Sun Life Assurance Company of Canada. The Portfolio is currently managed by a committee comprised of various equity research analysts employed by MFS. MFS has established a strategic alliance with Foreign & Colonial Management Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's oldest financial services institutions, the London-based Foreign & Colonial Investment Trust PLC, which pioneered the idea of investment management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest publicly listed bank in Germany, founded in 1835. As part of this alliance, the portfolio managers and investment analysts of MFS and Foreign & Colonial share their views on a variety of investment related issues, such as the economy, securities markets, portfolio securities and their issuers, investment recommendations, strategies and techniques, risk analysis, trading strategies and other portfolio management matters. -19- THE ADMINISTRATOR Pursuant to an administrative agreement ("Administrative Services Agreement"), ______________ (the "Administrator") assists the Manager in the performance of its administrative responsibilities to the Trust and provides the Trust with other 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. For these administrative services, the Trust pays the Administrator a monthly fee at the annual rate of ___% of the average daily net assets of the Trust. 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. EXPENSE LIMITATION AGREEMENTS In the interest of limiting expenses of the Portfolios, the Manager has entered into expense limitation agreements with the Trust ("Expense Limitation Agreements"), with respect to each Portfolio, pursuant to which the Manager has agreed to waive or limit its fees and total annual operating expenses (expressed as a percentage of the Portfolios' average daily net assets) to [____]%. The Portfolios may at a later date reimburse to the Manager the management fees waived or limited and other expenses paid by the Manager pursuant to the Expense Limitation Agreements provided the Portfolios have reached a sufficient asset size to permit such reimbursement to be made without causing the total annual expense rate of each Portfolio to exceed [____]%. Consequently, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's assets exceed [$__] million; (ii) the Portfolio's total annual expense ratio is less than [____]%; and (iii) the payment of such reimbursement has been approved by the Trust's Board of Trustees on a quarterly basis. BROKERAGE PRACTICES In selecting brokers and dealers, the Manager and each Adviser may consider research and brokerage services furnished to either company and their affiliates. Subject to seeking the most favorable price and execution available, the Manager and each Adviser may also consider sales of shares of the Trust as a factor in the selection of brokers and dealers. TRANSACTIONS WITH AFFILIATES In December 1984, Equitable 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 -20- execution and clearance services to financial intermediaries including broker-dealers and banks. To the extent permitted by law, the Trust may engage in securities and other transactions with the above entities or may invest in shares of the investment companies with which those entities have affiliations. The Adviser to the T. Rowe Price International Stock and T. Rowe Price Equity Income Portfolios may execute portfolio transactions through certain affiliates of Robert Fleming Holdings Limited and Jardine Fleming Group Limited, persons indirectly related to the Adviser, acting as an agent in accordance with procedures established by the Trust's Board of Trustees. The 1940 Act generally prohibits the Trust from engaging in principal securities transactions with an affiliate of the Manager or Advisers unless pursuant to an exemptive order from the SEC. The Trust may apply for such exemptive relief. The Trust has adopted procedures, prescribed by Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which are reasonably designed to provide that any commission it pays to affiliates of the Manager or Advisers does not exceed the usual and customary broker's commission. In addition, the Trust will adhere to Section 11(a) of the 1934 Act and any applicable rules thereunder governing floor trading. The Trust has adopted procedures permitting it to purchase securities, under certain restrictions prescribed by a rule under the 1940 Act, in a public offering in which an affiliate of the Manager or Advisers is an underwriter. DESCRIPTION OF THE TRUST AND TRUST'S SHARES THE TRUST The Trust is a registered open-end management investment company that was organized as a Delaware business trust on October 31, 1996. As of __________ __, 1997, Equitable owned 100% of the shares of each Portfolio and through such ownership may be deemed a controlling person of each Portfolio. The Trust currently is divided into [five] portfolios, each of which has Class IA and Class IB shares. The Board of Trustees may establish additional portfolios and additional classes of shares. CHARACTERISTICS OF TRUST'S SHARES The Board of Trustees of the Trust has authority to issue an unlimited number of shares of beneficial interest, without par value. Each share of each class of a Portfolio shall be entitled to one vote (or fraction thereof in respect of a fractional share) on matters that such shares (or class of shares) shall be entitled to vote. Shareholders of each Portfolio shall vote together on any matter, except to the extent otherwise required by the 1940 Act, or when the Board of Trustees of the Trust has determined that the matter affects only the interest of shareholders of one or more classes, in which case only the shareholders of such class or classes shall be entitled to vote thereon. Any matter shall be deemed to have been effectively acted upon with respect to each Portfolio if acted upon as provided in Rule 18f-2 under the 1940 Act, or any successor rule, and in the Declaration of Trust. The Trust is not required to hold annual shareholder meetings, but special meetings may be called for purposes such as electing or removing -21- Trustees, changing fundamental policies or approving an investment management or advisory agreement. Under the Trust's multi-class system, shares of each class of a Portfolio represent an equal pro rata interest in that Portfolio and, generally, shall have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that: (a) each class shall have a different designation; (b) each class of shares shall bear its "Class Expenses;" (c) each class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its distribution arrangements; (d) each class shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class; (e) each class may have separate exchange privileges, although exchange privileges are not currently contemplated; and (f) each class may have different conversion features, although a conversion feature is not currently contemplated. Expenses currently designated as "Class Expenses" by the Trust's Board of Trustees under the plan pursuant to Rule 18f-3 are currently limited to payments made to the Distributor for the Class IB shares, pursuant to the Distribution Plan for the Class IB shares adopted pursuant to Rule 12b-1 under the 1940 Act. PURCHASE AND REDEMPTION OF SHARES Class IB shares are offered and redeemed, without a sales charge, at net asset value and are subject to distribution fees under the Distribution Plan. The price at which a purchase or redemption is effected is based on the next calculation of net asset value after an order is placed by an insurance company investing in or redeeming from the Trust. Net asset value per share is calculated for purchases and redemption of shares of each Portfolio by dividing the value of total Portfolio assets, less liabilities (including Trust expenses, which are accrued daily), by the total number of outstanding shares of that Portfolio. The net asset value per share of each Portfolio is determined each business day at 4:00 p.m. Eastern time. Net asset value per share is not calculated on national business holidays. The Trust has a distribution agreement for its Class IB shares with Equitable Distributors, Inc., a Delaware corporation and an indirect, wholly-owned subsidiary of Equitable pursuant to which it acts as the Distributor for the Class IB shares of the Trust. The Trust has adopted the Distribution Plan pursuant to Rule 12b-1 under the 1940 Act for the Class IB shares of the Trust. Pursuant to the Distribution Plan, the Trust compensates the Distributor 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 Distributor will be used to defray various costs incurred or paid by the Distributor in connection with the printing and mailing of Trust prospectuses, statements of additional information, any supplements thereto and shareholder reports and holding seminars and sales meetings with wholesale and retail sales personnel designed to promote the distribution of Class IB shares. The Distributor may also use -22- a portion of the amounts received to provide compensation to financial intermediaries and third-party broker-dealers for their services in connection with the distribution of Class IB shares. The Distribution Plan provides that the Trust, on behalf of each Portfolio, may pay annually up to 0.50% of the average daily net assets of a Portfolio attributable to its Class IB shares in respect of activities primarily intended to result in the sale of Class IB shares. However, under the Distribution Agreement, payments to the Distributor for activities pursuant to the Distribution Plan are limited to payments at an annual rate equal to 0.25% of average daily net assets of a Portfolio attributable to its Class IB shares. Under terms of the Distribution Plan and the Distribution Agreement, each Portfolio is authorized to make payments monthly to the Distributor which may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities' fees or expenses incurred or paid in that regard. The Distribution Plan is of a type known as a "compensation" plan because payments are made for services rendered to the Trust with respect to Class IB shares regardless of the level of expenditures by the Distributor. The Trustees will, however, take into account such expenditures for purposes of reviewing operations under the Distribution Plan and in connection with their annual consideration of the Plan's renewal. The Distributor has indicated that it expects its expenditures to include, without limitation: (a) the printing and mailing of Trust prospectuses, statements of additional information, any supplements thereto and shareholder reports for prospective Contract owners with respect to the Class IB shares of the Trust; (b) those relating to the development, preparation, printing and mailing of advertisements, sales literature and other promotional materials describing and/or relating to the Class IB shares of the Trust; (c) holding seminars and sales meetings designed to promote the distribution of Trust Class IB shares; (d) obtaining information and providing explanations to wholesale and retail distributors of Contracts regarding Trust investment objectives and policies and other information about the Trust and its Portfolios, including the performance of the Portfolios; (e) training sales personnel regarding the Class IB shares of the Trust; and (f) financing any other activity that the Distributor determines is primarily intended to result in the sale of Class IB shares. All shares are purchased and redeemed in accordance with the Trust's 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 normally will be processed and payment with respect thereto will 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. -23- HOW ASSETS ARE VALUED Values are determined according to accepted accounting practices and all laws and regulations that apply. The assets of each Portfolio are generally valued as follows: o Stocks and debt securities which mature in more than 60 days are valued on the basis of market quotations. o Foreign securities not traded directly in the U.S. are valued at representative quoted prices in the currency of the country of origin. Foreign currency amounts are translated into U.S. dollars at the bid price last quoted by a composite list of major U.S. banks. o Short-term debt securities in the Portfolios which mature in 60 days or less are valued at amortized cost, which approximates market value. o Other securities and assets for which market quotations are not readily available or for which valuation cannot be provided are valued in good faith by the Valuation Committee of the Board of Trustees of the Trust using its best judgment. DIVIDENDS, DISTRIBUTIONS AND TAXES Under current federal income tax law, the Trust believes that each Portfolio is entitled, and the Trust intends that each Portfolio shall qualify each year and elect, to be treated as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"). As a RIC, a Portfolio will not be subject to federal tax on its net investment income and net realized capital gains to the extent such income and gains are timely distributed to its insurance company shareholders. Accordingly, each Portfolio intends to distribute all of its net investment income and net realized capital gains to its shareholders. An insurance company that is a shareholder of a Portfolio will generally not be taxed on distributions from that Portfolio. All dividend distributions will be reinvested in full and fractional shares of the Portfolio to which they relate. Although the Trust intends that it and the Portfolios will be operated so that they will have no federal income or excise tax liability, if any such liability is nevertheless incurred, the investment performance of the Portfolio or Portfolios incurring such liability will be adversely affected. In addition, Portfolios investing in foreign securities and currencies may be subject to foreign taxes which could reduce the investment performance of such Portfolio. In addition to meeting investment diversification rules applicable to regulated investment companies under Subchapter M of the Internal Revenue Code, each Portfolio is also subject to the investment diversification requirements of Subchapter L of the Internal Revenue Code. Were any Portfolio to fail to comply with those requirements, owners of Contracts (other than -24- "pension plan contracts") funded through the Trust would be taxed immediately on the accumulated investment earnings under their Contracts and would thereby lose any benefit of tax deferral. Compliance is therefore carefully monitored by the Manager. Certain additional tax information appears in the Statement of Additional Information. For more information regarding the tax implications for owners of Contracts investing in the Trust, refer to the prospectuses for those Contracts. PERFORMANCE INFORMATION From time to time, the Trust may advertise the "average annual or cumulative total return" and may compare the performance of the Portfolios with that of other mutual funds with similar investment objectives as listed in rankings prepared by Lipper Analytical Services, Inc., or similar independent services monitoring mutual fund performance, and with appropriate securities or other relevant indices. The "average annual total return" of a Portfolio refers to the average annual compounded rate of return over the stated period that would equate an initial investment in that Portfolio at the beginning of the period to its ending redeemable value, assuming reinvestment of all dividends and distributions and deduction of all recurring charges, other than charges and deductions which may be imposed under the Contracts. Performance figures will be given for the recent one, five and ten year periods and for the life of the Portfolio if it has not been in existence for any such periods. When considering "average annual total return" figures for periods longer than one year, it is important to note that a Portfolio's annual total return for any given year might have been greater or less than its average for the entire period. "Cumulative total return" represents the total change in value of an investment in a Portfolio for a specified period (again reflecting changes in Portfolio share prices and assuming reinvestment of Portfolio distributions). The methods used to calculate "average annual and cumulative total return" are described further in the Statement of Additional Information. The performance of each Portfolio will vary from time to time in response to fluctuations in market conditions, interest rates, the composition of the Portfolio's investments and expenses. Consequently, a Portfolio's performance figures are historical and should not be considered representative of the performance of the Portfolio for any future period. Such performance does not reflect fees and charges imposed under the Contracts, which fees and charges will reduce such performance figures; therefore, these figures may be of limited use for comparative purposes. No Portfolio will use information concerning its investment performance in advertisements or sales materials unless appropriate information concerning the relevant separate account is also included. PRIOR PERFORMANCE OF EACH ADVISER The following table provides information concerning the historical performance of another registered investment company managed by each Adviser, that has investment objectives, policies, strategies and risks substantially similar to those of its respective Portfolio(s) of the -25- Trust. The data is provided to illustrate the past performance of each Adviser in managing a substantially similar investment vehicle as measured against specified market indices and does not represent the future performance of any of the Portfolios 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. Each Adviser's performance data shown below for the [name of other fund] was calculated in accordance with standards proscribed by the SEC for the calculation of average annual total return information for registered investment companies. Share prices and investment returns will fluctuate reflecting market conditions as well as changes in company-specific fundamentals of portfolio securities. In the table below, the only account that is included is another registered investment company, i.e., [name of other fund] that is managed by the Adviser. However, such other investment company may be subject to different expenses than the Portfolios. The investment results of [name of other fund] presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Portfolios or an individual investor investing in such Portfolios. NAME OF PORTFOLIO [NAME OF [S&P 500 YEAR OTHER FUND1, 2] INDEX3] One Year4 Three Years4 Five Years4 Since inception4 - ---------------------------------- [1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses.] [2 The expense ratio of [name of fund] was capped at ____% for the period __________ to __________ (reflecting annualized reimbursement of expenses of ____%). Thereafter the expense ratio declined from _____% to ____%, reflecting, in general, economies of scale associated with an increase in assets under management. The expense ratio of the [name of fund] is capped at ____% through December 31, 1996.] [3 The S&P 500 Index ("Index") is an unmanaged index containing common stocks of 500 industrial, transportation, utility and financial companies, regarded as generally representative of the U.S. stock market. The Index 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 Through December 31, 1996.] -26- 787 TRUST STATEMENT OF ADDITIONAL INFORMATION ____________, 1997 This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus for the 787 Trust ("Trust") dated _______, 1997, which may be obtained without charge by writing to the Trust at 787 Seventh Avenue, New York, New York 10019 or by calling 1-800-___-____. Unless otherwise defined herein, capitalized terms have the meanings given to them in the Prospectus. TABLE OF CONTENTS Page General Information and History......................................... Investment Restrictions................................................. Description of Certain Securities in Which the Portfolio May Invest.................................................. Management of the Trust................................................. Investment Management and Other Services................................ Brokerage Allocation.................................................... Purchase and Pricing of Securities...................................... Redemption of Shares ................................................... Certain Tax Considerations.............................................. Portfolio Performance................................................... Other Services.......................................................... Financial Statements.................................................... Appendix ............................................................... 1 GENERAL INFORMATION AND HISTORY THE TRUST The Trust is an open-end management investment company--a type of company commonly known as a "mutual fund." It is registered as such under the Investment Company Act of 1940, as amended ("1940 Act"). The Trust, organized as a Delaware business trust, currently offers two classes of shares on behalf of the T. Rowe Price International Stock Portfolio, T. Rowe Price Equity Income Portfolio, Putnam Growth and Income Portfolio, Putnam International Growth Portfolio and MFS Research Portfolio (each a "Portfolio," and together the "Portfolios"). Class IA shares are offered at net asset value and are not subject to distribution fees imposed pursuant to a distribution plan. Class IB shares are offered at net asset value and are subject to distribution fees imposed under a distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940 Act. The two classes of shares are currently offered under the Trust's multi-class distribution system approved by the Trust's Board of Trustees on _________, 1997, which is designed to allow promotion of insurance products investing in the Trust though alternative distribution channels. Under the Trust's multi-class distribution system, shares of each class of a Portfolio represent an equal pro rata interest in that Portfolio and, generally, will have identical voting, dividend, liquidation, and other rights, other than the payment of distribution fees under the Distribution Plan. The Trust continuously offers its shares exclusively to separate accounts of insurance companies in connection with variable life insurance contracts and variable annuity certificates and contracts (collectively, "Contracts"). Class IA shares and Class IB shares currently are sold only to separate accounts of The Equitable Life Assurance Society of the United States ("Equitable"). As of _________, 1997, Equitable owned 100% of the Trust's outstanding Class IA shares and Class IB shares and, as a result, may be deemed to be a control person with respect to the Trust. 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 ("Contractowners") the opportunity to instruct them as to how shares allocable to their Contracts will be voted with respect to certain matters, such as approval of investment advisory agreements. To the Trust's knowledge, as of ___________, 1997, no Contractowners owned Contracts entitling such persons 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 other insurance companies. The Trust does not currently foresee any disadvantages to Contractowners arising from offering the Trust's shares to separate accounts of insurance companies that are unaffiliated with each other. However, it is theoretically possible that, at some time, the interests of various Contractowners participating in the Trust through their separate accounts might conflict. In the 2 case of a material irreconcilable conflict, one or more separate accounts 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 will take whatever remedial action may be necessary. EQ Financial Consultants, Inc. ("Manager") is the investment manager for each Portfolio. T. Rowe Price Associates, Inc. ("T. Rowe Price"), Price-Fleming International, Inc. ("Price- Fleming"), Putnam Investment Management Inc. ("Putnam Management") and Massachusetts Financial Services Company ("MFS") (each an "Adviser," and together the "Advisers") serve as investment advisers to one or more of the Portfolios. LEGAL CONSIDERATIONS Under Delaware law, annual election of Trustees is not required, and, in the normal course, the Trust does not expect to hold annual meetings of shareholders. There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Pursuant to the procedures set forth in Section 16(c) of the 1940 Act, shareholders of record of not less than two-thirds of the outstanding shares of the Trust may remove a Trustee by a vote cast in person or by proxy at a meeting called for that purpose. Except as set forth above, the Trustees will continue to hold office and may appoint successor Trustees. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of Trustees can, if they choose to do so, elect all the Trustees of the Trust, in which event the holders of the remaining shares will be unable to elect any person as a Trustee. The Declaration of Trust of the Trust requires the affirmative vote of a majority of the outstanding shares of the Trust. The shares of each Portfolio, when issued, will be fully paid and non-assessable and will have no preference, preemptive, conversion, exchange or similar rights. INVESTMENT RESTRICTIONS FUNDAMENTAL RESTRICTIONS Each Portfolio has also adopted certain investment restrictions which are fundamental and may not be changed without approval by a "majority" vote of the Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser of (i) 67% or more of the voting securities of such Portfolio present in person or by proxy at a meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy; or (ii) more than 50% of the outstanding voting securities of such Portfolio. Set forth below are each of the fundamental 3 restrictions adopted by each of the Portfolios. Certain non-fundamental operating policies are also described in this section because of their direct relevance to the fundamental restrictions adopted by the Portfolios. As a matter of fundamental policy, each Portfolio may not: (1) Borrow money, except that: a. each Portfolio may (i) borrow for non-leveraging, temporary or emergency purposes and (ii) engage in reverse repurchase agreements and 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 331/3% 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. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. Each Portfolio may borrow from banks or other persons to the extent permitted by applicable law; b. as a matter of non-fundamental operating policy, no Portfolio will purchase additional securities when money borrowed exceeds 5% of its total assets; c. the Putnam Growth and Income Portfolio and Putnam International Growth 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 10% of the value (taken at lower of cost or current value) of the Portfolios' respective total assets (not including the amount borrowed) at the time the borrowing is made. Each Portfolio will will repay borrowings before any additional investments are purchased; d. the MFS Research Portfolio, as a matter of non-fundamental operating policy, may borrow amounts not in excess of 5% of its total assets (taken at the lower of cost or market value), and then only as a temporary measure for extraordinary or emergency purposes; (2) Purchase or sell physical commodities, except that it may enter into futures contracts and options thereon. No Portfolio will consider currency contracts or hybrid investments to be commodities; 4 (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. United States, state or local governments, or related agencies or instrumentalities, are not considered an industry. Industries are determined by reference to the classifications of industries set forth in each Portfolio's semi-annual and annual reports; (4) Make loans, except that: a. each Portfolio may: (i) lend portfolio securities provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 331/3% 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; b. the Putnam Growth and Income Portfolio and Putnam International Growth 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); (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 U.S. 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 U.S. Government, its agencies or instrumentalities). The MFS Research Portfolio, as a matter of non-fundamental operating policy, may not purchase securities of any issuer if such purchase, at the time thereof, would cause the Portfolio to hold more than 10% of any class of securities of such issuer. (7) Purchase or sell real estate, although the Portfolio may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities which represent interests in real estate, and the Portfolio may acquire and 5 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; (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 ("1933 Act"), in connection with the purchase and sale of its portfolio securities in the ordinary course of pursuing its investment objective, policies and program. NON-FUNDAMENTAL RESTRICTIONS The following investment restrictions apply to each Portfolio, but are not fundamental. They may be changed for any Portfolio without a vote of that Portfolio's shareholders. Each Portfolio may not: (1) Purchase a futures contract or an option thereon if, with respect to positions in futures or options on futures which do not represent bona fide hedging, the aggregate initial margin and premiums on such options would exceed 5% of the Portfolio's net asset value; (2) Purchase (a) illiquid securities, (b) securities restricted as to resale (excluding securities determined by the Board of Trustees to be readily marketable), and (c) repurchase agreements maturing in more than seven days if, as a result, more than 15% of each Portfolio's (except the MFS Research Portfolio) and 10% of the MFS Research Portfolio's net assets would be invested in such securities; (3) Purchase securities on margin, except (a) for use of short-term credit necessary for clearance of purchases of portfolio securities and (b) it may make margin deposits in connection with futures contracts 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 331/3% of the T. Rowe Price International Stock, T. Rowe Price Equity Income, and Putnam Growth and Income Portfolios' respective total assets and 15% of Putnam International Growth and MFS Research Portfolios' respective total assets at the time of the permissable borrowing or investment. The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to margin accounts for futures contracts and options are not deemed to be mortgages, pledges, or hypothecations for these purposes. 6 (5) Purchase participations or other direct interests in or enter into leases with respect to, oil, gas, or other mineral exploration or development programs; (6) Invest in puts, calls, straddles, spreads, or any combination thereof, except to the extent permitted by the Portfolio's Prospectus and Statement of Additional Information; or (7) Effect short sales of securities unless at all times when a short position is open the Portfolio owns an equal amount of such securities or owns securities which, without payment of any further consideration, are covertible into or exchangeable for securities of the same issue as, and at least equal in amount to, the securities sold short. In addition to the restrictions described above, some foreign countries limit, or prohibit, all direct foreign investment in the securities of companies domiciled therein. However, the governments of some countries have authorized the organization of investment funds to permit indirect foreign investment in such securities. For tax purposes these funds may be known as passive foreign investment companies. The Portfolios are subject to certain percentage limitations under the 1940 Act relating to the purchase of securities of investment companies, and the T. Rowe Price International Stock Portfolio may have to subject investments in passive foreign investment companies to the limitation that no more than 10% of the value of the Portfolio's total assets may be invested in such securities. DESCRIPTION OF CERTAIN SECURITIES IN WHICH THE PORTFOLIOS MAY INVEST OPTIONS Writing Call Options. Each Portfolio (except for the MFS Research Portfolio) may write (sell) covered call options on its portfolio securities in an attempt to enhance investment performance. 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 covered call option is, for example, a call option written on a security that is owned by the writer (or on a security convertible into such a security without additional consideration) throughout the option period. A Portfolio will write covered call options both to reduce the risks associated with certain of its investments and to increase total investment return through the receipt of premiums. In return for the premium income, the Portfolio will give up the opportunity to profit from an increase in the market price of the underlying security above the exercise price so long as its obligations under the contract continue, except insofar as the premium represents a profit. Moreover, in writing the call option, the Portfolio will retain the risk of loss should the price of the security decline. The premium is intended to offset that loss in whole or in part. Unlike the situation 7 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 high-grade debt obligations 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. Each Portfolio (except for the MFS Research Portfolio) may purchase put options and call options. The Portfolios 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 8 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 cost paid on the put or call option which was bought. Securities Index Options. Each Portfolio (except for the MFS Research 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. Each Portfolio (except for the MFS Research Portfolio) may enter into contracts (or amend existing contracts) with primary dealer(s) with whom they write over-the-counter options. The contracts will provide that each Portfolio has the absolute right to repurchase an option it writes at any time at a repurchase price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula contained in the contract. Although the specific details of the formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by each Portfolio for writing the option, plus the amount, if any, of the option's intrinsic value (i.e., the amount the option is "in-the-money"). The formula will also include a factor to account for the difference between the price of the security and the strike price of the option if the option is written "out- of-the-money." Although the specific details of the formula may vary with different primary dealers, each contract will provide a formula to determine the maximum price at which each 9 Portfolio can repurchase the option at any time. The Portfolios have established standards of creditworthiness for these primary dealers, although the Portfolios may still be subject to the risk that firms participating in such transactions will fail to meet their obligations. In instances in which a Portfolio has entered into agreements with respect to the over-the-counter options it has written, and such agreements would enable the Portfolio to have an absolute right to repurchase at a pre-established formula price the over-the-counter option written by it, the Portfolio would treat as illiquid only securities equal in amount to the formula price described above less the amount by which the option is "in-the-money," i.e., the amount by which the price of the option exceeds the exercise price. For information concerning the risks associated with utilizing options, futures contracts, and forward foreign currency exchange contracts, please see "Risks of Transactions in Options, Futures Contracts and Forward Currency Contracts" on page 18. FUTURES Futures Transactions. Each Portfolio (except for the MFS Research Portfolio) may trade in certain futures contracts. 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, U.S. 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 10 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 to the Portfolio to do so. A clearing organization associated with the exchange on which futures are traded assumes responsibility for closing out transactions and guarantees that as between the clearing members of an exchange, the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. Securities Index Futures Contracts. Purchases or sales of securities index futures contracts may be used by a Portfolio's Adviser (other than the MFS Research Portfolio's Adviser) in an attempt to protect the 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. Options on Futures Contracts. Each Portfolio (except for the MFS Research Protfolio) may purchase and write exchange-traded call and put options on futures contracts of the type which the particular Portfolio is authorized to enter into. These options are traded on exchanges that are licensed and regulated by the CFTC for the purpose of options trading. A call option on a futures contract gives the purchaser the right, in return for the premium paid, to purchase a futures contract (assume a "long" position) at a specified exercise price at any time before the option expires. A put option gives the purchaser the right, in return for the premium paid, to sell a futures contract (assume a "short" position), for a specified exercise price, at any time before the option expires. 11 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 high-grade debt obligations at all times equal to or greater than the aggregate exercise price of the puts it has written (less any related margin deposited with the futures broker). A Portfolio will be considered "covered" with respect to a call option it has written on a debt security future if, so long as it is obligated as a writer of the call, the Portfolio owns a security deliverable under the futures contract. A Portfolio will be considered "covered" with respect to a call option it has written on a securities index future if the Portfolio owns, so long as the Portfolio is obligated as the writer of the call, a portfolio of securities the price changes of which are, in the opinion of its Adviser, expected to replicate substantially the movement of the index upon which the futures contract is based. Upon the exercise of a call option, the writer of the option is obligated to sell the futures contract (to deliver a "long" position to the option holder) at the option exercise price, which will presumably be lower than the current market price of the contract in the futures market. Upon exercise of a put, the writer of the option is obligated to purchase the futures contract (deliver a "short" position to the option holder) at the option exercise price which will presumably be higher than the current market price of the contract in the futures market. When the holder of an option exercises it and assumes a long futures position, in the case of a call, or a short futures position, in the case of a put, its gain will be credited to its futures margin account, while the loss suffered by the writer of the option will be debited to its account and must be immediately paid by the writer. However, as with the trading of futures, most participants in the options markets do not seek to realize their gains or losses by exercise of their option rights. Instead, the holder of an option will usually realize a gain or loss by buying or selling an offsetting option at a market price that will reflect an increase or a decrease from the premium originally paid. If a Portfolio writes options on futures contracts, the Portfolio will receive a premium but will assume a risk of adverse movement in the price of the underlying futures contract comparable to that involved in holding a futures position. If the option is not exercised, the Portfolio will realize a gain in the amount of the premium, which may partially offset unfavorable changes in the value of securities held in or to be acquired for the Portfolio. If the option is exercised, the Portfolio will incur a loss in the option transaction, which will be reduced by the amount of the premium it has received, but which will offset any favorable changes in the value of its portfolio securities or, in the case of a put, lower prices of securities it intends to acquire. Options on futures contracts can be used by a Portfolio to hedge substantially the same risks as might be addressed by the direct purchase or sale of the underlying futures contracts. If the Portfolio purchases an option on a futures contract, it may obtain benefits similar to those that would result if it held the futures position itself. Purchases of options on futures contracts may present less risk in hedging than the purchase and sale of the underlying futures contracts since the potential loss is limited to the amount of the premium plus related transaction costs. 12 The purchase of put options on futures contracts is a means of hedging a portfolio of securities against a general decline in market prices. The purchase of a call option on a futures contract represents a means of hedging against a market advance when a Portfolio is not fully invested. The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the underlying securities. If the futures price at expiration is below the exercise price, the Portfolio will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the value of the Portfolio's holdings of securities. The writing of a put option on a futures contract is analogous to the purchase of a futures contract in that it hedges against an increase in the price of securities the Portfolio intends to acquire. However, the hedge is limited to the amount of premium received for writing the put. Limitations on Purchase and Sale of Futures Contracts and Options on Futures Contracts. The Portfolios will not engage in transactions in futures contracts and related options for speculation. In addition, the Portfolios will not purchase or sell futures contracts or related options unless either (1) the futures contracts or options thereon are purchased for "bona fide hedging" purposes (as that term is defined under the CFTC regulations) or (2) if purchased for other purposes, the sum of the amounts of initial margin deposits on a Portfolio's existing futures and premiums required to establish non-hedging positions would not exceed 5% of the liquidation value of the Portfolio's total assets. In instances involving the purchase of futures contracts or the writing of put options thereon by a Portfolio, an amount of cash and cash equivalents, equal to the cost of such futures contracts or options written (less any related margin deposits), will be deposited in a segregated account with its custodian, thereby insuring that the use of such futures contracts and options is unleveraged. In instances involving the sale of futures contracts or the writing of call options thereon by a Portfolio, the securities underlying such futures contracts or options will at all times be maintained by the Portfolio or, in the case of index futures and related options, the Portfolio will own securities the price changes of which are, in the opinion of its Adviser expected to replicate substantially the movement of the index upon which the futures contract or option is based. For information concerning the risks associated with utilizing options, futures contracts, and forward foreign currency exchange contracts, please see "Risks of Transactions in Options, Futures Contracts and Forward Currency Contracts" on page 18. FOREIGN CURRENCY TRANSACTIONS Forward Foreign Currency Transactions. A forward foreign currency exchange 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. 13 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 U.S. 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 U.S. 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 U.S. 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 or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the Portfolio may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Portfolio. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the diversification strategies. However, the Adviser to the Portfolio believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the Portfolio will be served. A Portfolio may enter into forward contracts for any other purpose consistent with the Portfolio's investment objective and program. However, the Portfolio will not enter into a forward contract, or maintain exposure to any such contract(s), if the amount of foreign currency required to be delivered thereunder would exceed the Portfolio's holdings of liquid, high-grade debt 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. 14 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 of 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 U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Portfolio will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference ("spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate, while offering a lesser rate of exchange should the Portfolio desire to resell that currency to the dealer. Foreign Currency Options, Foreign Currency Futures Contracts and Options on Futures. Each Portfolio (except for the MFS Research Portfolio) may purchase or sell exchange-traded or over-the-counter foreign currency options, foreign currency futures contracts and related options on foreign currency futures contracts as a hedge against possible variations in foreign exchange rates. The Portfolios will write options on foreign currency or on foreign currency futures contracts only if they are "covered." A put on a foreign currency or on a foreign currency futures contract written by a Portfolio will be considered "covered" if, so long as the Portfolio is obligated as the writer of the put, it segregates with the Portfolio's custodian cash, United States Government securities or other liquid high-grade debt securities equal at all times to the aggregate exercise price of the put. A call on a foreign currency or on a foreign currency future contract written by the Portfolio will be considered "covered" only if the Portfolio owns short term debt securities with a value equal to the face amount of the option contract and denominated in the currency upon which the call is written. Option transactions may be effected to hedge the currency risk on non-U.S. 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 U.S. dollars of an investment in a Japanese yen-denominated security. In these circumstances, a Portfolio may purchase a foreign currency put option enabling it to sell a specified amount of yen for dollars at a specified price by a future date. To the extent the hedge is successful, a loss in the value of the dollar relative to the yen will tend to be offset by an increase in the value of the put option. 15 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. See "Over-the-Counter Options," above. 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. A Portfolio will not speculate in foreign currency options, futures or related options. Accordingly, a Portfolio will not hedge a currency substantially in excess of the market value of the securities denominated in that currency which it owns or the expected acquisition price of securities which it anticipates purchasing. For information concerning the risks associated with utilizing options, futures contracts, and forward foreign currency exchange contracts, please see "Risks of Transactions in Options, Futures Contracts and Forward Currency Contracts" on page 18. COMBINED TRANSACTIONS If and to the extent authorized to do so, a Portfolio may enter into multiple transactions, including multiple options transactions, multiple futures transactions, multiple currency transactions (including forward currency contracts), multiple interest rate transactions and any combination of futures, options, currency and interest rate transactions, instead of a single hedging and other strategic transaction, as part of a single or combined strategy when, in the judgment of the Portfolio's Adviser, it is in the best interests of the Portfolio to do so. A combined transaction will usually contain elements of risk that are present in each of its component transactions. Although combined transactions will normally be entered into by a Portfolio based on an Adviser's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase the risks or hinder achievement of the Portfolio's management objective. In order to achieve desired asset mix parameters, the Portfolios, for example, may use futures contracts and related options transactions to establish a position in an asset class as a temporary substitute for purchasing individual securities, which may be subsequently purchased in orderly fashion. Similarly, these transactions may enable the Portfolios to reduce a position in an asset class as a temporary substitute for selling individual securities, in order to effect an orderly sale program. In the case of each Portfolio, futures contracts and related options on the S&P 500 16 may be purchased in order to reduce brokerage costs, maintain liquidity to meet shareholder redemptions or minimize tracking error. FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND FORWARD FOREIGN EXCHANGE CONTRACTS Each Portfolio (except for the MFS Research Portfolio) may enter into certain option, futures, and forward foreign exchange contracts, including options and futures on currencies, which will be treated as Section 1256 contracts or straddles. Transactions which are considered Section 1256 contracts will be considered to have been closed at the end of the Portfolio's fiscal year and any gains or losses will be recognized for tax purposes at that time. Such gains or losses from the normal closing or settlement of such transactions will be characterized as 60% long-term capital gain or loss and 40% short-term capital gain or loss regardless of the holding period of the instrument. A Portfolio will be required to distribute net gains on such transactions to shareholders even though it may not have closed the transaction and received cash to pay such distributions. Options, futures and forward foreign exchange contracts, including options and futures on currencies, which offset a foreign dollar denominated bond or currency position may be considered straddles for tax purposes, in which case a loss on any position in a straddle will be subject to deferral to the extent of unrealized gain in an offsetting position. The holding period of the securities or currencies comprising the straddle will be deemed not to begin until the straddle is terminated. For securities offsetting a purchased put, this adjustment of the holding period may increase the gain from sales of securities held less than three months. The holding period of the security offsetting an "in-the-money qualified covered call" option on an equity security will not include the period of time the option is outstanding. Losses on written covered calls and purchased puts on securities, excluding certain "qualified covered call" options on equity securities, may be long-term capital loss, if the security covering the option was held for more than twelve months prior to the writing of the option. In order for a Portfolio to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income; i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies. Pending tax regulations could limit the extent that net gain realized from option, futures or foreign forward exchange contracts on currencies is qualifying income for purposes of the 90% requirement. In addition, gains realized on futures or foreign forward exchange contracts on securities or securities indexes and, in some cases, currencies, held for less than three months, must be limited to less than 30% of the Portfolio's annual gross income. In order to avoid realizing excessive gains on securities or currencies held less than three months, the Portfolio may be required to defer the closing out of option, futures or foreign forward exchange contracts beyond the time when it would otherwise be advantageous to do so. It is anticipated that unrealized gains on Section 1256 option, futures and foreign 17 forward exchange contracts, which have been open for less than three months as of the end of the Portfolio's fiscal year and which are recognized for tax purposes, will not be considered gains on securities or currencies held less than three months for purposes of the 30% test. 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. 18 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 (except for the MFS Research Portfolio) 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, 19 or has the power to compel enforcement of the rules of a foreign board of trade or any applicable foreign law. This is true even if the exchange is formally linked to a domestic market so that a position taken on the market may be liquidated by a transaction on another market. Moreover, such laws or regulations will vary depending on the foreign country in which the foreign futures or foreign options transaction occurs. For these reasons, when a Portfolio trades foreign futures or foreign options contracts, it may not be afforded certain of the protective measures provided by the Commodity Exchange Act, the CFTC's regulations and the rules of the National Futures Association and any domestic exchange, including the right to use reparations proceedings before the CFTC and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. In particular, funds received from a Portfolio for foreign futures or foreign options transactions may not be provided the same protections as funds received in respect of transactions on United States futures exchanges. In addition, the price of any foreign futures or foreign options contract and, therefore, the potential profit and loss thereon, may be affected by any variance in the foreign exchange rate between the time the Portfolio's order is placed and the time it is liquidated, offset or exercised. Foreign Currency Contracts. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. These hedging transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Whether a currency hedge benefits a Portfolio will depend on the ability of a Portfolio's Adviser to predict future currency exchange rates. The writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received, and a Portfolio could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to a Portfolio's position, it may forfeit the entire amount of the premium plus related transaction costs. HYBRID INSTRUMENTS Hybrid instruments (a type of potentially high-risk derivative) combine the elements of futures contracts or options with those of debt, preferred equity or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred stock, depository 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 20 of a currency, or convertible securities with the conversion terms related to a particular commodity. Hybrid Instruments can be an efficient means of creating exposure to a particular market, or segment of a market, with the objective of enhancing total return. For example, a Portfolio may wish to take advantage of expected declines in interest rates in several European countries, but avoid the transactions costs associated with buying and currency-hedging the foreign bond positions. One solution would be to purchase a U.S. 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 transactions costs. Of course, there is no guarantee that the strategy will be successful and a Portfolio could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the Hybrid Instrument. The risks of investing in Hybrid Instruments reflect a combination of the risks of investing in securities, options, futures and currencies. The risks of a particular Hybrid Instrument will, of course, depend upon the terms of the instrument, but may include, without limitation, the possibility of significant changes in the Benchmarks or the prices of Underlying Assets to which the instrument is linked. Such risks generally depend upon factors which are unrelated to the operations or credit quality of the issuer of the Hybrid Instrument and which may not be readily foreseen by the purchaser, such as economic and political events, the supply and demand for the Underlying Assets and interest rate movements. In recent years, various Benchmarks and prices for Underlying Assets have been highly volatile, and such volatility may be expected in the future. Hybrid Instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the Hybrid Instrument and have an even more dramatic and substantial effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time. Hybrid Instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). The latter scenario may result if "leverage" is used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured so that a given change in a Benchmark or Underlying Asset is multiplied 21 to produce a greater value change in the Hybrid Instrument, thereby magnifying the risk of loss as well as the potential for gain. Hybrid Instruments may also carry liquidity risk since the instruments are often "customized" to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. In addition, because the purchase and sale of Hybrid Instruments could take place in an over-the-counter market without the guarantee of a central clearing organization or in a transaction between the portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the counter party or issuer of the Hybrid Instrument would be an additional risk factor which the Portfolio would have to consider and monitor. Hybrid Instruments also may not be subject to regulation of the CFTC, which generally regulates the trading of commodity futures by U.S. persons, the Securities and Exchange Commission ("SEC"), which regulates the offer and sale of securities by and to U.S. persons, 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. REPURCHASE AGREEMENTS Each of the Portfolios may enter into repurchase agreements. Under a repurchase agreement, underlying debt instruments are acquired for a relatively short period (usually not more than one week and never more than a year) subject to an obligation of the seller to repurchase and the Portfolio to resell the instrument at a fixed price and time, thereby determining the yield during the Portfolio's holding period. This results in a fixed rate of return insulated from market fluctuation during that holding period. Repurchase agreements may have the characteristics of loans by a Portfolio. During the term of the repurchase agreement, a Portfolio retains the security subject to the repurchase agreement as collateral securing the seller's repurchase obligation, continually monitors on a daily basis the market value of the security subject to the agreement and requires the seller to deposit with the Portfolio collateral equal to any amount by which the market value of the security subject to the repurchase agreements falls below the resale amount provided under the repurchase agreement. A Portfolio will enter into repurchase agreements (with respect to United States Government obligations, certificates of deposit, or bankers' acceptances) with registered brokers-dealers, United States Government securities dealers or domestic banks whose creditworthiness is determined to be satisfactory by the Portfolio's Adviser, pursuant to guidelines adopted by the Board of Trustees. Generally, a Portfolio does not invest in repurchase agreements maturing in more than seven days. The staff of the SEC currently takes the position that repurchase agreements maturing in more than seven days are illiquid securities. No Portfolio will enter into a repurchase agreement maturing in more than seven days if as a result more that 15% of the Portfolio's (except for the MFS Research Portfolio) and 10% of the MFS Research Portfolio's net assets would be invested in "illiquid securities." 22 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. FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY SECURITIES The Portfolios may enter into forward commitments for the purchase or sale of securities and may purchase or sell securities on a "when-issued" or "delayed delivery" basis. Forward commitments and when-issued or 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 on that account cash, United States Government securities or other liquid high-grade debt obligations in an amount equal to or greater than, on a daily basis, the amount of the Portfolio's forward commitments, when-issued or delayed delivery commitments. A Portfolio will only enter into forward commitments and make commitments to purchase securities on a when-issued or delayed delivery basis with the intention of actually acquiring the securities. However, the Portfolio may sell these securities before the settlement date if it is deemed advisable as a matter of investment strategy. Forward commitments and when-issued and delayed delivery transactions are generally expected to settle within three months from the date the transactions are entered into, although the Portfolio may close out its position prior to the settlement date by entering into a matching sale 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 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 23 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). SECURITIES LOANS Securities loans are made to broker-dealers or institutional investors or other persons, pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the loaned securities marked to market on a daily basis. The collateral received will consist of cash, U.S. 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 not have the right to vote securities while they are being loaned, but its Manager or Adviser will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by a Portfolio's Adviser to be of good standing and will not be made unless, in the judgment of the Adviser, the consideration to be earned from such loans would justify the risk. ZERO-COUPON AND PAY-IN-KIND SECURITIES The Putnam Growth and Income Portfolio may invest in zero-coupon and pay-in-kind securities. These securities are debt securities that do not make regular cash interest payments. Zero- coupon securities are sold at a deep discount to their face value. Pay-in-kind securities pay interest through the issuance of additional securities. Because such securities do not pay current cash income, the price of these securities can be volatile when interest rates fluctuate. In order to continue to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended ("Code") and avoid a 4% non-deductible excise tax (as described in greater detail in "Certain Tax Considerations"), the Putnam Growth and Income Portfolio may be required to distribute a portion of such discount and income and may be required to dispose of other portfolio securities, which may occur in periods of adverse market prices, in order to generate cash to meet these distribution requirements. 24 INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES Each Portfolio (except for the T. Rowe Price International Stock Portfolio) may invest a portion of its total assets in investment grade securities rated Baa by Moody's Investors Service Inc. ("Moody's") or BBB by Standard & Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P") and comparable unrated securities. Such investment grade securities while normally exhibiting adequate protection parameters have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade fixed income securities. Fixed income investments that are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's or BB or lower by S&P) or are unrated securities of comparative quality are known as "junk bonds" and are considered as predominantly speculative by those rating agencies. It is the policy of each Portfolio's Adviser to not rely exclusively on ratings issued by credit rating agencies but to supplement such ratings with the Adviser's own independent and ongoing review of credit quality. Junk bonds may be issued as a consequence of corporate restructuring, such as leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar events or by smaller or highly leveraged companies. When economic conditions appear to be deteriorating, junk bonds may decline in market value due to investors' heightened concern over credit quality, regardless of prevailing interest rates. Although the growth of the high yield securities market in the 1980s had paralleled a long economic expansion, many issuers have been affected by adverse economic and market conditions. It should be recognized that an economic downturn or increase in interest rates is likely to have a negative effect on (i) the high yield bond market, (ii) the value of high yield securities and (iii) the ability of the securities' issuers to service their principal and interest payment obligations, to meet their projected business goals or to obtain additional financing. The market for junk bonds, especially during periods of deteriorating economic conditions, may be less liquid than the market for investment grade bonds. In periods of reduced market liquidity, junk bond prices may become more volatile and may experience sudden and substantial price declines. Also, there may be significant disparities in the prices quoted for junk bonds by various dealers. Under such conditions, a Portfolio may find it difficult to value its junk bonds accurately. Under such conditions, a Portfolio may have to use subjective rather than objective criteria to value its junk bond investments accurately and rely more heavily on the judgment of the Trust's Board of Trustees. Prices for junk bonds also may be affected by legislative and regulatory developments. For example, federal rules require that savings and loans gradually reduce their holdings of high-yield securities. Also, from time to time, Congress has considered legislation to restrict or eliminate the corporate tax deduction for interest payments or to regulate corporate restructuring such as takeovers, mergers or leveraged buyouts. Such legislation, if enacted, could depress the prices of outstanding junk bonds. FOREIGN SECURITIES Each Portfolio may invest in foreign securities. Foreign securities involve currency risks. The value of a foreign security denominated in foreign currency changes with variations in the exchange rates. Fluctuations in exchange rates may also affect the earning power and asset 25 value of the foreign entity issuing a security, even one denominated in U.S. dollars. Dividend and interest payments will be repatriated based on the exchange rate at the time of disbursement, and restrictions on capital flows may be imposed. Foreign securities may be subject to foreign government taxes which reduce their attractiveness. Other risks of investing in such securities include political or economic instability in the country involved, the difficulty of predicting international trade patterns and the possibility of imposition of exchange controls. The prices of such securities may be more volatile than those of domestic securities. In addition, there may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic issuers. There is generally less regulation of stock exchanges, brokers, banks and listed companies abroad than in the United States, and settlements may be slower and may be subject to failure. With respect to certain foreign countries, there is a possibility of expropriation of assets or nationalization, imposition of withholding taxes on dividend or interest payments, difficulty in obtaining and enforcing judgments against foreign entities or diplomatic developments which could affect investment in these countries. Losses and other expenses may be incurred in converting between various currencies in connection with purchases and sales of foreign securities. For many foreign securities, there are U.S. dollar-denominated American Depositary Receipts (ADRs) or other similar instruments which are traded in the United States on exchanges or over-the-counter. ADRs are issued by domestic banks or trust companies. ADRs do not lessen the foreign exchange risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in stock of foreign issuers, the Portfolios will avoid currency risks which might occur during the settlement period for either purchases or sales. A Portfolio may purchase foreign securities directly, as well as through ADRs. MANAGEMENT OF THE TRUST As of _________, 1997, 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. 26 THE TRUSTEES PRINCIPAL OCCUPATION DURING LAST FIVE NAME, ADDRESS AND AGE YEARS Peter D. Noris* (40) Executive Vice President and Chief Equitable Investment Officer of Equitable since May 787 Seventh Avenue 1995; prior thereto, Vice President of New York, New York 10019 Salomon Brothers Inc., from 1992 to 1995. Principal of Equity Division, Morgan Stanley & Co. Inc., from 1984 to 1992. Director of Equitable Real Estate Investment Management, Inc. since September 1995 and of Alliance Capital Management Co. since July 1995. Trustee of the Hudson River Trust (investment company) since July 1995. Executive Vice President of EQ Financial Consultants, Inc. since November 1996. * Mr. Noris is an "interested person" (as defined in the 1940 Act) of the Trust. Mr. Noris is deemed an "interested person" of the Trust by virtue of his position as an officer of Equitable. 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 auditors 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 auditors for professional services. In addition, the committee meets with the independent auditors and representatives of management to review accounting activities and areas of financial reporting and control. The Trust has a valuation committee consisting of __________________________. 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 __________________________. The compensation committee's function is to review the Trustees' compensation arrangements. The Trust has a conflicts committee consisting of ________________________. The conflicts committee's function is to take any action necessary to resolve conflicts among shareholders. 27
TRUSTEE COMPENSATION TABLE TRUSTEE AGGREGATE Pension or Estimated Total COMPENSATION Retirement Annual Compensation FROM THE TRUST Benefits Benefits Upon from Fund Accrued As Retirement Complex Part of Trust Expenses Peter D. Noris $-0- $-0- $-0- $-0-
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 $______ plus an additional fee of $_____ per Board meeting and $______ per committee meeting attended in person or by telephone. Trustees receive $_______ for each day spent performing special services requested by the Chairman or the President of the Trust, and reimbursement for expenses in connection with the performance of regular and special services. 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 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. 28 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 EQ Financial Consultants, Inc. ("EQ Financial"), Equitable Distributors, Inc. ("EDI") or Equitable. The Trust's principal officers are: NAME, AGE AND POSITION PRINCIPAL OCCUPATION DURING LAST FIVE YEARS WITH TRUST Peter D. Noris (40) (see above) President Harvey Blitz (50) Senior Vice President of Equitable since Chief Financial Officer and September 1987. Deputy Chief Financial Officer Controller of Equitable since September 1992. Senior Vice President of The Equitable Companies Incorporated since July 1992. Director of The Equitable of Colorado, Inc. since September 1992. Director and Chairman of Frontier Trust Company since April 1993 and September 1995, respectively. Director of EDI from February 1995 to May 1996. Director and Senior Vice President of EquiSource since October 1992 and June 1993, respectively. Director and Executive Vice President of EQ Financial since September 1992 and November 1996, respectively. INVESTMENT MANAGEMENT AND OTHER SERVICES THE MANAGER The Manager, EQ Financial Consultants, Inc. ("EQ Financial"), is an investment adviser registered with the SEC under the 1940 Act and a broker-dealer registered with the SEC under the Securities Exchange Act of 1934, as amended ("1934 Act"). The Manager has served as an investment manager to each Portfolio of the Trust since its inception. The Manager currently furnishes specialized investment advice to individuals, pension and profit sharing plans, trusts, charitable organizations, corporations and other business entities. The Manager is a wholly-owned subsidiary of Equitable Holding Corporation, a wholly-owned subsidiary of Equitable. Equitable, which is a New York life insurance company and one of the largest life insurance companies in the United States, is a wholly-owned subsidiary of The Equitable Companies Incorporated ("The Equitable Companies"), a publicly-owned holding company. The principal offices of The Equitable Companies and Equitable are located at 787 Seventh Avenue, New York, New York 10019. 29 AXA, a French insurance holding company, currently owns approximately 63.9% of the outstanding voting shares of common stock of The Equitable Companies. Under its investment arrangements with Equitable and The Equitable Companies, AXA is able to exercise significant influence over the operations and capital structure of The Equitable Companies, Equitable and their subsidiaries. AXA is the principal holding company for most of the companies in one of the largest insurance groups in Europe. The majority of AXA's stock is owned by a group of five French mutual insurance companies, the AXA Group, which is the third largest insurance group in France and one of the largest insurance groups in Europe. Principally engaged in property and casualty insurance and life insurance in Europe and elsewhere in the world, the AXA Group is also involved in real estate operations and certain other financial services, including mutual fund management, lease financing services and brokerage services. The Trust and Manager have entered into an investment management agreement ("Management Agreement"). The Management Agreement obligates the Manager to: (i) provide investment management and certain administrative 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). THE ADVISERS On behalf of the T. Rowe Price Equity Income Portfolio, T. Rowe Price International Stock Portfolio, and MFS Research Portfolio, the Manager has entered into investment advisory agreements ("Advisory Agreements") with T. Rowe Price, Price-Fleming and MFS, respectively. The Manager has also entered into Advisory Agreements on behalf of Putnam Growth and Income Portfolio and Putnam International Growth Portfolio with Putnam Management. The Advisory Agreements obligate T. Rowe Price, Price-Fleming, MFS and Putnam Management to: (i) furnish continuously an investment program for their respective 30 Portfolios; (ii) place all orders for the purchase and sale of investments for their respective Portfolios with brokers or dealers selected by the Manger or an Adviser; and (iii) perform certain limited related administrative functions in connection therewith. The continuance of the Advisory Agreements 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 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 Advisory Agreements with respect to each Portfolio may be terminated (i) by the Trust, without the payment of any penalty, by the vote of a majority of the Trustees of the Trust or by the vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of such Portfolio, upon sixty (60) days' written notice to the Manager and Adviser, (ii) by the Manager at any time, without the payment of any penalty, on sixty (60) days' written notice to the other parties, or (iii) by an Adviser at any time, without the payment of any penalty, on sixty (60) days' written notice to the other parties. An Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). THE ADMINISTRATOR Pursuant to an administrative agreement ("Administrative Services Agreement"), ___________________ ("Administrator") assists the Manager in the performance of its administrative services to the Trust and provides the Trust with other 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 ________________. Its principal place of business is at ___________________, ___________________. Under the Administrative Services Agreement, the Administrator is entitled to a fee from the Trust, which is calculated daily and paid monthly, at an annual rate of ____% of the average daily net assets [of each Portfolio] of the Trust. The Administrative Services Agreement shall remain in effect until ___________, 199_ and shall thereafter continue in effect for successive periods of one year, unless terminated by any party upon not less than ninety (90) days' prior written notice to the other party. THE DISTRIBUTORS The Trust has distribution agreements with EQ Financial and EDI (each also referred to as a "Distributor," and together "Distributors"), each an indirect wholly-owned subsidiary of Equitable. The address for EDI is 787 Seventh Avenue, New York, New York 10019, and that for EQ Financial is 1755 Broadway, Third Floor, New York, New York 10019. EQ Financial is the distributor for the Trust's Class IA shares and also serves as the Manager of the Trust. EDI is the distributor for the Trust's Class IB shares. 31 The Trust's distribution agreements with respect to the Class IA shares and Class IB shares, each dated ______, 199__ ("Distribution Agreements"), will remain in effect until ______, 199__, and from year to year thereafter only if each Distribution Agreement's continuance is approved annually by (i) a majority of the Trustees who are not parties to such agreement or "interested persons" (as defined in the 1940 Act) of the Trust or a Portfolio and, if applicable, who have no direct or indirect financial interest in the operation of the Distribution Plan or any such related agreement ("Independent Trustees") and (ii) either by vote of a majority of the Trustees or a majority of the outstanding voting securities (as defined in the 1940 Act) of the Trust. The Distributor or its affiliates for the Class IA shares will pay for printing and distributing prospectuses or reports prepared for its use in connection with the offering of the Class IA shares to prospective investors and preparing, printing and mailing any other literature or advertising in connection with the offering of the Class IA shares to prospective investors. The Trust, pursuant to the Distribution Plan, will pay for services rendered and expenses borne in connection with the offering of the Class IB shares. Such expenses include the printing and mailing of prospectuses, statements of additional information and reports to prospective purchasers, as well as the preparation, printing and mailing of advertisements and sales literature in connection with the offering of the Class IB shares to prospective investors. The Distributor for each Class of shares will pay all fees and expenses in connection with its 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. Each Distribution Agreement provides that the Distributor shall accept orders for shares at net asset value without sales commission or load being charged. The Distributors have made no firm commitment to acquire shares of any Portfolio. A description of the Distribution Plan with respect to the Class IB shares and related services and fees thereunder is provided in the Prospectus for the Class IB shares of the Portfolios. On _______, 199__, the Board of Trustees of the Trust unanimously approved the Distribution Plan. In connection with its consideration of the Distribution Plan, the Board of Trustees was furnished with drafts of the Distribution Plan and the related materials, including information related to the advantages and disadvantages of Rule 12b-1 plans currently being used in the mutual fund industry. Legal counsel for the Trustees who are not "interested persons" of the Trust (as defined in the 1940 Act) provided additional information, summarized the provisions of the proposed Distribution Plan and discussed the legal and regulatory considerations in adopting such Distribution Plan. The Board considered various factors in connection with its decision as to whether to approve the Distribution Plan, including: (i) the nature and causes of the circumstances which make implementation of the Distribution Plan necessary and appropriate; (ii) the way in which the Distribution Plan would address those circumstances, including the nature and potential amount of expenditures; (iii) the nature of the anticipated benefits; (iv) the possible benefits of the 32 Distribution Plan to any other person relative to those of the Trust; (v) the effect of the Distribution Plan on existing owners of variable annuity contracts and variable life insurance policies; (vi) the merits of possible alternative plans or pricing structures; (vii) competitive conditions in the variable products industry; and (viii) the relationship of the Distribution Plan to other distribution efforts of the Trust. Based upon its review of the foregoing factors and the materials presented to it, and in light of its fiduciary duties under the 1940 Act, the Board of Trustees determined, in the exercise of its business judgment, that the Distribution Plan is reasonably likely to benefit the Trust and the shareholders of its Portfolios. The Distribution Plan and any Rule 12b-1 related agreement that is entered into by the Trust or the Distributor of the Class IB shares in connection with the Distribution Plan will continue in effect for a period of more than one year only so long as continuance is specifically approved at least annually by a vote of a majority of the Trust's Board of Trustees, and of a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on the Distribution Plan, or any Rule 12b-1 related agreement, as applicable. In addition, the Distribution Plan and any Rule 12b-1 related agreement may be terminated as to Class IB shares of a Portfolio at any time, without penalty, by vote of a majority of the outstanding Class IB shares of the Portfolio or by vote of a majority of the Independent Trustees. The Distribution Plan also provides that it may not be amended to increase materially the amount (up to .50% of average daily net assets annually) that may be spent for distribution of Class IB shares of a Portfolio without the approval of Class IB shareholders of that Portfolio. BROKERAGE ALLOCATION 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, seeks to obtain the best price and execution on all orders placed for the Portfolios, considering all the circumstances except to the extent it 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 33 will be used for execution of each Portfolio's portfolio transactions. In the case of securities traded in the foreign and domestic over-the-counter markets, there is generally no stated commission, but the price usually includes an undisclosed commission or mark-up. In underwritten offerings, the price generally includes a disclosed fixed commission or discount. The Manager and Advisers may, as appropriate, in the allocation of brokerage business, take into consideration research and other brokerage services provided by brokers and dealers to Equitable, the Manager or Advisers. The research services include economic, market, industry and company research material. Based upon an assessment of the value of research and other brokerage services provided, proposed allocations of brokerage for commission transactions are periodically prepared internally. In addition, the Manager and Advisers may allocate brokerage business to brokers and dealers that have made or are expected to make significant efforts in facilitating the distribution of the Trust's shares. Commissions charged by brokers that provide research services may be somewhat higher than commissions charged by brokers that do not provide research services. As permitted by Section 28(e) of the 1934 Act and by policies adopted by the Trustees, the Manager and Advisers may cause the Trust to pay a broker-dealer that provides brokerage and research services to the Manager and Advisers an amount of commission for effecting a securities transaction for the Trust in excess of the commission another broker-dealer would have charged for effecting that transaction. The Manager and Advisers do not engage brokers and dealers whose commissions are believed to be unreasonable in relation to brokerage and research services provided. The overall reasonableness of commissions paid will be evaluated by rating brokers on such general factors as execution capabilities, quality of research (that is, quantity and quality of information provided, diversity of sources utilized, nature and frequency of communication, professional experience, analytical ability and professional stature of the broker) and financial standing, as well as the net results of specific transactions, taking into account such factors as price, promptness, size of order and difficulty of execution. The research services obtained will, in general, be used by the Manager and Advisers for the benefit of all accounts for which the responsible party makes investment decisions. The receipt of research services from brokers will tend to reduce the Manager's and Advisers' expenses in managing the Portfolios. BROKERAGE TRANSACTIONS WITH AFFILIATES To the extent permitted by law, the Trust may engage in brokerage transactions with brokers that are affiliates of the Manager and Advisers, with brokers who are affiliates of such brokers, or with unaffiliated brokers who trade or clear through affiliates of the Manager and Advisers. The 1940 Act generally prohibits the Trust from engaging in principal securities transactions with brokers that are affiliates of the Manager and Advisers or affiliates of such brokers, unless pursuant to an exemptive order from the SEC. The Trust may apply for such exemptive relief. The Trust has adopted procedures, prescribed by the 1940 Act, which are reasonably designed to provide that any commissions or other remuneration it pays to brokers that are affiliates of 34 the Manager and Advisers or brokers that are affiliates of such brokers 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. PURCHASE AND PRICING OF SECURITIES 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 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 Portfolio will be computed by dividing the sum of the investments held by that Portfolio, plus any cash or other assets, minus all liabilities, by the total number of outstanding shares of that Portfolio at such time. All expenses borne by the Trust and each of its Classes, will be accrued daily. The net asset value per share of each Portfolio will be determined and computed as follows, in accordance with generally accepted accounting principles, and consistent with the 1940 Act: o The assets belonging to each Portfolio will include (i) all consideration received by the Trust for the issue or sale of shares of that particular Portfolio, together with all assets in which such consideration is invested or reinvested, (ii) all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, (iii) any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, and (iv) "General Items", if any, allocated to that Portfolio. "General Items" include any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular Portfolio. General Items will be allocated as the Trust's Board of Trustees considers fair and equitable. o The liabilities belonging to each Portfolio will include (i) the liabilities of the Trust in respect of that Portfolio, (ii) all expenses, costs, changes and reserves attributable to that Portfolio, and (iii) any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Portfolio which have been allocated as the Trust's Board of Trustees considers fair and equitable. The value of each Portfolio will be determined at the close of business on each "business day," i.e., each day in which the degree of trading in the Portfolio might materially affect the net asset value of such Portfolio. Normally, this would be each day that the New York Stock Exchange 35 is open and would include some federal holidays. For stocks and options, the close of trading is 4:00 p.m. and 4:15 p.m. Eastern Time, respectively; for bonds it is the close of business in New York City, and for foreign securities it is the close of business in the applicable foreign country, with exchange rates determined at 2:00 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 U.S. dollar equivalent at current exchange rates. o U.S. Treasury securities and other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, are valued at representative quoted prices. o Long-term corporate bonds are valued at prices obtained from a bond pricing service of a major dealer in bonds when such prices are available; however, when such prices are not available, such bonds are valued at a bid price estimated by a broker. o Short-term debt securities in the Portfolios which mature in 60 days or less are valued at amortized cost, which approximates market value. Short-term debt securities in such Portfolios which mature in more than 60 days are valued at representative quoted prices. o Convertible preferred stocks listed on national securities exchanges are valued as of their last sale price or, if there is no sale, at the latest available bid price. o Convertible bonds, and unlisted convertible preferred stocks, are valued at bid prices obtained from one or more of the major dealers in such bonds or stocks. Where there is a discrepancy between dealers, values may be adjusted based on recent premium spreads to the underlying common stocks. o Mortgage backed and asset backed securities are valued at prices obtained from a bond pricing service where available, or at a bid price obtained from one or more of the major dealers in such securities. If a quoted price is unavailable, an 36 equivalent yield or yield spread quotes will be obtained from a broker and converted to a price. o Purchased options, including options on futures, are valued at their last bid price. Written options are valued at their last asked price. o Futures contracts are valued as of their last sale price or, if there is no sale, at the latest available bid price. o Other securities and assets for which market quotations are not readily available or for which valuation cannot be provided are valued in good faith by the valuation committee of the Board of Trustees using its best judgment. The market value of a put or call option will usually reflect, among other factors, the market price of the underlying security. When the Trust writes a call option, an amount equal to the premium received by the Trust is included in the Trust's financial statements as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When an option expires on its stipulated expiration date or the Trust enters into a closing purchase or sale transaction, the Trust realizes a gain (or loss) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. When an option is exercised, the Trust realizes a gain or loss from the sale of the underlying security, and the proceeds of sale are increased by the premium originally received, or reduced by the price paid for the option. The Manager and Advisers may, from time to time, under the general supervision of the Board of Trustees or its valuation committee, utilize the services of one or more pricing services available in valuing the assets of the Trust. The Manager and Advisers will continuously monitor the performance of these services. REDEMPTION OF SHARES The Trust may suspend redemption privileges or postpone the date of payment on shares of the Portfolios for more than seven days during any period (i) when the New York Stock Exchange is closed or trading on the New York Stock Exchange is restricted as determined by the SEC, (ii) when an emergency exists, as defined by the SEC, which makes it not reasonably practicable for a Portfolio to dispose of securities owned by it or fairly to determine the value of its assets, or (iii) as the SEC may otherwise permit. The value of the shares on redemption may be more or less than the shareholder's cost, depending upon the market value of the portfolio securities at the time of redemption. 37 CERTAIN TAX CONSIDERATIONS Each Portfolio is treated for Federal income tax purposes as a separate taxpayer. The Trust intends that each Portfolio shall qualify each year and elect to be treated as a regulated investment company under Subchapter M of the Code. Such qualification does not involve supervision of management or investment practices or policies by any governmental agency or bureau. As a regulated investment company, each Portfolio will not be subject to federal income or excise tax on any of its net investment income or net realized capital gains which are timely distributed to shareholders under the Code. A number of technical rules are prescribed for computing net investment income and net capital gains. For example, dividends are generally treated as received on the ex-dividend date. Also, certain foreign currency losses and capital losses arising after October 31 of a given year may be treated as if they arise on the first day of the next taxable year. A Portfolio investing in foreign securities or currencies may be subject to foreign taxes which could reduce the investment performance of such Portfolio. However, if foreign securities comprise more than 50% of the year-end value of a Portfolio, the Portfolio may elect to pass through such foreign taxes as a deemed dividend to shareholders. In such a case the shareholder and not the Portfolio would be entitled to claim a federal tax deduction or credit for foreign taxes, as appropriate. 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. A Portfolio must also derive less than 30% of its gross income in each taxable year from gains from the sale or other disposition of stock or securities held for less than three months. Other investments subject to this three-month limit are options, futures or forward contracts (other than those relating to foreign currency), or in certain circumstances, foreign currencies and related options, futures and forward contracts the gains on which are not directly related to the Portfolio's business of investing in stock or securities. See "Federal Tax Treatment of Options, Futures Contracts and Forward Foreign Exchange Contracts." This 30% rule may be inapplicable in the context of certain abnormal redemptions of Portfolio shares. For purposes of these tests, 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 or investing" in stock, securities or related options or futures. The Secretary of the Treasury has not to date exercised this authority. 38 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 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 U.S. Government agency or instrumentality is treated as a separate issuer. Compliance with the regulations is tested on the first day of each calendar year quarter. There is a thirty (30) day period after the end of each calendar year quarter in which to cure any non-compliance. PORTFOLIO PERFORMANCE COMPUTATION OF TOTAL RETURN Each Portfolio may provide average annual total return information calculated according to a formula prescribed by the SEC. According to that formula, average annual total return figures represent the average annual compounded rate of return for the stated period. Average annual total return quotations reflect the percentage change between the beginning value of a static account in the Portfolio and the ending value of that account measured by the then current net asset value of that Portfolio assuming that all dividends and capital gains distributions during the stated period were invested in shares of the Portfolio when paid. Total return is calculated by finding the average annual compounded rates of return of a hypothetical investment that would 39 equate the initial amount invested to the ending redeemable value of such investment, according to the following formula: 1/n T=(ERV/P) -1 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 Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as the Trust's independent accountant. CUSTODIAN ______________________________________ has been designated the Custodian of the Trust's portfolio securities and other assets. 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. 40 APPENDIX DESCRIPTION OF COMMERCIAL PAPER RATINGS A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS The rating A-1 (including A-1+) is the highest commercial paper rating assigned by S&P. Commercial paper rated A-1 by S&P has the following characteristics: o liquidity ratios are adequate to meet cash requirements; o long-term senior debt is rated "A" or better; o the issuer has access to at least two additional channels of borrowing; o basic earnings and cash flow have an upward trend with 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. 41 DESCRIPTION OF BOND RATINGS Bonds are considered to be "investment grade" if they are in one of the top four ratings. S&P's ratings are as follows: o Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. o Bonds rated AA have a very strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. o Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. o Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more 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 42 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. 43 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. 44 PART C: OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements: To be filed by amendment. (b) Exhibits: 1(a). Agreement and Declaration of Trust of the 787 Trust. 1(b). Certificate of Trust. 2. By-Laws of the 787 Trust. 3. Not applicable. 4. None other than Exhibit 1. 5(a). Form of Investment Management Agreement between the 787 Trust and EQ Financial Consultants, Inc. 5(b). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and T. Rowe Price Associates, Inc. 5(c). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and Rowe Price-Fleming International, Inc. 5(d). Form of Investment Advisory Agreement between, EQ Financial Consultants, Inc. and Putnam Investment Management, Inc. 5(e). Form of Investment Advisory Agreement between, EQ Financial Consultants, Inc. and Massachusetts Financial Services Company. 6(a). Form of Distribution Agreement between the 787 Trust and EQ Financial Consultants, Inc. with respect to the Class IA shares (to be provided by amendment). 6(b). Form of Distribution Agreement between the 787 Trust and Equitable Distributors, Inc. with respect to the Class IB shares (to be provided by amendment). 7. Form of Deferred Compensation Plan (to be provided by amendment). 8. Custodian Agreement (to be provided by amendment). 9(a). Administrative Services Agreement (to be provided by amendment). 9(b). Form of Expense Limitation Agreement between the Trust, on behalf of T. Rowe Price International Stock Portfolio, and EQ Financial Consultants, Inc. 9(c). Form of Expense Limitation Agreement between the Trust, on behalf of T. Rowe Price Equity Income Portfolio, and EQ Financial Consultants, Inc. 9(d). Form of Expense Limitation Agreement between the Trust, on behalf of Putnam Growth and Income Portfolio, and EQ Financial Consultants, Inc. C-1 9(e). Form of Expense Limitation Agreement between the Trust, on behalf of Putnam International Growth Portfolio, and EQ Financial Consultants, Inc. 9(f). Form of Expense Limitation Agreement between the Trust, on behalf of MFS Research Portfolio, and EQ Financial Consultants, Inc. 9(g). Form of Participation Agreement (to be provided by amendment). 10. Opinion and Consent of Katten Muchin & Zavis regarding the legality of the securities being registered. 11. Consent of the Independent Public Accountants (to be provided by amendment). 12. Not applicable. 13. Form of Stock Subscription Agreement between the 787 Trust and The Equitable Life Assurance Society of the United States. 14. Not Applicable. 15. Form of Distribution Plan Pursuant to Rule 12b-1 for the Trust's Class IB Shares. 16. Not Applicable. 17. Financial Data Schedule (to be provided by amendment). 18. Form of Plan Pursuant to Rule 18f-3 under the 1940 Act. 19. Not Applicable. Item 25. Persons Controlled by or under Common Control with Registrant Upon commencement of the Trust's operations, The Equitable Life Assurance Society of the United States ("Equitable Life") will be the sole initial shareholder of the Trust and will control the Trust by virtue of its ownership of 100% of the Trust's outstanding shares. All Trust shareholders are required to solicit instructions from their respective contract owners as to certain matters. The Trust may in the future offer its shares to insurance companies unaffiliated with Equitable Life. On July 22, 1992, Equitable Life converted from a New York mutual life insurance company to a publicly-owned New York stock life insurance company. At that time Equitable Life became a wholly-owned subsidiary of The Equitable Companies Incorporated ("Holding Company"). The Holding Company continues to own 100% of Equitable Life's common stock as well as approximately 80.2% of the common stock of Donaldson, Lufkin & Jenrette, Inc., a registered broker-dealer. The largest stockholder of the Holding Company is AXA, a French insurance holding company. AXA currently owns approximately 60% of the outstanding shares of common stock of the Holding Company plus convertible preferred stock. AXA, a public company with shares traded on the Paris Bourse (the French stock exchange), is the principal holding company for most of the companies in one of the largest insurance groups in Europe. The majority of AXA's stock is owned by a group of five French mutual insurance companies. C-2 ITEM 26. NUMBER OF HOLDERS OF SECURITIES NUMBER OF RECORD HOLDERS TITLE OF CLASS AS OF NOVEMBER __, 1996 - ------------------------------ ------------------------- Class IA Shares of beneficial interest None Class IB Shares of beneficial interest None ITEM 27. INDEMNIFICATION Declaration of Trust and By-Laws. Article VII, Section 2 of the Trust's Declaration of 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 C-3 against by policies maintained by the Trust on behalf of any [Trustee, officer, employee or other agent of the Trust], (ii) shall be severable, (iii) shall not be exclusive of or affect any other rights to which any [Trustee, officer, employee or other agent of the Trust] may now or hereafter be entitled and (iv) shall inure to the benefit of [such party's] heirs, executors and administrators." UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER AND ADVISERS The description of EQ Financial Consultants, Inc. under the caption of "Management of the Trust" in the Prospectus and under the caption "Investment Management and Other Services" in the Statement of Additional Information constituting Parts A and B, respectively, of this Registration Statement are incorporated by reference herein. The information as to the directors and officers of EQ Financial Consultants, Inc. is set forth in EQ Financial Consultants, Inc.'s Form ADV filed with the Securities and Exchange Commission on July 1, 1996 (File No. 801-14065) and amended through the date hereof, is incorporated by reference. The information as to the directors and officers of T. Rowe Price Associates, Inc., is set forth in T. Rowe Price Associates, Inc.'s Form ADV filed with the Securities and Exchange Commission on March 29, 1996 (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 29, 1996 (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 froth 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 froth in Massachusetts Financial Services Company's Form ADV filed with the Securities and Exchange Commission on May 23, 1996 (File No. 801-17352) and amended through the date hereof, is incorporated by reference. ITEM 29. PRINCIPAL UNDERWRITERS (a) EQ Financial Consultants, Inc. is the principal underwriter of the Trust's Class IA shares, and Equitable Distributors, Inc. is the principal underwriter of the Trust's Class IB shares. EQ Financial Consultants Inc. also serves as the principal underwriter for the following entities: the Class IA shares C-4 of The Hudson River Trust; Separate Accounts A and No. 301 of Equitable; and Separate Accounts I and FP of Equitable Variable Life Insurance Company. Equitable Distributors, Inc. serves as the principal underwriter for the Class IB shares of The Hudson River Trust and Separate Account Nos. 45 and 49 of Equitable. (b) Set forth below is certain information regarding the directors and officers of EQ Financial Consultants, Inc., the principal underwriter of the Trust's Class IA shares, and of Equitable Distributors, Inc., the principal underwriter of the Trust's Class IB shares. The business address of the persons whose names are preceded by a single asterisk is 787 Seventh Avenue, New York, New York 10019. The business address of the persons whose names are preceded by a double asterisk is 1755 Broadway, 3rd Floor, New York, New York 10019. Ms. Krumsiek'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. Mr. Radbill's business address is 135 West Fiftieth Street, 4th Floor, New York, New York 10020. The business address of Mr. Brakovich, Mr. Shepherdson and Mr. Meserve is 660 Newport Center Drive, Suite 350, Newport Beach, CA 92660.
========================================================================================================================== NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH EQ FINANCIAL WITH REGISTRANT CONSULTANTS, INC. - -------------------------------------------------------------------------------------------------------------------------- DIRECTORS * Derry E. Bishop Director * Harvey Blitz Director Barbara J. Krumsiek Director * Michael S. Martin Director ** Michael F. McNelis Director * Richard V. Silver Director * Mark R. Wutt Director
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========================================================================================================================== NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH EQ FINANCIAL WITH REGISTRANT CONSULTANTS, INC. - -------------------------------------------------------------------------------------------------------------------------- OFFICERS * Michael S. Martin Chairman of the Board and Chief Executive Officer ** Michael F. McNelis President and Chief Operating Officer * Derry E. Bishop Executive Vice President * Harvey Blitz Executive Vice President * Gordon G. Dinsmore Executive Vice President * Donald D. Higgins Executive Vice President ** Martin J. Telles Executive Vice President and Chief Marketing Officer * Fred A. Folco Executive Vice President * Thomas J. Duddy, Jr. Executive Vice President * William J. Green Executive Vice President * A. Frank Beaz Executive Vice President * Peter D. Noris Executive Vice President * Dennis D. Witte Executive Vice President ** Robert McKenna Senior Vice President and Chief Financial Officer ** Theresa A. Nurge-Alws Senior Vice President * Naomi Friedland-Wechsler General Counsel ** Ronald Boswell First Vice President ** Donna M. Dazzo First Vice President ** Nancy Yurman First Vice President ** Michael Brzozowski Vice President and Compliance Director ** Amy Franceschini Vice President ** Linda Funigiello Vice President ** James Furlong Vice President Peter R. Kornweiss Vice President ** Frank Lupo Vice President ** Rosemary Magee Vice President ** T.S. Narayanan Vice President ** James R. Anderson Vice President ** Raymond T.Barry Vice President ** Laura A. Pellegrini Vice President * Janet E. Hannon Secretary * Linda J. Galasso Assistant Secretary
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========================================================================================================================== POSITIONS AND NAME AND PRINCIPAL POSITIONS AND OFFICES WITH OFFICES WITH BUSINESS ADDRESS EQUITABLE DISTRIBUTORS, INC. REGISTRANT - -------------------------------------------------------------------------------------------------------------------------- DIRECTORS * James M. Benson Director Greg Brakovich Director * Jerome S. Golden Director * William T. McCaffrey Director James A. Shepherdson, Director III - -------------------------------------------------------------------------------------------------------------------------- OFFICERS * Jerome S. Golden Chairman of the Board * Greg Brakovich Co-President and Co-Chief Executive Officer and Managing Director * James A. Shepherdson, Co-President and Co-Chief Executive III Officer and Managing Director * Dennis D. Witte Senior Vice President Philip D. Meserve Managing Director * Thomas D. Bullen Chief Financial Officer ** Michael Brzozowski Chief Compliance Officer * Naomi Friedland- Chief Legal Officer Wechsler * Ronald R. Quist Treasurer * Janet Hannon Secretary * Linda J. Galasso Assistant Secretary
(c) Inapplicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS Books or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the Rules promulgated thereunder, are maintained as follows: (a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8); (12); and 31a-1(d), the required books and records are maintained at the offices of Registrant's Custodian: [To be provided] (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: [To be provided] C-7 (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. 755 Broadway, 3rd Floor 100 East Pratt St. New York, New York 10019 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 500 Boylston Street Boston, MA 02116 ITEM 31. MANAGEMENT SERVICES: None. ITEM 32. UNDERTAKINGS (a) Inapplicable. (b) The Registrant hereby undertakes to file a post-effective amendment, including financial statements which need not be audited, within four to six months from the later of the commencement of operations of the Trust or the effective date of this Registration Statement. (c) Inapplicable. C-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant has duly caused this 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 26th day of November, 1996. THE 787 TRUST By: /s/ Peter D. Noris ---------------------- Peter D. Noris President Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Peter D. Noris President and Trustee November 26, 1996 - -------------------------- Peter D. Noris /s/ Harvey Blitz Chief Financial Officer November 26, 1996 - -------------------------- Controller Harvey Blitz C-9 EXHIBIT LIST EXHIBIT NUMBER DESCRIPTION 1(a). Agreement and Declaration of Trust of the 787 Trust. 1(b). Certificate of Trust. 2. By-Laws of the 787 Trust. 5(a). Form of Investment Management Agreement between the 787 Trust and EQ Financial Consultants, Inc. 5(b). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and T. Rowe Price Associates, Inc. 5(c). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and Rowe Price-Fleming International, Inc. 5(d). Form of Investment Advisory Agreement between, EQ Financial Consultants, Inc. and Putnam Investment Management, Inc. 5(e). Form of Investment Advisory Agreement between, EQ Financial Consultants, Inc. and Massachusetts Financial Services Company. 9(b). Form of Expense Limitation Agreement between the Trust, on behalf of T. Rowe Price International Stock Portfolio, and EQ Financial Consultants, Inc. 9(c). Form of Expense Limitation Agreement between the Trust, on behalf of T. Rowe Price Equity Income Portfolio, and EQ Financial Consultants, Inc. 9(d). Form of Expense Limitation Agreement between the Trust, on behalf of Putnam Growth and Income Portfolio, and EQ Financial Consultants, Inc. 9(e). Form of Expense Limitation Agreement between the Trust, on behalf of Putnam International Growth Portfolio, and EQ Financial Consultants, Inc. 9(f). Form of Expense Limitation Agreement between the Trust, on behalf of MFS Research Portfolio, and EQ Financial Consultants, Inc. 10. Opinion and Consent of Katten Muchin & Zavis regarding the legality of the securities being registered. 13. Form of Stock Subscription Agreement between the 787 Trust and The Equitable Life Assurance Society of the United States. 15. Form of Distribution Plan Pursuant to Rule 12b-1 for the Trust's Class IB Shares. 18. Form of Plan Pursuant to Rule 18f-3 under the 1940 Act. EX-1.(A) 2 AGREEMENT AND DECLARATION OF TRUST EXHIBIT 1(A) AGREEMENT AND DECLARATION OF TRUST of 787 Trust a Delaware Business Trust Principal Place of Business: 787 Seventh Avenue New York, NY 10019 TABLE OF CONTENTS AGREEMENT AND DECLARATION OF TRUST Page ARTICLE I Name and Definitions............................1 1. Name ....................................................1 2. Definitions..............................................1 (a) By-Laws.........................................1 (b) Certificate of Trust............................1 (c) Class...........................................2 (d) Commission .....................................2 (e) Declaration of Trust............................2 (f) Delaware Act....................................2 (g) Interested Person ..............................2 (h) Manager.........................................2 (i) 1940 Act........................................2 (j) Person .........................................2 (k) Principal Underwriter...........................2 (l) Series..........................................2 (m) Shareholder.....................................2 (n) Shares..........................................2 (o) Trust...........................................2 (p) Trust Property..................................2 (q) Trustees........................................3 ARTICLE II Purpose of Trust................................3 ARTICLE III Shares..........................................3 1. Division of Beneficial Interest..........................3 2. Ownership of Shares......................................4 3. Transfer of Shares.......................................4 4. Investments in the Trust.................................5 5. Status of Shares and Limitation of Personal Liability .............................5 6. Establishment and Designation of Series or Class.........5 i (a) Assets Held with Respect to a Particular Series...............................5 (b) Liabilities Held with Respect to a Particular Series...............................6 (c) Dividends, Distributions, Redemptions, and Repurchases.................................6 (d) Equality .......................................7 (e) Fractions.......................................7 (f) Exchange Privilege..............................7 (g) Combination of Series...........................7 (h) Elimination of Series...........................7 7. Indemnification of Shareholders..........................7 ARTICLE IV Trustees.................................................8 1. Number, Election, and Tenure.............................8 2. Effect of Death, Resignation, etc. of a Trustee....................................8 3. Powers...................................................8 4. Payment of Expenses by the Trust........................12 5. Payment of Expenses by Shareholders.....................12 6. Ownership of Assets of the Trust........................12 7. Service Contracts.......................................13 8. Trustees and Officers as Shareholders...................14 ARTICLE V Shareholders' Voting Powers and Meetings................15 1. Voting Powers, Meetings, Notice and Record Dates........15 2. Quorum and Required Vote................................15 3. Record Dates............................................15 4. Additional Provisions...................................15 ARTICLE VI Net Asset Value, Distributions and Redemptions....................................16 1. Determination of Net Asset Value, Net Income and Distributions...................16 2. Redemptions and Repurchases.............................16 ii ARTICLE VII Compensation and Limitation of Liability of Trustees............................18 1. Compensation .............................................18 2. Indemnification and Limitation of Liability ..............18 3. Trustee's Good Faith Act, Expert Advice, No Bond or Surety ...............................19 4. Insurance ................................................19 ARTICLE VIII Miscellaneous....................................19 1. Liability of Third Persons Dealing with Trustees..........19 2. Termination of the Trust or Any Series or Class...........19 3. Reorganization............................................20 4. Amendments................................................21 5. Filing of Copies, References, Headings....................21 6. Applicable Law............................................21 7. Provisions in Conflict with Law or Regulations............22 8. Business Trust Only ......................................22 iii AGREEMENT AND DECLARATION OF TRUST OF 787 Trust THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the date set forth below by the Trustees named hereunder for the purpose of forming a Delaware business trust in accordance with the provisions hereinafter set forth. NOW, THEREFORE, the Trustees hereby direct that the Certificate of Trust be filed with the Office of the Secretary of State of the State of Delaware and do hereby declare that the Trustees will hold IN TRUST all cash, securities, and other assets which the Trust now possesses or may hereafter acquire from time to time in any manner and manage and dispose of the same upon the following terms and conditions for the benefit of the holders of Shares of this Trust. ARTICLE I Name and Definitions Section 1. Name. This Trust shall be known as the 787 Trust and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. Section 2. Definitions. Whenever used herein, unless otherwise required by the context or specifically provided: (a) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time, which By-Laws are expressly herein incorporated by reference as part of the "governing instrument" within the meaning of the Delaware Act; (b) "Certificate of Trust" means the certificate of trust, as amended or restated from time to time, filed by the Trustees in the Office of the Secretary of State of the State of Delaware in accordance with the Delaware Act; 1 (c) "Class" means a class of Shares of a Series of the Trust established in accordance with the provisions of Article III hereof; (d) "Commission" shall have the meaning given such term in the 1940 Act; (e) "Declaration of Trust" means this Agreement and Declaration of Trust, as amended or restated from time to time; (f) "Delaware Act" means the Delaware Business Trust Act 12 Del. C.ss.ss. 3801 et seq., as amended from time to time; (g) "Interested Person" shall have the meaning given it in Section 2(a)(19) of the 1940 Act; (h) "Manager" means a party furnishing services to the Trust pursuant to any contract described in Article IV, Section 7(a) hereof; (i) "1940 Act" means the Investment Company Act of 1940 and the rules and regulations thereunder, all as amended from time to time; (j) "Person" means and includes individuals, corporations, partnerships, trusts, associations, joint ventures, estates, and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof, whether domestic or foreign; (k) "Principal Underwriter" shall have the meaning given such term in the 1940 Act; (l) "Series" means each Series of Shares established and designated under or in accordance with the provisions of Article III hereof; (m) "Shareholder" means a record owner of outstanding Shares; (n) "Shares" means the shares of beneficial interest into which the beneficial interest in the Trust shall be divided from time to time and includes fractions of Shares as well as whole Shares; (o) "Trust" means the Delaware Business Trust established under the Delaware Act by this Declaration of Trust and the filing of the Certificate of Trust in the Office of the Secretary of State of the State of Delaware; (p) "Trust Property" means any and all property, real or personal, tangible or intangible, which is from time to time owned or held by or for the account of the Trust; and (q) "Trustees" means the "Person" or "Persons" who have signed this Declaration of 2 Trust and all other Persons who may from time to time be duly elected or appointed to serve as Trustees in accordance with the provisions hereof, in each case so long as such Person shall continue in office in accordance with the terms of this Declaration of Trust, and reference herein to a Trustee or the Trustees shall refer to such Person or Persons in his or her or their capacity as Trustees hereunder. ARTICLE II Purpose of Trust The purpose of the Trust is to conduct, operate and carry on the business of a management investment company registered under the 1940 Act through one or more Series investing primarily in securities, and to carry on such other business as the Trustees may from time to time determine pursuant to their authority under this Declaration of Trust. ARTICLE III Shares Section 1. Division of Beneficial Interest. The beneficial interest in the Trust shall be divided into one or more Series. The Trustees may divide each Series into two or more Classes. Subject to the further provisions of this Article III and any applicable requirements of the 1940 Act, the Trustees shall have full power and authority, in their sole discretion, and without obtaining any authorization or vote of the Shareholders of any Series or Class thereof, (i) to divide the beneficial interest in each Series or Class thereof into Shares, with or without par value as the Trustees shall determine, (ii) to issue Shares without limitation as to number (including fractional Shares) to such Persons and for such amount and type of consideration, subject to any restriction set forth in the By-Laws, including cash or securities, at such time or times and on such terms as the Trustees may deem appropriate, (iii) to establish and designate and to change in any manner any Series or Class thereof and to fix such preferences, voting powers, rights, duties and privileges and business purpose of each Series or Class thereof as the Trustees may from time to time determine, which preferences, voting powers, rights, duties and privileges may be senior or subordinate to (or in the case of business purpose, different from) any existing Series or Class thereof and may be limited to specified property or obligations of the Trust or profits and losses associated with specified property or obligations of the Trust, (iv) to divide or combine the Shares of any Series or Class thereof into a greater or lesser number without thereby materially changing the proportionate beneficial interest of the Shares of such Series or Class thereof in the assets held with respect to that Series, (v) to classify or reclassify any issued Shares of any Series or Class thereof into shares of one or more Series or Classes thereof; (vi) to change the name of any Series or Class thereof; (vii) to abolish any one or more Series or Classes thereof; and (viii) to take such other action with respect to the Shares as the 3 Trustees may deem desirable. Subject to the distinctions permitted among Classes of the same Series as established by the Trustees, consistent with the requirements of the 1940 Act, each Share of a Series of the Trust shall represent an equal beneficial interest in the net assets of such Series, and each holder of Shares of a Series shall be entitled to receive such holder's pro rata share of distributions of income and capital gains, if any, made with respect to such Series. Upon redemption of the Shares of any Series, the applicable Shareholder shall be paid solely out of the funds and property of such Series of the Trust. All references to Shares in this Declaration of Trust shall be deemed to be Shares of any or all Series or Classes thereof, as the context may require. All provisions herein relating to the Trust shall apply equally to each Series of the Trust and each Class thereof, except as the context otherwise requires. All Shares issued hereunder, including, without limitation, Shares issued in connection with a dividend in Shares or a split or reverse split of Shares, shall be fully paid and non-assessable. Except as otherwise provided by the Trustees, Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. Section 2. Ownership of Shares. The Ownership of Shares shall be recorded on the books of the Trust or those of a transfer or similar agent for the Trust, which books shall be maintained separately for the Shares of each Series or Class of the Trust. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares of each Series or Class of the Trust and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to the identity of the Shareholders of each Series or Class of the Trust and as to the number of Shares of each Series or Class of the Trust held from time to time by each Shareholder. Section 3. Transfer of Shares. Except as otherwise provided by the Trustees, Shares shall be transferable on the books of the Trust only by the record holder thereof or by his or her duly authorized agent upon delivery to the Trustees or the Trust's transfer agent of a duly executed instrument of transfer, together with a Share certificate if one is outstanding, and such evidence of the genuineness of each such execution and authorization and of such other matters as may be required by the Trustees. Upon such delivery, and subject to any further requirements specified by the Trustees or contained in the By-Laws, the transfer shall be recorded on the books of the Trust. Until a transfer is so recorded, the Shareholder of record of Shares shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor the Trust, nor any transfer agent or registrar or any officer, employee, or agent of the Trust, shall be affected by any notice of a proposed transfer. 4 Section 4. Investments in the Trust. Investments may be accepted by the Trust from Persons, at such times, on such terms, and for such consideration as the Trustees from time to time may authorize. Section 5. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof. The death, incapacity, dissolution, termination, or bankruptcy of a Shareholder during the existence of the Trust shall not operate to terminate the Trust, nor entitle the representative of any such Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but entitles such representative only to the rights of such Shareholder under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust Property or right to call for a participation or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders as partners. No Shareholder shall be personally liable for the debts, liabilities, obligations and expenses incurred by, contracted for, or otherwise existing with respect to, the Trust or any Series. Neither the Trust nor the Trustees, nor any officer, employee, or agent of the Trust shall have any power to bind personally any Shareholders, nor, except as specifically provided herein, to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. Section 6. Establishment and Designation of Series or Class. The establishment and designation of any Series or Class of Shares of the Trust shall be effective upon the adoption by a majority of the then Trustees of a resolution that sets forth such establishment and designation and the relative rights and preferences of such Series or Class of the Trust, whether directly in such resolution or by reference to another document including, without limitation, any registration statement of Trust, or as otherwise provided in such resolution. Shares of each Series or Class of the Trust established pursuant to this Article III, unless otherwise provided in the resolution establishing such Series or Class, shall have the following relative rights and preferences: (a) Assets Held with Respect to a Particular Series. All consideration received by the Trust for the issue or sale of Shares of a particular Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof from whatever source derived (including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be) shall irrevocably be held separately with respect to that Series for all purposes, subject only to the rights of creditors of such Series from the assets of the Trust and every other Series, and shall be so recorded upon the books of account of the Trust. Such consideration, assets, income, earnings, profits and proceeds thereof, from whatever source derived, (including, without limitation, any proceeds derived from the 5 sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds), in whatever form the same may be, are herein referred to as "assets held with respect to" that Series. In the event that there are any assets, income, earnings, profits and proceeds thereof, funds or payments which are not readily identifiable as assets held with respect to any particular Series (collectively "General Assets"), the Trustees shall allocate such General Assets to, between or among any one or more of the Series in such manner and on such basis as the Trustees, in their sole discretion, deem fair and equitable, and any General Assets so allocated to a particular Series shall be held with respect to that Series. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all Series for all purposes. Separate and distinct records shall be maintained for each Series and the assets held with respect to each Series shall be held and accounted for separately from the assets held with respect to all other Series and the General Assets of the Trust not allocated to such Series. (b) Liabilities Held with Respect to a Particular Series. The assets of the Trust held with respect to each particular Series shall be charged against the liabilities of the Trust held with respect to that Series and all expenses, costs, charges, and reserves attributable to that Series, except that liabilities and expenses allocated solely to a particular Class shall be borne by that Class. Any general liabilities of the Trust which are not readily identifiable as being held with respect to any particular Series or Class shall be allocated and charged by the Trustees to and among any one or more of the Series or Classes in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. All liabilities, expenses, costs, charges, and reserves so charged to a Series or Class are herein referred to as "liabilities held with respect to" that Series or Class. Each allocation of liabilities, expenses, costs, charges, and reserves by the Trustees shall be conclusive and binding upon the shareholders of all Series or Classes for all purposes. Without limiting the foregoing, but subject to the right of the Trustees to allocate general liabilities, expenses, costs, charges or reserves as herein provided, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Series shall be enforceable against the assets held with respect to such Series only and not against the assets of the Trust generally or against the assets held with respect to any other Series. Notice of this contractual limitation on liabilities among Series may, in the Trustees' discretion, be set forth in the certificate of trust of the Trust (whether originally or by amendment) as filed or to be filed in the Office of the Secretary of State of the State of Delaware pursuant to the Delaware Act, and upon the giving of such notice in the certificate of trust, the statutory provisions of Section 3804 of the Delaware Act relating to limitations on liabilities among Series (and the statutory effect under Section 3804 of setting forth such notice in the certificate of trust) shall become applicable to the Trust and each Series. Any person extending credit to, contracting with or having any claim against any Series may look only to the assets of that Series to satisfy or enforce any debt, with respect to that Series. No Shareholder or former Shareholder of any Series shall have a claim on or any right to any assets allocated or belonging to any other Series. (c) Dividends, Distributions, Redemptions, and Repurchases. Notwithstanding any 6 other provisions of this Declaration of Trust, including, without limitation, Article VI, no dividend or distribution, including, without limitation, any distribution paid upon termination of the Trust or of any Series or Class with respect to, nor any redemption or repurchase of, the Shares of any Series or Class, shall be effected by the Trust other than from the assets held with respect to such Series, nor shall any Shareholder or any particular Series or Class otherwise have any right or claim against the assets held with respect to any other Series except to the extent that such Shareholder has such a right or claim hereunder as a Shareholder of such other Series. The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital, and each such determination and allocation shall be conclusive and binding upon the Shareholders. (d) Equality. All the Shares of each particular Series shall represent an equal proportionate interest in the assets held with respect to that Series (subject to the liabilities held with respect to that Series or Class thereof and such rights and preferences as may have been established and designated with respect to any Class within such Series), and each Share of any particular Series shall be equal to each other Share of that Series. With respect to any Class of a Series, each such Class shall represent interests in the assets of that Series and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that expenses allocated to a Class may be borne solely by such Class as determined by the Trustees and a Class may have exclusive voting rights with respect to matters affecting only that Class. (e) Fractions. Any fractional Share of a Series or Class thereof, shall carry proportionately all the rights and obligations of a whole Share of that Series or Class, including rights with respect to voting, receipt of dividends and distributions, redemption of Shares and termination of the Trust. (f) Exchange Privilege. The Trustees shall have the authority to provide that the holders of Shares of any Series or Class shall have the right to exchange said Shares for Shares of one or more other Series of Shares or Class of Shares of the Trust or of other investment companies registered under the 1940 Act in accordance with such requirements and procedures as may be established by the Trustees. (g) Combination of Series. The Trustees shall have the authority, without the approval of the Shareholders of any Series or Class unless otherwise required by applicable law, to combine the assets and liabilities held with respect to any two or more Series or Classes into assets and liabilities held with respect to a single Series or Class. Section 7. Indemnification of Shareholders. If any Shareholder or former Shareholder shall be exposed to liability by reason of a claim or demand relating to such Person being or having been a Shareholder, and not because of such Person's acts or omissions, the Shareholder or former Shareholder (or such Person's heirs, executors, administrators, or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified out of the assets of the 7 Trust against all loss and expense arising from such claim or demand, but only out of the assets held with respect to the particular Series of Shares of which such Person is or was a Shareholder and from or in relation to which such liability arose. ARTICLE IV Trustees Section 1. Number, Election and Tenure. The number of Trustees shall initially be one, who shall be Peter D. Noris. Hereafter, the number of Trustees shall at all times be at least one and no more than ten as determined, from time to time, by the Trustees pursuant to Section 3 of this Article IV. Each Trustee shall serve during the lifetime of the Trust until he or she dies, resigns, has reached the mandatory retirement age as set by the Trustees, is declared bankrupt or incompetent by a court of appropriate jurisdiction, or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor. In the event that less than the majority of the Trustees holding office have been elected by the Shareholders, the Trustees then in office shall call a Shareholders' meeting for the election of Trustees. Any Trustee may resign at any time by written instrument signed by him or her and delivered to any officer of the Trust or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee resigning and no Trustee removed shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. The Shareholders may elect Trustees at any meeting of Shareholders called by the Trustees for that purpose. Any Trustee may be removed at any meeting of Shareholders by a vote of two-thirds of the outstanding Shares of the Trust. Section 2. Effect of Death, Resignation, etc. of a Trustee. The death, declination to serve, resignation, retirement, removal or incapacity of one or more Trustees, or all of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. Whenever there shall be fewer than the designated number of Trustees, until additional Trustees are elected or appointed as provided herein to bring the total number of Trustees equal to the designated number, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration of Trust. As conclusive evidence of such vacancy, a written instrument certifying the existence of such vacancy may be executed by an officer of the Trust or by a majority of the Trustees. In the event of the death, declination, resignation, retirement, removal, or incapacity of all the then Trustees within a short period of time and without the opportunity for at least one Trustee being able to appoint additional Trustees to replace those no longer serving, the Trust's Manager(s) are empowered to appoint new Trustees subject to the provisions of Section 16(a) of the 1940 Act. 8 Section 3. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and the Trustees shall have all powers necessary or convenient to carry out that responsibility including the power to engage in securities transactions of all kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may: adopt By-Laws not inconsistent with this Declaration of Trust providing for the management of the affairs of the Trust and may amend and repeal such By-Laws to the extent that such By-laws do not reserve that right to the Shareholders; enlarge or reduce the number of Trustees; remove any Trustee with or without cause at any time by written instrument signed by a least two-thirds of the number of Trustees prior to such removal, specifying the date when such removal shall become effective, and fill vacancies caused by enlargement of their number or by the death, resignation, retirement or removal of a Trustee; elect and remove, with or without cause, such officers and appoint and terminate such agents as they consider appropriate; appoint from their own number and establish and terminate one or more committees, consisting of two or more Trustees, that may exercise the powers and authority of the Board of Trustees to the extent that the Trustees so determine; employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities or with a Federal Reserve Bank; employ an administrator for the Trust and may authorize such administrator to employ subadministrators; employ a Manager to the Trust and may authorize such Manager to employ subadvisers; retain a transfer agent or a shareholder servicing agent, or both; provide for the issuance and distribution of Shares by the Trust directly or through one or more Principal Underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to applicable law; set record dates for the determination of Shareholders with respect to various matters; declare and pay dividends and distributions to Shareholders of each Series from the assets of such Series; and in general delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian, transfer or shareholder servicing agent, or Principal Underwriter. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of a grant of power to the Trustees. Unless otherwise specified herein or in the By-Laws or required by law, any action by the Trustees shall be deemed effective if approved or taken by a majority of the Trustees present at a meeting of Trustees at which a quorum of Trustees is present, within or without the State of Delaware. Without limiting the foregoing, the Trustees shall have the power and authority to cause the Trust (or to act on behalf of the Trust): 9 (a) To invest and reinvest cash, to hold cash uninvested, and to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, write options on, lend or otherwise deal in or dispose of contracts for the future acquisition or delivery of fixed income or other securities, and securities of every nature and kind, including, without limitation, all types of bonds, debentures, stocks, negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial papers, repurchase agreements, bankers' acceptances, and other securities of any kind, issued, created, guaranteed, or sponsored by any and all Persons, including without limitation, states, territories, and possessions of the United States and the District of Columbia and any political subdivision, agency, or instrumentality thereof, and foreign government or any political subdivision of the United States Government or any foreign government, or any international instrumentality, or by any bank or savings institution, or by any corporation or organization organized under the laws of the United States or of any state, territory, or possession thereof, or by any corporation or organization organized under any foreign law, or in "when issued" contracts for any such securities, to change the investments of the assets of the Trust; and to exercise any and all rights, powers, and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more Persons, to exercise any of said rights, powers, and privileges in respect of any of said instruments; (b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write options (including, options on futures contracts) with respect to or otherwise deal in any property rights relating to any or all of the assets of the Trust or any Series; (c) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such Person or Persons as the Trustees shall deem proper, granting to such Person or Persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (d) To exercise powers and right of subscription or otherwise which in any manner arise out of ownership or securities; (e) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in its own name or in the name of a custodian or subcustodian or a nominee or nominees or otherwise; (f) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer of any security which is held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer; and to pay calls or subscriptions with respect to any security held in the Trust; (g) To join with other security holders in acting through a committee, depositary, 10 voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper; (h) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including, but not limited to, claims for taxes; (i) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (j) To borrow funds or other property in the name of the Trust exclusively for Trust purposes and in connection therewith issue notes or other evidence of indebtedness; and to mortgage and pledge the Trust Property or any part thereof to secure any or all of such indebtedness; (k) To endorse or guarantee the payment of any notes or other obligations of any Person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust Property or any part thereof to secure any of or all of such obligations; (l) To purchase any pay for entirely out of Trust Property such insurance as the Trustees may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust or payment of distributions and principal on its portfolio investments, and insurance polices insuring the Shareholders, Trustees, officers, employees, agents, investment advisers, principal underwriters, or independent contractors of the Trust, individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such Person as Trustee, officer, employee, agent, investment adviser, principal underwriter, or independent contractor, including any action taken or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such Person against liability; (m) To adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans and trusts, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust; (n) To operate as and carry out the business of an investment company, and exercise all the powers necessary or appropriate to the conduct of such operations; 11 (o) To enter into contracts of any kind and description; (p) To employ as custodian of any assets of the Trust one or more banks, trust companies or companies that are members of a national securities exchange or such other entities as the Commission may permit as custodians of the Trust, subject to any conditions set forth in this Declaration of Trust or in the By-Laws; (q) To employ auditors, counsel or other agents of the Trust, subject to any conditions set forth in this Declaration of Trust or in the By-Laws; (r) To interpret the investment policies, practices, or limitations of any Series or Class; and (s) To establish separate and distinct Series with separately defined investment objectives and policies and distinct investment purposes, and with separate Shares representing beneficial interests in such Series, and to establish separate Classes, all in accordance with the provisions of Article III; (t) To the full extent permitted by Section 3804 of the Delaware Act, to allocate assets, liabilities and expenses of the Trust to a particular Series and liabilities and expenses to a particular Class or to apportion the same between or among two or more Series or Classes, provided that any liabilities or expenses incurred by a particular Series or Class shall be payable solely out of the assets belonging to that Series or Class as provided for in Article III; (u) Subject to the 1940 Act, to engage in any other lawful act or activity in which a business trust organized under the Delaware Act may engage. The Trust shall not be limited to investing in obligations maturing before the possible termination of the Trust or one or more of its Series. The Trust shall not in any way be bound or limited by any present or future law or custom in regard to investment by fiduciaries. The Trust shall not be required to obtain any court order to deal with any assets of the Trust or take any other action hereunder. Section 4. Payment of Expenses by the Trust. The Trustees are authorized to pay or cause to be paid out of the principal or income of the Trust, or partly out of the principal and partly out of income, as they deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser or Manager, Principal Underwriter, auditors, counsel, custodian, transfer agent, shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur, which expenses, fees, charges, taxes and liabilities shall be allocated in accordance with Article III, Section 6 hereof. 12 Section 5. Payment of Expenses by Shareholders. The Trustees shall have the power, as frequently as they may determine, to cause each Shareholder, or each Shareholder of any particular Series, to pay directly, in advance or arrears, expenses of the Trust as described in Section 4 of this Article IV ("Expenses"), in an amount fixed from time to time by the Trustees, by setting off such Expenses due from such Shareholder from declared but unpaid dividends owed such Shareholder and/or by reducing the number of Shares in the account of such Shareholder by that number of full and/or fractional Shares which represents the outstanding amount of such Expenses due from such Shareholder, provided that the direct payment of such Expenses by Shareholders is permitted under applicable law. Section 6. Ownership of Assets of the Trust. Title to all of the assets of the Trust shall at all times be considered as vested in the Trust, except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of the Trust, or in the name of any other Person as nominee, on such terms as the Trustees may determine. The right, title and interest of the Trustees in the Trust Property shall vest automatically in each Person who may hereafter become a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. Section 7. Service Contracts. (a) Subject to such requirements and restrictions as may be set forth under federal and/or state law and in the By-Laws, including, without limitation, the requirements of Section 15 of the 1940 Act, the Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory, management and/or administrative services for the Trust or for any Series (or Class thereof) with any corporation, trust, association, or other organization; and any such contract may contain such other terms as the Trustees may determine, including, without limitation, authority for the Manager(s) or administrator to delegate certain or all of its duties under such contracts to qualified investment advisers and administrators and to determine from time to time without prior consultation with the Trustees what investments shall be purchased, held sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments, or such other activities as may specifically be delegated to such party. (b) The Trustees may also, at any time and from time to time, contract with any corporation, trust, association, or other organization, appointing it exclusive or nonexclusive distributor or Principal Underwriter for the Shares of one or more of the Series (or Classes) or other securities to be issued by the Trust. Every such contract shall comply with such requirements and restrictions as may be set forth under federal and/or state law and in the ByLaws, including, without limitation, the requirements of Section 15 of the 1940 Act; and any 13 such contract may contain such other terms as the Trustees may determine. (c) The Trustees are also empowered, at any time and from time to time, to contract with any corporations, trusts, associations or other organizations, appointing it or them the custodian, transfer agent and/or shareholder servicing agent for the Trust or one or more of its Series. Every such contract shall comply with such requirements and restrictions as may be set forth under federal and/or state law and in the By-Laws or stipulated by resolution of the Trustees. (d) Subject to applicable law, the Trustees are further empowered, at any time and from time to time, to contract with any entity to provide such other services to the Trust or one or more of the Series, as the Trustees determine to be in the best interests of the Trust and the applicable Series. (e) The fact that: (i) any of the Shareholders, Trustees, or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, Manager, adviser, Principal Underwriter, distributor, or affiliate or agent of or for any corporation, trust, association, or other organization, or for any parent or affiliate of any organization with which an advisory, management, or administration contract, or Principal Underwriter's or distributor's contract, or transfer agent, shareholder servicing agent or other type of service contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust; or that (ii) any corporation, trust, association or other organization with which an advisory, management, or administration contract or Principal Underwriter's or distributor's contract, or transfer agent or shareholder servicing agent contract may have been or may hereafter be made also has an advisory, management, or administration contract, or Principal Underwriter's or distributor's or other service contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests, shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same, or create any liability or accountability to the Trust or its Shareholders, provided approval of each such contract is made pursuant to the requirements of the 1940 Act. Section 8. Trustees and Officers as Shareholders. Any Trustee, officer or agent of the Trust may acquire, own and dispose of Shares to the same extent as if he were not a Trustee, 14 officer or agent; and the Trustees may issue and sell and cause to be issued and sold Shares to, and redeem such Shares from, any such Person or any firm or company in which such Person is interested, subject only to the general limitations contained herein or in the By-Laws relating to the sale and redemption of such Shares. ARTICLE V Shareholders' Voting Powers and Meetings Section 1. Voting Powers, Meetings, Notice, and Record Dates. The Shareholders shall have power to vote only: (i) for the election or removal of Trustees as provided in Article IV, Section 1 hereof, and (ii) with respect to such additional matters relating to the Trust as may be required by applicable law, this Declaration of Trust, the By-Laws or any registration of the Trust with the Commission (or any successor agency), or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matters submitted to a vote of the Shareholders, all Shares of the Trust then entitled to vote shall be voted in aggregate, except: (i) when required by the 1940 Act, Shares shall be voted by individual Series; (ii) when the matter involves the termination of a Series or any other action that the Trustees have determined will affect only the interests of one or more Series, then only Shareholders of such Series shall be entitled to vote thereon; and (iii) when the matter involves any action that the Trustees have determined will affect only the interests of one or more Classes, then only the Shareholders of such Class or Classes shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy may be given in writing. The By-Laws may provide that proxies may also, or may instead, be given by an electronic or telecommunications device or in any other manner. Notwithstanding anything else contained herein or in the By-Laws, in the event a proposal by anyone other than the officers or Trustees of the Trust is submitted to a vote of the Shareholders of one or more Series or Classes thereof or of the Trust, or in the event of any proxy contest or proxy solicitation or proposal in opposition to any proposal by the officers or Trustees of the Trust, Shares may be voted only by written proxy or in person at a meeting. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or the By-Laws to be taken by the Shareholders. Meetings of the Shareholders shall be called and notice thereof and record dates therefor shall be given and set as provided in the By-Laws. Section 2. Quorum and Required Vote. Except when a larger quorum is required by applicable law, by the By-Laws or by this Declaration of Trust, thirty-three and one-third percent (33-1/3%) of the Shares entitled to vote shall constitute a quorum at a Shareholders' meeting. When any one or more Series (or Classes) is to vote as a single Class separate from any other Shares, thirty-three and one-third percent (33-1/3%) of the Shares of each such Series 15 (or Class) entitled to vote shall constitute a quorum at a Shareholders' meting of that Series (or Class). Except when a larger vote is required by any provision of this Declaration of Trust or the By-Laws or by applicable law, when a quorum is present at any meeting, a majority of the Shares voted shall decide any questions and a plurality of the Shares voted shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust requires that the holders of any Series shall vote as a Series (or that holders of a Class shall vote as a Class), then a majority of the Shares of that Series (or Class) voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that Series (or Class) is concerned. Section 3. Record Dates. For the purpose of determining the Shareholders of any Series (or Class) who are entitled to receive payment of any dividend or of any other distribution, the Trustees may from time to time fix a date, which shall be before the date for the payment of such dividend or such other payment, as the record date for determining the Shareholders of such Series (or Class) having the right to receive such dividend or distribution. Without fixing a record date, the Trustees may for distribution purposes close the register or transfer books for one or more Series (or Classes) at any time prior to the payment of a distribution. Nothing in this Section shall be construed as precluding the Trustees from setting different record dates for different Series (or Classes). Section 4. Additional Provisions. The By-Laws may include further provisions for Shareholders' votes and meetings and related matters. ARTICLE VI Net Asset Value, Distributions and Redemptions Section 1. Determination of Net Asset Value, Net Income, and Distributions. Subject to applicable law and Article III, Section 6 hereof, the Trustees, in their absolute discretion, may prescribe and shall set forth in the By-Laws or in a duly adopted vote of the Trustees such bases and time for determining the per Share or net asset value of the Shares of any Series or Class or net income attributable to the Shares of any Series or Class, or the declaration and payment of dividends and distributions on the Shares of any Series or Class, as they may deem necessary or desirable. Section 2. Redemptions and Repurchases. (a) The Trust shall purchase such Shares as are offered by any Shareholder for redemption, upon the presentation of a proper instrument of transfer together with a request directed to the Trust, or a Person designated by the Trust, that the Trust purchase such Shares or in accordance with such other procedures for redemption as the Trustees may from time to time authorize; and the Trust will pay therefor the net asset value thereof as determined by the 16 Trustees (or on their behalf), in accordance with any applicable provisions of the By-Laws and applicable law. Unless extraordinary circumstances exist, payment for said Shares shall be made by the Trust to the Shareholder in accordance with the 1940 Act and any rules and regulations thereunder or as otherwise required by the Commission. The obligation set forth in this Section 2 is subject to the provision that, in the event that any time the New York Stock Exchange (the "Exchange") is closed for other than weekends or holidays, or if permitted by the rules and regulations or an order of the Commission during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Trust to dispose of the investments of the applicable Series or to determine fairly the value of the net assets held with respect to such Series or during any other period permitted by order of the Commission for the protection of investors, such obligation may be suspended or postponed by the Trustees. In the case of a suspension of the right of redemption as provided herein, a Shareholder may either withdraw the request for redemption or receive payment based on the net asset value per share next determined after the termination of such suspension. (b) The redemption price may in any case or cases be paid wholly or partly in kind if the Trustees determine that such payment is advisable in the interest of the remaining Shareholders of the Series or Class thereof for which the Shares are being redeemed. Subject to the foregoing, the fair value, selection and quantity of securities or other property so paid or delivered as all or part of the redemption price may be determined by or under authority of the Trustees. In no case shall the Trust be liable for any delay of any Manager or other Person in transferring securities selected for delivery as all or part of any payment-in-kind. (c) If the Trustees shall, at any time and in good faith, determine that direct or indirect ownership of Shares of any Series or Class thereof has or may become concentrated in any Person to an extent that would disqualify any Series as a regulated investment company under the Internal Revenue Code of 1986, as amended (or any successor statute thereto), then the Trustees shall have the power (but not the obligation) by such means as they deem equitable (i) to call for the redemption by any such Person of a number, or principal amount, of Shares sufficient to maintain or bring the direct or indirect ownership of Shares into conformity with the requirements for such qualification, (ii) to refuse to transfer or issue Shares of any Series or Class thereof to such Person whose acquisition of the Shares in question would result in such disqualification, or (iii) to take such other actions as they deem necessary and appropriate to avoid such disqualification. Any such redemption shall be effected at the redemption price and in the manner provided in this Article VI. (d) The holders of Shares shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares as the Trustees deem necessary to comply with the provisions of the Internal Revenue Code of 1986, as amended (or any successor statute thereto), or to comply with the requirements of any other taxing authority. ARTICLE VII 17 Compensation and Limitation of Liability of Trustees Section 1. Compensation. The Trustees in such capacity shall be entitled to reasonable compensation from the Trust and they may fix the amount of such compensation. However, the Trust will not compensate those Trustees who are Interested Persons of the Trust, its Manager, subadvisers, distributor or Principal Underwriter. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking or other services and payment for such services by the Trust. Section 2. Indemnification and Limitation of Liability. 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. All persons extending credit to, contracting with or having any claim against the Trust of the Trustees shall look only to the assets of the appropriate Series of the Trust for payment under such credit, contract, or claim; and neither the Trustees nor the Shareholders, nor any of the Trust's officers, employees, or agents, whether past, present, or future, shall be personally liable therefor. Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees by any of them in connection with the Trust shall conclusively be deemed to have been executed or done only in or with respect to his or their capacity as Trustee or Trustees, and such Trustee or Trustees shall not be personally liable thereon. At the Trustees' discretion, any note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers may give notice that the Certificate of Trust is on file in the Office of the Secretary of State of the State of Delaware and that a limitation on liability of Series exists and such note, bond, contract, instrument, certificate or undertaking may, if the Trustees so determine, recite that the same was executed or made on behalf of the Trust by a Trustee or Trustees in such capacity and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only on the assets and property of the Trust or a Series thereof, and may contain such further recital as such Person or Persons may deem appropriate. The omission of any such notice or recital shall in no way operate to bind any Trustees, officer, or Shareholders individually. Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety. The 18 exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable to the Trust and to any Shareholder solely for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice nor for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. Section 4. Insurance. 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 VIII Miscellaneous Section 1. Liability of Third Persons Dealing with Trustees. No Person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order. Section 2. Termination of the Trust or Any Series or Class. (a) Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of a majority of the Shares of each Series entitled to vote, voting separately by Series, or by the Trustees by written notice to the Shareholders. Any Series of Shares or Class thereof may be terminated at any time by vote of a majority of the Shares of such Series or Class entitled to vote or by the Trustees by written notice to the Shareholders of such Series or Class. (b) Upon the requisite Shareholder vote or action by the Trustees to terminate the Trust or any one or more Series of Shares or any Class thereof, after paying or otherwise providing for all charges, taxes, expenses, and liabilities, whether due or accrued or anticipated, of the Trust or of the particular Series or any Class thereof as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees may consider appropriate reduce the remaining assets of the Trust or of the affected Series or Class to distributable form in cash or Shares (if any Series remain) or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the Series or Classes 19 involved, ratably according to the number of Shares of such Series or Class held by the Shareholders of such Series or Class on the date of distribution. Thereupon, the Trust or any affected Series or Class shall terminate and the Trustees and the Trust shall be discharged of any and all further liabilities and duties relating thereto or arising therefrom, and the right, title, and interest of all parties with respect to the Trust or such Series or Class shall be canceled and discharged. (c) Upon termination of the Trust, following completion of winding up of its business, the Trustees shall cause a certificate of cancellation of the Trust's Certificate of Trust to be filed in accordance with the Delaware Act, which Certificate of Cancellation may be signed by any one Trustee. Section 3. Reorganization. (a) Notwithstanding anything else herein, the Trustees may, without Shareholder approval unless such approval is required by applicable law, (i) cause the Trust to merge or consolidate with or into one or more trusts (or series thereof to the extent permitted by law), partnerships, associations, corporations or other business entities (including trusts, partnerships, associations, corporations or other business entities created by the Trustees to accomplish such merger or consolidation) so long as the surviving or resulting entity is an investment company as defined in the 1940 Act, or is a series thereof, that will succeed to or assume the Trust's registration under the 1940 Act and that is formed, organized, or existing under the laws of the United States or of a state, commonwealth, possession or colony of the United States, unless otherwise permitted under the 1940 Act, (ii) cause any one or more Series (or Classes) of the Trust to merge or consolidate with or into any one or more other Series (or Classes) of the Trust, one or more trusts (or series or classes thereof to the extent permitted by law), partnerships, associations, corporations, (iii) cause the Shares to be exchanged under or pursuant to any state or federal statute to the extent permitted by law or (iv) cause the Trust to reorganize as a corporation, limited liability company or limited liability partnership under the laws of Delaware or any other state or jurisdiction. Any agreement of merger or consolidation or exchange or certificate or merger may be signed by a majority of the Trustees and facsimile signatures conveyed by electronic or telecommunication means shall be valid. (b) Pursuant to and in accordance with the provisions of Section 3815(f) of the Delaware Act, and notwithstanding anything to the contrary contained in this Declaration of Trust, an agreement of merger or consolidation approved by the Trustees in accordance with this Section 3 may (i) effect any amendment to the governing instrument of the Trust or (ii) effect the adoption of a new governing instrument of the Trust if the Trust is the surviving or resulting trust in the merger or consolidation. (c) The Trustees may create one or more business trusts to which all or any part of the assets, liabilities, profits, or losses of the Trust or any Series or Class thereof may be transferred and may provide for the conversion of Shares in the Trust or any Series or Class 20 thereof into beneficial interests in any such newly created trust or trusts or any series of classes thereof. Section 4. Amendments. Except as specifically provided in this Section 4, the Trustees may, without Shareholder vote, restate, amend, or otherwise supplement this Declaration of Trust. Shareholders shall have the right to vote on (i) any amendment that would affect their right to vote granted in Article V, Section 1 hereof, (ii) any amendment to this Section 4 of Article VIII; (iii) any amendment that may require their vote under applicable law or by the Trust's registration statement, as filed with the Commission, and (iv) any amendment submitted to them for their vote by the Trustees. Any amendment required or permitted to be submitted to the Shareholders that, as the Trustees determine, shall affect the Shareholders of one or more Series shall be authorized by a vote of the Shareholders of each Series affected and no vote of Shareholders of a Series not affected shall be required. Notwithstanding anything else herein, no amendment hereof shall limit the rights to insurance provided by Article VII, Section 4 hereof with respect to any acts or omissions of Persons covered thereby prior to such amendment nor shall any such amendment limit the rights to indemnification referenced in Article VII, Section 2 hereof as provided in the By-Laws with respect to any actions or omissions of Persons covered thereby prior to such amendment. The Trustees may, without Shareholder vote, restate, amend, or otherwise supplement the Certificate of Trust as they deem necessary or desirable. Section 5. Filing of Copies, References, Headings. The original or a copy of this instrument and of each restatement and/or amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such restatements and/or amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such restatements and/or amendments. In this instrument and in any such restatements and/or amendments, references to this instrument, and all expressions such as "herein," "hereof," and "hereunder," shall be deemed to refer to this instrument as amended or affected by any such restatements and/or amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. Whenever the singular number is used herein, the same shall include the plural; and the neuter, masculine and feminine genders shall include each other, as applicable. This instrument may be executed in any number of counterparts each of which shall be deemed an original. Section 6. Applicable Law. (a) The Trust is created under, and this Declaration of Trust is to be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The Trust shall be of the type commonly called a business trust, and without limiting the provisions hereof, the Trust specifically reserves the right to exercise any of the powers or privileges afforded to business trusts or actions that may be engaged in by business trusts under the Delaware Act, and 21 the absence of a specific reference herein to any such power, privilege, or action shall not imply that the Trust may not exercise such power or privilege or take such actions. (b) Notwithstanding the first sentence of Section 6(a) of this Article VIII, there shall not be applicable to the Trust, the Trustees, or this Declaration of Trust either the provisions of Section 3540 of Title 12 of the Delaware Code or any provisions of the laws (statutory or common) of the State of Delaware (other than the Delaware Act) pertaining to trusts that relate to or regulate: (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges; (ii) affirmative requirements to post bonds for trustees, officers, agents, or employees of a trust; (iii) the necessity for obtaining a court or other governmental approval concerning the acquisition, holding, or disposition of real or personal property; (iv) fees or other sums applicable to trustees, officers, agents or employees of a trust; (v) the allocation of receipts and expenditures to income or principal; (vi) restrictions or limitations on the permissible nature, amount, or concentration of trust investments or requirements relating to the titling, storage, or other manner of holding of trust assets; or (vii) the establishment of fiduciary or other standards or responsibilities or limitations on the acts or powers or liabilities or authorities and powers of trustees that are inconsistent with the limitations or liabilities or authorities and powers of the Trustees set forth or referenced in this Declaration of Trust. Section 7. Provisions in Conflict with Law or Regulations. (a) The provisions of this Declaration of Trust are severable, and if the Trustees shall determine, with the advice of counsel, that any such provision is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code of 1986, as amended (or any successor statute thereto), and the regulations thereunder, the Delaware Act or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of this Declaration of Trust; provided, however, that such determination shall not affect any of the remaining provisions of this Declaration of Trust or render invalid or improper any action taken or omitted prior to such determination. (b) If any provision of this Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of this Declaration of Trust in any jurisdiction. Section 8. Business Trust Only. It is the intention of the Trustees to create a business trust pursuant to the Delaware Act. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment, or any form of legal relationship other than a business trust pursuant to the Delaware Act. Nothing in this Declaration of Trust shall be construed to make the Shareholders, either by themselves or with the Trustees, partners, or members of a joint stock association. 22 IN WITNESS WHEREOF, the Trustee named below does hereby make and enter into this Declaration of Trust as of the 31st day of October 1996. /s/ Peter D. Noris -------------------------------------- Peter D. Noris Trustee THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS: 787 Seventh Avenue New York, NY 10019 23 EX-1.(B) 3 CERTIFICATE OF TRUST EXHIBIT 1(B) CERTIFICATE OF TRUST OF 787 TRUST This Certificate of Trust is being executed as of the 31st day of October 1996 for the purpose of organizing a business trust pursuant to the Delaware Business Trust Act, 12 Del. C. ss.ss. 3801 et seq. (the "Act"). The undersigned hereby certify as follows: 1. Name. The name of the business trust is the 787 Trust (the "Trust"). 2. Registered Investment Company. The Trust is or will become a registered investment company under the Investment Company Act of 1940, as amended. 3. Registered Office and Registered Agent. The registered office of the Trust in the State of Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801. The name of the registered agent of the Trust for service of process at such location is The Corporation Trust Company. The business address of the sole trustee, Peter D. Noris, is 787 Seventh Avenue, New York, New York 10019. 4. Notice of Limitation of Liabilities of Series. Notice is hereby given that the Trust is or may hereafter be constituted a series trust. The debts, liabilities, obligations, and expenses incurred, contracted for or otherwise existing with respect to any particular series of the Trust shall be enforceable against the assets of such series only, and not against the assets of the Trust generally. 5. The trustees of the Trust, as set forth in its governing instrument, reserve the right to amend, alter, change, or repeal any provisions contained in this Certificate of Trust, in the manner now or hereafter prescribed by statute. 6. This Certificate of Trust shall become effective immediately upon filing with the Office of the Secretary of State of the State of Delaware. IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has duly executed this Certificate of Trust as of the day and year first above written. /s/ Peter D. Noris ------------------------ Peter D. Noris Trustee EX-2 4 BY-LAWS EXHIBIT 2 BY-LAWS 787 Trust a Delaware Business Trust TABLE OF CONTENTS BY-LAWS Page Article I Offices........................................... 1 1. Principal Office...................................1 2. Delaware Office....................................1 3. Other Offices......................................1 Article II Meetings of Shareholders...........................2 1. Place of Meetings..................................2 2. Call of Meetings...................................2 3. Notice of Meetings ................................2 4. Manner of Giving Notice; Affidavit of Notice.......2 5. Adjourned Meetings; Notice.........................3 6. Voting.............................................3 7. Waiver of Notice by Consent of Absent Shareholders..............................3 8. Shareholder Action by Written Consent Without a Meeting........................4 9. Record Date for Shareholder Notice, Voting and Giving Consents.......................4 10. Proxies............................................5 11. Inspectors of Election.............................6 12. Eligible Shareholders..............................6 Article III Trustees...........................................7 1. Powers.............................................7 2. Number of Trustees.................................7 3. Vacancies..........................................7 4. Place of Meetings and Meetings by Telephone........................................7 5. Regular Meetings...................................7 6. Special Meetings...................................7 7. Quorum.............................................8 8. Waiver of Notice...................................8 9. Adjournment........................................8 i Page 10. Notice of Adjournment.............................8 11. Action Without a Meeting..........................8 12. Fees and Compensation of Trustees.................9 13. Delegation of Power to Other Trustees.............9 Article IV Committees........................................9 1. Committees of Trustees............................9 2. Meetings and Action of Committees................10 Article V Officers.........................................10 1. Officers.........................................10 2. Election of Officers.............................10 3. Subordinate Officers.............................10 4. Removal and Resignation of Officers.......................................10 5. Vacancies in Offices.............................11 6. Chairman.........................................11 7. President........................................11 8. Vice Presidents..................................11 9. Secretary........................................11 10. Treasurer........................................12 Article VI Indemnification of Trustees, Officers Employees and Other Agents....................12 1. Agents, Proceedings, and Expenses................12 2. Indemnification..................................13 3. Limitations and Settlements......................13 4. Insurance; Rights Not Exclusive..................13 5. Advance of Expenses..............................14 6. Fiduciaries of Employee Benefit Plan.............14 Article VII Inspection of Records and Reports................14 1. Inspection by Shareholders.......................14 2. Inspection by Trustees...........................14 3. Financial Statements.............................14 ii Page Article VIII General Matters..................................15 1. Checks, Drafts, Evidence of Indebtedness...................................15 2. Contracts and Instruments; How Executed.......................................15 3. Fiscal Year......................................15 4. Seal.............................................15 Article IX Amendments.......................................15 1. Amendment........................................15 iii BY-LAWS OF 787 Trust A Delaware Business Trust INTRODUCTION A. Agreement and Declaration of Trust. These By-Laws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of the 787 Trust, a Delaware business trust (the "Trust"). In the event of any inconsistency between the terms hereof and the terms of the Declaration of Trust, the terms of the Declaration of Trust shall control. B. Definitions. Capitalized terms used herein and not herein defined are used as defined in the Declaration of Trust. Article I Offices Section 1. Principal Office. The Trustees shall fix and, from time to time, may change the location of the principal executive office of the Trust at any place within or outside the State of Delaware. Section 2. Delaware Office. The Trustees shall establish a registered office in the State of Delaware and shall appoint as the Trust's registered agent for service of process in the State of Delaware an individual who is a resident of the State of Delaware or a Delaware corporation or a corporation authorized to transact business in the State of Delaware; in each case the business office of such registered agent for service of process shall be identical with the registered Delaware office of the Trust. Section 3. Other Offices. The Trustees may at any time establish branch or subordinate offices at any place or places within or outside the State of Delaware where the Trust intends to do business. 1 Article II Meetings of Shareholders Section 1. Place of Meetings. Meetings of Shareholders shall be held at any place designated by the Trustees. In the absence of any such designation, Shareholders' meetings shall be held at the principal executive office of the Trust. Section 2. Call of Meetings. There shall be no annual Shareholders' meetings. Special meetings of the Shareholders may be called at any time by the Trustees or by the President for the purpose of taking action upon any matter requiring the vote or authority of the Shareholders as herein provided or provided in the Declaration of Trust or upon any other matter as to which such vote or authority is deemed by the Trustees or the President to be necessary or desirable. Meetings of the Shareholders may be called for any purpose deemed necessary or desirable upon the written request of the Shareholders holding at least ten percent (10%) of the outstanding Shares of the Trust entitled to vote. To the extent required by the Investment Company Act of 1940, as amended ("1940 Act"), meetings of the Shareholders for the purpose of voting on the removal of any Trustee shall be called promptly by the Trustees upon the written request of Shareholders holding at least ten percent (10%) of the outstanding Shares of the Trust entitled to vote. Section 3. Notice of Meetings of Shareholders. All notices of meetings of Shareholders shall be sent or otherwise given to Shareholders in accordance with Section 4 of this Article II not less than ten (10) nor more than ninety (90) days before the date of the meeting. The notice shall specify (i) the place, date and hour of the meeting, and (ii) the general nature of the business to be transacted. The notice of any meeting at which Trustees are to be elected also shall include the name of any nominee or nominees whom at the time of the notice are intended to be presented for election. If any action is proposed to be taken at any meeting of Shareholders for approval of (i) a contract or transaction in which a Trustee has a direct or indirect financial interest, (ii) an amendment of the Agreement and Declaration of Trust of the Trust, (iii) a reorganization of the Trust, or (iv) a voluntary dissolution of the Trust, the notice shall also state the general nature of that proposed action. Section 4. Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of Shareholders shall be (i) given either by hand delivery, first-class mail, telegraphic or other written communication, charges prepaid, and (ii) addressed to the Shareholder at the address of that Shareholder appearing on the books of the Trust or its transfer agent or given by the Shareholder to the Trust for the purpose of notice. If no such address appears on the Trust's books or is not given to the Trust, notice shall be deemed to have been given if sent to that Shareholder by first-class mail or telegraphic or other written communication to the Trust's principal executive office, or if published at least once in a newspaper of general circulation in 2 the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication or, where notice is given by publication, on the date of publication. If any notice addressed to a Shareholder at the address of that Shareholder appearing on the books of the Trust is returned to the Trust by the United States Postal Service marked to indicate that the Postal Service is unable to deliver the notice to the Shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if such future notices or reports shall be kept available to the Shareholder, upon written demand of the Shareholder, at the principal executive office of the Trust for a period of one year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any meeting of Shareholders shall be filed and maintained in the minute book of the Trust. Section 5. Adjourned Meeting; Notice. Any meeting of Shareholders, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the Shares represented at that meeting, either in person or by proxy. When any meeting of Shareholders is adjourned to another time or place, notice need not be given of the adjourned meeting at which the adjournment is taken, unless a new record date of the adjourned meeting is fixed or unless the adjournment is for more than sixty (60) days from the date set for the original meeting, in which case the Trustees shall set a new record date. Notice of any such adjourned meeting shall be given to each Shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may transact any business which might have been transacted at the original meeting. Section 6. Voting. The Shareholders entitled to vote at any meeting of Shareholders shall be determined in accordance with the provisions of the Declaration of Trust of the Trust, as in effect at such time. The Shareholders' vote may be by voice vote or by ballot, provided, however, that any election for Trustees must be by ballot if demanded by any Shareholder before the voting has begun. On any matter other than election of Trustees, any Shareholder may vote part of the Shares in favor of the proposal and refrain from voting the remaining Shares or vote them against the proposal, but if the Shareholder fails to specify the number of Shares which the Shareholder is voting affirmatively, it will be conclusively presumed that the Shareholder's approving vote is with respect to the total Shares that such Shareholder is entitled to vote on such proposal. Section 7. Waiver of Notice; Consent of Absent Shareholders. The transaction of business and any actions taken at a meeting of Shareholders, however called and noticed and wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice provided a quorum is present either in person or by proxy at the meeting of Shareholders 3 and if either before or after the meeting, each Shareholder entitled to vote who was not present in person or by proxy at the meeting of the Shareholders signs a written waiver of notice or a consent to a holding of the meeting or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any meeting of Shareholders. Attendance by a Shareholder at a meeting of Shareholders shall also constitute a waiver of notice of that meeting, except if the Shareholder objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting of Shareholders is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting of Shareholders if that objection is expressly made at the beginning of the meeting. Section 8. Shareholder Action by Written Consent Without a Meeting. Except as provided in the Declaration of Trust, any action that may be taken at any meeting of Shareholders may be taken without a meeting and without prior notice if a consent in writing setting forth the action to be taken is signed by the holders of outstanding Shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all Shares entitled to vote on that action were present and voted provided, however, that the Shareholders receive any necessary Information Statement or other necessary documentation in conformity with the requirements of the Securities Exchange Act of 1934 or the rules or regulations thereunder. All such consents shall be filed with the Secretary of the Trust and shall be maintained in the Trust's records. Any Shareholder giving a written consent or the Shareholder's proxy holders or a transferee of the Shares or a personal representative of the Shareholder or their respective proxy holders may revoke the Shareholder's written consent by a writing received by the Secretary of the Trust before written consents of the number of Shares required to authorize the proposed action have been filed with the Secretary. If the consents of all Shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such Shareholders shall not have been received, the Secretary shall give prompt notice of the action approved by the Shareholders without a meeting. This notice shall be given in the manner specified in Section 4 of this Article II. Section 9. Record Date for Shareholder Notice, Voting and Giving Consents. (a) For purposes of determining the Shareholders entitled to vote or act at any meeting or adjournment thereof, the Trustees may fix in advance a record date which shall not be more than ninety (90) days nor less than ten (10) days before the date of any such meeting. Without fixing a record date for a meeting, the Trustees may for voting and notice purposes close the register or transfer books for one or more Series (or Classes) for all or any part of the period between the earliest date on which a record date for such meeting could be set in accordance herewith and the date of such meeting. 4 If the Trustees do not so fix a record date or close the register or transfer books of the affected Series or Classes, the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be the close of business on the business day next preceding the day on which notice is given or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining Shareholders entitled to give consent to action in writing without a meeting, (a) when no prior action of the Trustees has been taken, shall be the day on which the first written consent is given, or (b) when prior action of the Trustees has been taken, shall be (i) such date as determined for that purpose by the Trustees, which record date shall not precede the date upon which the resolution fixing it is adopted by the Trustees and shall not be more than twenty (20) days after the date of such resolution, or (ii) if no record date is fixed by the Trustees, the record date shall be the close of business on the day on which the Trustees adopt the resolution relating to that action. Nothing in this Section shall be construed as precluding the Trustees from setting different record dates for different Series or Classes. Only Shareholders of record on the record date as herein determined shall have any right to vote or to act at any meeting or give consent to any action relating to such record date, notwithstanding any transfer of Shares on the books of the Trust after such record date. Section 10. Proxies. Subject to the provisions of the Declaration of Trust, every Person entitled to vote for Trustees or on any other matter shall have the right to do so either in person or by proxy, provided that either (i) an instrument authorizing such a proxy to act is executed by the Shareholder in writing and dated not more than eleven (11) months before the meeting, unless the instrument specifically provides for a longer period or (ii) the Trustees adopt an electronic, telephonic, computerized or other alternative to the execution of a written instrument authorizing the proxy to act, and such authorization is received not more than eleven (11) months before the meeting. A proxy shall be deemed executed by a Shareholder if the Shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the Shareholder or the Shareholder's attorney-in-fact. A valid proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the Person executing it before the vote pursuant to that proxy is taken, (a) by a writing delivered to the Trust stating that the proxy is revoked, or (b) by a subsequent proxy executed by such Person, or (c) attendance at the meeting and voting in person by the Person executing that proxy, or (d) revocation by such Person using any electronic, telephonic, computerized or other alternative means authorized by the Trustees for authorizing the proxy to act; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the Trust before the vote pursuant to that proxy is counted. A proxy with respect to Shares held in the name of two or more Persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of the two or more Persons. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. 5 Section 11. Inspectors of Election. Before any meeting of Shareholders, the Trustees may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the Chairman of the meeting may appoint inspectors of election at the meeting. The number of inspectors shall be two (2). If any person appointed as inspector fails to appear or fails or refuses to act, the Chairman of the meeting may appoint a person to fill the vacancy. These inspectors shall: (a) Determine the number of Shares outstanding and the voting power of each, the Shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; (b) Receive votes, ballots or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all Shareholders. Section 12. Eligible Shareholders. Only eligible shareholders may purchase shares. Eligible Shareholders are: (a) separate accounts of The Equitable Life Assurance Society of the United States or of other insurance companies; (b) The Equitable Life Assurance Company of the United States; (c) any corporation related in a manner specified in Section 267(b) of the Internal Revenue Code, as amended, (the "Code") to The Equitable Life Assurance Society of the United States; and (d) any trustee of a qualified pension or retirement plan or such other entity or entities as are permitted by the Code or the rules and regulations thereunder to be eligible shareholders. Shares may be transferred to eligible shareholders. Shares may not be transferred to someone other than an eligible shareholder, and when the Trust is requested to make such a transfer, it may elect to purchase such Shares at their net asset value next determined following receipt of the request for transfer. 6 ARTICLE III Trustees Section 1. Powers. Subject to the applicable provisions of the 1940 Act, the Declaration of Trust and these By-Laws relating to action required to be approved by the Shareholders, the business and affairs of the Trust shall be managed and all powers shall be exercised by or under the direction of the Trustees. Section 2. Number of Trustees. The exact number of Trustees within the limits specified in the Declaration of Trust shall be fixed from time to time by a resolution of the Trustees. Section 3. Vacancies. Vacancies in the authorized number of Trustees may be filled as provided in the Declaration of Trust. Section 4. Place of Meetings and Meetings by Telephone. All meetings of the Trustees may be held at any place that has been selected from time to time by the Trustees. In the absence of such a selection, regular meetings shall be held at the principal executive office of the Trust. Subject to any applicable requirements of the 1940 Act, any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all Trustees participating in the meeting can hear one another and all such Trustees shall be deemed to be present in person at the meeting. Section 5. Regular Meetings. Regular meetings of the Trustees shall be held without call at such time as shall from time to time be fixed by the Trustees. Such regular meetings may be held without notice. Section 6. Special Meetings. Special meetings of the Trustees for any purpose or purposes may be called at any time by the President or any Vice President or the Secretary or any two (2) Trustees. Notice of the time and place of special meetings shall be delivered personally or by telephone to each Trustee or sent by first-class mail, by telegram or telecopy (or similar electronic means) or by nationally recognized overnight courier, charges prepaid, addressed to each Trustee at that Trustee's address as it is shown on the records of the Trust. If the notice is mailed, it shall be deposited in the United States mail at least seven (7) calendar days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, telecopy (or similar electronic means), or overnight courier, it shall be given at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone must be communicated only to the Trustee. The notice need not specify the purpose of the meeting or the place of the meeting, if the meeting is to be held at the principal executive office of the Trust. Notice of a meeting need not be given to any Trustee 7 if a written waiver of notice, executed by such Trustee before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such Trustee. Section 7. Quorum. One third (1/3) of the authorized number of Trustees shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 9 of this Article III. Every act or decision done or made by a majority of the Trustees present at a meeting duly held at which a quorum is present shall be regarded as the act of the Trustees, subject to the provisions of the Declaration of Trust. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Trustees if any action taken is approved by at least a majority of the required quorum for that meeting. Section 8. Waiver of Notice. Notice of any meeting need not be given to any Trustee who either before or after the meeting signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the records of the Trust or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any Trustee who attends the meeting without protesting, prior to or at its commencement, the lack of notice to that Trustee. Section 9. Adjournment. A majority of the Trustees present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 10. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than forty-eight (48) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting in the manner specified in Section 6 of this Article III to the Trustees who were present at the time of the adjournment. Section 11. Action Without a Meeting. Unless the 1940 Act requires that a particular action be taken only at a meeting at which the Trustees are present in person, any action to be taken by the Trustees at a meeting may be taken without such meeting by the written consent of a majority of the Trustees then in office. Any such written consent may be executed and given by telecopy or similar electronic means. Such written consents shall be filed with the minutes of the proceedings of the Trustees. If any action is so taken by the Trustees by the written consent of less than all of the Trustees, prompt notice of the taking of such action shall be furnished to each Trustee who did not execute such written consent, provided that the effectiveness of such action shall not be impaired by any delay or failure to furnish such notice. 8 Section 12. Fees and Compensation of Trustees. Trustees and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Trustees. This Section 12 of Article III shall not be construed to preclude any Trustee from serving the Trust in any other capacity as an officer, agent, employee, or otherwise and receiving compensation for those services. Section 13. Delegation of Power to Other Trustees. Any Trustee may, by power of attorney, delegate his or her power for a period not exceeding one (1) month at any one time to any other Trustee. Except where applicable law may require a Trustee to be present in person, a Trustee represented by another Trustee, pursuant to such power of attorney, shall be deemed to be present for purpose of establishing a quorum and satisfying the required majority vote. ARTICLE IV Committees Section 1. Committees of Trustees. The Trustees may by resolution designate one or more committees, each consisting of two (2) or more Trustees, to serve at the pleasure of the Trustees. The Trustees may designate one or more Trustees as alternate members of any committee who may replace any absent member at any meeting of the committee. Any committee to the extent provided for by resolution of the Trustees, shall have the authority of the Trustees, except with respect to: (a) the approval of any action which under applicable law requires approval by a majority of the entire authorized number of Trustees or certain Trustees; (b) the filling of vacancies of Trustees; (c) the fixing of compensation of the Trustees for services generally or as a member of any committee; (d) the amendment or termination of the Declaration of Trust or any Series or Class or the amendment of the By-Laws or the adoption of new By-Laws; (e) the amendment or repeal of any resolution of the Trustees which by its express terms is not so amendable or repealable; (f) a distribution to the Shareholders of the Trust, except at a rate or in a periodic amount or within a designated range determined by the Trustees; or 9 (g) the appointment of any other committees of the Trustees or the members of such new committees. Section 2. Meetings and Action of Committees. Meetings and action of committees shall be governed by, held and taken in accordance with the provisions of Article III of these ByLaws, with such changes in the context thereof as are necessary to substitute the committee and its members for the Trustees generally, except that the time of regular meetings of committees may be determined either by resolution of the Trustees or by resolution of the committee. Special meetings of committees may also be called by resolution of the Trustees. Alternate members shall be given notice of meetings of committees and shall have the right to attend all meetings of committees. The Trustees may adopt rules for the governance of any committee not inconsistent with the provisions of these By-Laws. ARTICLE V Officers Section 1. Officers. The officers of the Trust shall be a President, a Secretary, and a Treasurer. The Trust may also have, at the discretion of the Trustees, a Chairman of the Board (Chairman), one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person. The Chairman, if there be one, shall be a Trustee and may be, but need not be, a Shareholder; and any other officer may be, but need not be, a Trustee or Shareholder. Section 2. Election of Officers. The officers of the Trust, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen by the Trustees, and each shall serve at the pleasure of the Trustees, subject to the rights, if any, of an officer under any contract of employment. Section 3. Subordinate Officers. The Trustees may appoint and may empower the President to appoint such other officers as the business of the Trust may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these By-Laws or as the Trustees may from time to time determine. Section 4. Removal and Resignation of Officers. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Trustees at any regular or special meeting of the Trustees or by the principal executive officer or by such other officer upon whom such power of removal may be conferred by the Trustees. 10 Any officer may resign at any time by giving written notice to the Trust. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Trust under any contract to which the officer is a party. Section 5. Vacancies in Offices. A vacancy in any office because of death, resignation, removal, disqualification or other cause shall be filled in the manner prescribed in these By-Laws for regular appointment to that office. The President may make temporary appointments to a vacant office pending action by the Trustees. Section 6. Chairman. The Chairman, if such an officer is elected, shall if present, preside at meetings of the Trustees, shall be the chief executive officer of the Trust and shall, subject to the control of the Trustees, have general supervision, direction and control of the business and the officers of the Trust and exercise and perform such other powers and duties as may be from time to time assigned to him by the Trustees or prescribed by the Declaration of Trust or these By-Laws. Section 7. President. Subject to such supervisory powers, if any, as may be given by the Trustees to the Chairman, if there be such an officer, the President shall be the chief operating officer of the Trust and shall, subject to the control of the Trustees and the Chairman, have general supervision, direction and control of the business and the officers of the Trust. He or she shall preside at all meetings of the Shareholders and, in the absence of the Chairman or if there be none, at all meetings of the Trustees. He or she shall have the general powers and duties of a president of a corporation and shall have such other powers and duties as may be prescribed by the Trustees, the Declaration of Trust or these By-Laws. Section 8. Vice Presidents. In the absence or disability of the President, any Vice President, unless there is an Executive Vice President, shall perform all the duties of the President and when so acting shall have all powers of and be subject to all the restrictions upon the President. The Executive Vice President or Vice Presidents, whichever the case may be, shall have such other powers and shall perform such other duties as from time to time may be prescribed for them respectively by the Trustees or the President or the Chairman or by these By-Laws. Section 9. Secretary. The Secretary shall keep or cause to be kept at the principal executive office of the Trust, or such other place as the Trustees may direct, a book of minutes of all meetings and actions of Trustees, committees of Trustees and Shareholders with the time and place of holding, whether regular or special, and if special, how authorized, the notice given, the names of those present at Trustees' meetings or committee meetings, the number of Shares present or represented at meetings of Shareholders and the proceedings of the meetings. 11 The Secretary shall keep or cause to be kept at the principal executive office of the Trust or at the office of the Trust's transfer agent or registrar, a share register or a duplicate share register showing the names of all Shareholders and their addresses, the number and classes of Shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give or cause to be given notice of all meetings of the Shareholders and of the Trustees (or committees thereof) required to be given by these By-Laws or by applicable law and shall have such other powers and perform such other duties as may be prescribed by the Trustees or by these By-Laws. Section 10. Treasurer. The Treasurer shall be the chief financial officer and chief accounting officer of the Trust and shall keep and maintain or cause to be kept and maintained adequate and correct books and records of accounts of the properties and business transactions of the Trust and each Series or Class thereof, including accounts of the assets, liabilities, receipts, disbursements, gains, losses, capital and retained earnings of all Series or Classes thereof. The books of account shall at all reasonable times be open to inspection by any Trustee. The Treasurer shall deposit all monies and other valuables in the name and to the credit of the Trust with such depositaries as may be designated by the Board of Trustees. He or she shall disburse the funds of the Trust as may be ordered by the Trustees, shall render to the President and Trustees, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the Trust and shall have other powers and perform such other duties as may be prescribed by the Trustees or these By-Laws. ARTICLE VI Indemnification of Trustees, Officers, Employees and Other Agents Section 1. Agents, Proceedings, Expenses. For the purpose of this Article, "agent" means any Person who is or was a Trustee, officer, employee or other agent of the Trust or is or was serving at the request of the Trust as a trustee, director, officer, employee or agent of another organization in which the Trust has any interest as a shareholder, creditor or otherwise; "proceeding" means any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including appeals); and "expenses" includes, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and all other liabilities whatsoever. 12 Section 2. Indemnification. Subject to the exceptions and limitations contained in Section 3 of this Article VI, every agent 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. Section 3. Limitations, Settlements. No indemnification shall be provided hereunder to an agent: (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 agent was liable to the Trust or its Shareholders by reason of disabling conduct, unless there has been a determination that such agent 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 an agent 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 agent 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 agent has been charged. Section 4. Insurance, Rights Not Exclusive. The rights of indemnification herein provided (i) may be insured against by policies maintained by the Trust on behalf of any agent, (ii) shall be severable, (iii) shall not be exclusive of or affect any other rights to which any agent may now or hereafter be entitled and (iv) shall inure to the benefit of the agent's heirs, executors and administrators. 13 Section 5. Advance of Expenses. Expenses incurred by an agent in connection with the preparation and presentation of a defense to any proceeding may be paid by the Trust from time to time prior to final disposition thereof upon receipt of an undertaking by, or on behalf of, such agent that such amount will be paid over by him or her to the Trust if it is ultimately determined that he or she is not entitled to indemnification under this Article VI; provided, however, that (a) such agent shall have provided appropriate security for such undertaking, (b) the Trust is insured against losses arising out of any such advance payments, or (c) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the proceeding, or independent legal counsel in a written opinion, shall have determined, based upon a review of the readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such agent will be found entitled to indemnification under this Article VI. Section 6. Fiduciaries of Employee Benefit Plan. This Article does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of this Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article VI. ARTICLE VII Inspection of Records and Reports Section 1. Inspection by Shareholders. The Trustees shall from time to time determine whether and to what extent, and at what times and places, and under what conditions and regulations the accounts and books of the Trust or any of them shall be open to the inspection of the Shareholders; and no Shareholder shall have any right to inspect any account or book or document of the Trust except as conferred by law or otherwise by the Trustees or by resolution of the Shareholders. Section 2. Inspection by Trustees. Every Trustee shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the Trust. This inspection by a Trustee may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. Section 3. Financial Statements. A copy of any financial statements and any income statement of the Trust for each semi-annual period of each fiscal year and accompanying balance sheet of the Trust as of the end of each such period that has been prepared by the Trust shall be kept on file in the principal executive office of the Trust for at least twelve (12) months and each such statement shall be exhibited at all reasonable times to any Shareholder demanding an examination of any such statement or a copy shall be mailed to any such Shareholder. 14 The semi-annual income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the Trust or the certificate of an authorized officer of the Trust that the financial statements were prepared without audit from the books and records of the Trust. ARTICLE VIII General Matters Section 1. Checks, Drafts, Evidence of Indebtedness. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable to the Trust shall be signed or endorsed in such manner and by such person or persons as shall be designated from time to time in accordance with the resolution of the Board of Trustees. Section 2. Contracts and Instruments; How Executed. The Trustees, except as otherwise provided in these By-Laws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Trust and this authority may be general or confined to specific instances; and unless so authorized or ratified by the Trustees or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Trust by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 3. Fiscal Year. The fiscal year of the Trust shall be fixed and refixed or changed from time to time by the Trustees. The fiscal year of the Trust shall be the taxable year of each Series of the Trust. Section 4. Seal. The seal of the Trust shall consist of a flat-faced dye with the name of the Trust cut or engraved thereon. However, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. ARTICLE IX Amendments Section 1. Amendment. Except as otherwise provided by applicable law or by the Declaration of Trust, these By-Laws may be restated, amended, supplemented or repealed by a majority vote of the Trustees, provided that no restatement, amendment, supplement or repeal hereof shall limit the rights to indemnification or insurance provided in Article VI hereof with respect to any acts or omissions of agents (as defined in Article VI) of the Trust prior to such amendment. 15 EX-5.(A) 5 FORM OF INVESTMENT MANAGEMENT AGREEMENT EXHIBIT 5(A) FORM OF INVESTMENT MANAGEMENT AGREEMENT AGREEMENT, dated as of _________ __, 1997, between the 787 Trust, a Delaware business trust (the "Trust"), and EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"). WHEREAS, the Trust is registered as an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"); WHEREAS, EQ Financial is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers 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, investment policies and restrictions; 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 Trustees of the Trust wishes to appoint EQ Financial as the investment manager of the Trust; NOW, THEREFORE, the Trust and EQ Financial agree as follows: 1. APPOINTMENT OF MANAGER The Trust hereby appoints EQ Financial as the investment manager for each of the portfolios of the Trust specified in Appendix A to this Agreement, as such Appendix A may be amended by the Manager and the Trust from time to time (the "Portfolios"), subject to the supervision of the Trustees of the Trust and in the manner and under the terms and conditions set forth in this Agreement. The Manager accepts such appointment and agrees to render the services and to assume the obligations set forth in this Agreement commencing on its effective date. The Manager will be an independent contractor and will have no authority to act for or represent the Trust in any way or otherwise be deemed an agent unless expressly authorized in this Agreement or another writing by the Trust and Manager. 1 2. DUTIES OF THE MANAGER A. Subject to the general supervision of the Trustees of the Trust and under the terms and conditions set forth in this Agreement, the Trust acknowledges and agrees that it is contemplated that the Manager will, at its own expense, select and contract with investment advisers ("Advisers") to manage the investment operations and composition of each and every Portfolio of the Trust, including the purchase, retention, and disposition of the investments, securities and cash contained in each Portfolio, in accordance with each Portfolio's investment objectives, policies and restrictions as stated in the Trust's Agreement and Declaration of Trust, By-Laws, and such Portfolio's Prospectus and Statement of Additional Information ("SAI"), as is from time to time in effect; provided, that any contract with an Adviser (an "Advisory Agreement") shall be in compliance with and approved as required by the Investment Company Act or in accordance with exemptive relief granted by the Securities and Exchange Commission ("SEC") under the Investment Company Act. B. Subject always to the direction and control of the Trustees of the Trust, the Manager will have (i) overall supervisory responsibility for the general management and investment of each Portfolio's assets, and (ii) full investment discretion to make all determinations with respect to the investment of a Portfolio's assets not then managed by an Adviser. In connection with its responsibilities set forth under (i) above, the Trust acknowledges and agrees that the Manager will select a person to act as Adviser to render investment advice to each of the Portfolios. In addition, the Manager will monitor compliance of each Adviser with the investment objectives, policies and restrictions of any Portfolio or Portfolios under the management of such Adviser, and review and report to the Trustees of the Trust on the performance of such Adviser. The Manager will furnish, or cause the appropriate Adviser(s) to furnish, to the Trust such statistical information, with respect to the investments that a Portfolio may hold or contemplate purchasing, as the Trust may reasonably request. On the Manager's own initiative, the Manager will apprise, or cause the appropriate Adviser(s) to apprise, the Trust of important developments materially affecting each Portfolio and will furnish the Trust, from time to time, with such information as may be appropriate for this purpose. Further, the Manager agrees to furnish, or cause the appropriate Adviser(s) to furnish, to the Trustees of the Trust such periodic and special reports as the Trustees of the Trust may reasonably request. In addition, the Manager agrees to cause the appropriate Adviser(s) to furnish to third-party data reporting services all currently available standardized performance information and other customary data. C. The Manager will also furnish to the Trust, at its own expense and without renumeration from or other cost to the Trust, the following: (i) Office Space. The Manager will provide office space in the offices of the Manager or in such other place as may be agreed upon by the parties hereto from time to time, and all necessary office facilities and equipment; (ii) Personnel. The Manager will provide necessary executive and other personnel, including personnel for the performance of clerical and other office functions, exclusive of those functions: (a) related to and to be performed under the Trust's contract or contracts for administration, custodial, accounting, bookkeeping, transfer, and 2 dividend disbursing agency or similar services by the entity selected to perform such services; and (b) related to the investment advisory services to be provided by any Adviser pursuant to an Advisory Agreement; and (iii) Preparation of Prospectus and Other Documents. The Manager will provide other information and services, other than services of outside counsel or independent accountants or investment advisory services to be provided by any Adviser under an Advisory Agreement, required in connection with the preparation of all registration statements and Prospectuses, Prospectus supplements, SAIs, all annual, semiannual, and periodic reports to shareholders of the Trust, regulatory authorities, or others, and all notices and proxy solicitation materials, furnished to shareholders of the Trust or regulatory authorities, and all tax returns. D. Limitations on Liability. The Manager will exercise its best judgment in rendering its services to the Trust, and the Trust agrees, as an inducement to the Manager's undertaking to do so, that the Manager will not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, but will be liable only for willful misconduct, bad faith, gross negligence, reckless disregard of its duties or its failure to exercise due care in rendering its services to the Trust specified in this Agreement. Any person, even though an officer, director, employee or agent of the Manager, who may be or become an officer, Trustee, employee or agent of the Trust, shall be deemed, when rendering services to the Trust or when acting on any business of the Trust, to be rendering such services to or to be acting solely for the Trust and not as an officer, director, employee or agent, or one under the control or direction of the Manager, even though paid by it. E. Section 11 of the Securities Exchange Act of 1934, as amended. The Trust hereby agrees that any entity or person associated with the Manager that is a member of a national securities exchange is authorized to effect any transaction on such exchange for the account of a Portfolio to the extent and as permitted by Section 11(a)(1)(H) of the Securities Exchange Act of 1934, as amended. 3. ALLOCATION OF EXPENSES A. Expenses Paid by the Manager: (i) Salaries, Expenses and Fees of Certain Persons. The Manager (or its affiliates) shall pay all salaries, expenses, and fees of the Trustees and officers of the Trust who are affiliated with the Manager or its affiliates; and (ii) Assumption of Trust Expenses. The payment or assumption by the Manager of any expense of the Trust that the Manager is not required by this Agreement to pay or assume shall not obligate the Manager to pay or assume the same or any similar expense of the Trust on any subsequent occasion. 3 B. Expenses Paid by the Trust: The Trust will pay all expenses of its organization, operations, and business not specifically assumed or agreed to be paid by the Manager, as provided in this Agreement, or by an Adviser, as provided in an Advisory Agreement. Without limiting the generality of the foregoing, the Trust shall pay or arrange for the payment of the following: (i) Preparing, Printing and Mailing of Certain Documents. The costs of preparing, setting in type, printing and mailing of Prospectuses, Prospectus supplements, SAIs, annual, semiannual and periodic reports, and notices and proxy solicitation materials required to be furnished to shareholders of the Trust or regulatory authorities, and all tax returns; (ii) Officers and Trustees. Compensation of the officers and Trustees of the Trust who are not affiliated with the Manager or its affiliates; (iii) Registration Fees and Expenses. All legal and other fees and expenses in connection with the affairs of the Trust, including those incurred with respect to registering its shares with regulatory authorities and all fees and expenses incurred in connection with the preparation, setting in type, printing, and filing with necessary regulatory authorities of any registration statement and Prospectus, and any amendments or supplements that may be made from time to time, including registration, filing and other fees in connection with requirements of regulatory authorities; (iv) Custodian and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the Trust's cash, securities, and other property, including all charges of depositories, custodians, and other agents, if any; (v) Independent Legal and Accounting Fees and Expenses. The charges for the services and expenses of the independent accountants and legal counsel retained by the Trust; (vi) Transfer Agent. The charges and expenses of maintaining shareholder accounts, including all charges of transfer, bookkeeping, and dividend disbursing agents appointed by the Trust; (vii) Brokerage Commissions. All brokers' commissions and issue and transfer taxes chargeable to the Trust in connection with securities transactions to which the Trust is a party; (viii) Taxes. All taxes and corporate fees payable by or with respect to the Trust to federal, state, or other governmental agencies; (ix) Trade Association Fees. Any membership fees, dues or expenses incurred in connection with the Trust's membership in any trade association or similar organizations; 4 (x) Bonding and Insurance. All insurance premiums for fidelity and other coverage; (xi) Shareholder and Board Meetings. All expenses incidental to holding shareholders and Trustees meetings, including the printing of notices and proxy materials and proxy solicitation fees and expenses; (xii) Pricing. All expenses of pricing of the net asset value per share of each Portfolio, including the cost of any equipment or services to obtain price quotations; and (xiii) Nonrecurring and Extraordinary Expenses. Such extraordinary expenses, such as indemnification payments or damages awarded in litigation or settlements made. 4. COMPENSATION OF MANAGER For its services performed hereunder, the Trust will pay the Manager with respect to each Portfolio the compensation specified in Appendix B to this Agreement. Such compensation shall be paid to the Manager by the Trust on the first day of each month; however, the Trust will calculate this charge on the daily average value of the Trust's assets and accrue it on a daily basis. 5. NON-EXCLUSIVITY The services of the Manager to the Trust are not to be deemed to be exclusive, and the Manager shall be free to render investment management, advisory or other services to others (including other investment companies) and to engage in other activities so long as the services provided hereunder by the Manager are not impaired. It is understood and agreed that the directors, officers and employees of the Manager 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 Manager may enter into arrangements with its parent or other persons affiliated or unaffiliated with the Manager for the provision of certain personnel and facilities to the Manager to enable the Manager to fulfill its duties and obligations under this Agreement. 7. REGULATION The Manager 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 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 Manager 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 Manager free from any claim or retention of rights therein. The Manager 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 on the later of the date of its execution by all parties and the date of the meeting of the shareholders of the Trust, which may for these purposes be the sole initial shareholder of the Trust, at which meeting this Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Portfolios. The Agreement will continue in effect for a period more than one year from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the Trust, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not "interested persons" ("Independent Trustees") of any party to this 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 any 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 that 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. If the shareholders of any Portfolio fail to approve the Agreement or any continuance of the Agreement, the Manager will continue to act as investment manager with respect to such Portfolio pending the required approval of the Agreement or its continuance or of a new contract with the Manager or a different investment manager or other definitive action; provided, that the compensation received by the Manager in respect of such Portfolio during such period will be no more than its actual costs incurred in furnishing investment advisory and management services to such Portfolio or the amount it would have received under the Agreement in respect of such Portfolio, whichever is less. 6 10. TERMINATION OF AGREEMENT This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees, including a majority of the Independent Trustees of the Trust, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Portfolio by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty (60) days' written notice to the Manager, or by the Manager on sixty (60) days' written notice to the Trust. This Agreement will automatically terminate, without payment of any penalty, in the event if its assignment. 11. PROVISION OF CERTAIN INFORMATION BY MANAGER The Manager will promptly notify the Trust in writing of the occurrence of any of the following events: A. the Manager fails to be registered as an investment adviser under the Advisers Act or under the laws of any jurisdiction in which the Manager is required to be registered as an investment adviser in order to perform its obligations under this Agreement; B. the Manager 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 Manager or the portfolio manager of any Portfolio changes or there is otherwise an actual change in control or management of the Manager. 12. 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 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 each of the Portfolios affected by the amendment (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 of the Trust 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 any Portfolio if a majority of the outstanding voting securities of the series of shares of that Portfolio vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Portfolio affected by the amendment or (b) all the Portfolios of the Trust. 7 13. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties. 14. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 15. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or Manager in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this section. 16. FORCE MAJEURE The Manager shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Manager shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto. 17. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 18. INTERPRETATION Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Agreement and Declaration of Trust or By-Laws, or any applicable statutory or regulatory requirements to which it is subject or by which it is bound, or to relieve or deprive the Trustees of their responsibility for and control of the conduct of the affairs of the Trust. 8 19. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of the State of Delaware, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the Investment Company Act shall be resolved by reference to such term or provision of the Investment Company Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC validly issued pursuant to the Investment Company Act. Specifically, the terms "vote of a majority of the outstanding voting securities," "interested persons," "assignment," and "affiliated persons," as used herein shall have the meanings assigned to them by Section 2(a) of the Investment Company Act. In addition, where the effect of a requirement of the Investment Company Act reflected in any provision of this Agreement is relaxed by a rule, regulation or order of the SEC, whether of special or of general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. 787 TRUST By:_____________________ [name] EQ FINANCIAL CONSULTANTS, INC. By:_______________________ [name] 9 APPENDIX A Portfolio - --------- T. Rowe Price International Stock Portfolio T. Rowe Price Equity Income Portfolio Putnam Growth and Income Portfolio Putnam International Growth Portfolio MFS Research Portfolio 10 date: , 1997 ------------------ APPENDIX B The Trust shall pay the Manager, at the end of each calendar month, compensation computed daily at an annual rate equal to the following:
Portfolio Management Fee - --------- -------------- T. Rowe Price International Stock Portfolio 1.15% of the Portfolio's average daily net assets up to and including $20 million; 1.00% of the Portfolio's average daily net assets over $20 million and up to and including $50 million; and .90% of the Portfolio's average daily net assets in excess of $50 million. T. Rowe Price Equity Income Portfolio .80% of the Portfolio's average daily net assets. Putnam Growth and Income Portfolio .90% of the Portfolio's average daily net assets up to and including $150 million; .85% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .75% of the Portfolio's average daily net assets in excess of $300 million. Putnam International Growth Portfolio 1.05% of the Portfolio's average daily net assets up to and including $150 million; .95% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .85% of the Portfolio's average daily net assets in excess of $300 million. MFS Research Portfolio .80% of the Portfolio's average daily net assets up to and including $150 million; .775% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .75% of the Portfolio's average daily net assets in excess of $300 million.
date: _________, 1997 11 EX-5.(B) 6 FORM OF INVESTMENT ADVISORY AGREEMENT EXHIBIT 5(B) FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT, dated as of _________________ __, 1997, by and between EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and T. Rowe Price Associates, Inc., a Maryland corporation (the "Adviser"). WHEREAS, 787 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 Trustees of the Trust and EQ Financial desire to retain the Adviser to render investment advisory services to the portfolio specified in Appendix A hereto ("Portfolio") in the manner and on the terms hereinafter set forth; NOW, THEREFORE, EQ Financial and Adviser agree as follows: 1. APPOINTMENT OF ADVISER The Manager hereby appoints the Adviser to act as investment adviser for the Portfolio and to manage the investment and reinvestment of the assets of the 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. 2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST A. 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 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 the 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 2 in the Prospectus and the SAI of the Portfolio and any permissible reports and materials prepared by the Portfolio or its agent; and (vii) establish appropriate interfaces with the Trust's administrator and Manager in order to provide such administrator and Manager with all necessary information requested by the administrator and Manager. B. The Adviser, at its expense, will furnish: (i) all necessary investment and management facilities and investment personnel, including salaries, expenses and fees of any personnel required for it to faithfully perform its duties under this Agreement; and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolio (excluding that necessary for the determination of net asset value and shareholder accounting services). C. The Adviser will select brokers and dealers to effect all portfolio transactions subject to the conditions set forth herein. The Adviser will place all necessary orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Adviser is directed at all times to seek to execute brokerage transactions for the 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 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. 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 and 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. D. 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 3 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. E. 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. 3. COMPENSATION OF ADVISER The Manager will pay the Adviser, with respect to the 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 the 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 Portfolio, 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 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 so long as the services provided hereunder by the Adviser are not impaired. 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. 4 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. 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 the Portfolio on the later of the date of its execution or the date of the meeting of the shareholders of the Portfolio, which for this purpose may be the sole initial shareholder of the Portfolio, at which meeting the Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) 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 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 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. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to the 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 the 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. If the shareholders of the Portfolio fail to approve the Agreement or any continuance of the Agreement, the Adviser will continue to act as investment adviser with respect to the Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Adviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Adviser in respect of the Portfolio during the period will be in compliance with Rule 15a-4 under the Investment Company Act. 5 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) days' written notice to the Manager and the Adviser, or by the Manager or Adviser on sixty (60) days' written notice to the Trust and the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Investment Management Agreement between the Manager and the Trust is assigned or terminates for any other reason. This Agreement will also terminate upon written notice to the other party that the other party is in material breach of this Agreement, unless the other party in material breach of this Agreement cures such breach to the reasonable satisfaction of the party alleging the breach within thirty (30) days after written notice. 11. PROVISION OF CERTAIN INFORMATION BY ADVISER The Adviser will promptly notify the Manager in writing of the occurrence of any of the following events: 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. 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 6 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. 14. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties with respect to the Portfolio listed in Appendix A. 15. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 16. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of each applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. The specific person to whom notice shall be provided for each party will be specified in writing to the other party. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 17. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 18. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of the State of Delaware, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 7 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 under seal by their duly authorized officers as of the date first mentioned above. EQ FINANCIAL CONSULTANTS, INC. By:_________________________________ [Name, Title] T. ROWE PRICE ASSOCIATES, INC. By:___________________________________ [Name, Title] 8 APPENDIX A The Manager shall pay the Adviser, at the end of each calendar month, compensation computed daily at an annual rate equal to the following:
Portfolio Advisory Fee - --------- ------------ T. Rowe Price Equity Income Portfolio .40% of the Portfolio's average daily net assets.
date: ____________ __, 1997 9 EX-5.(C) 7 FORM OF INVESTMENT ADVISORY AGREEMENT EXHIBIT 5(C) FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT, dated as of _____________ __, 1997, by and between EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and Rowe Price-Fleming International, Inc., a Maryland corporation (the "Adviser"). WHEREAS, 787 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 Trustees of the Trust and EQ Financial desire to retain the Adviser to render investment advisory services to the portfolio specified in Appendix A hereto ("Portfolio") in the manner and on the terms hereinafter set forth; NOW, THEREFORE, EQ Financial and Adviser agree as follows: 1. APPOINTMENT OF ADVISER The Manager hereby appoints the Adviser to act as investment adviser for the Portfolio and to manage the investment and reinvestment of the assets of the 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. 2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST A. 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 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 the 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 2 in the Prospectus and the SAI of the Portfolio and any permissible reports and materials prepared by the Portfolio or its agent; and (vii) establish appropriate interfaces with the Trust's administrator and Manager in order to provide such administrator and Manager with all necessary information requested by the administrator and Manager. B. The Adviser, at its expense, will furnish: (i) all necessary investment and management facilities and investment personnel, including salaries, expenses and fees of any personnel required for it to faithfully perform its duties under this Agreement; and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolio (excluding that necessary for the determination of net asset value and shareholder accounting services). C. The Adviser will select brokers and dealers to effect all portfolio transactions subject to the conditions set forth herein. The Adviser will place all necessary orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Adviser is directed at all times to seek to execute brokerage transactions for the 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 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. 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 and 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. D. 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 3 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. E. 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. 3. COMPENSATION OF ADVISER The Manager will pay the Adviser, with respect to the 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 the 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 Portfolio, 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 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 so long as the services provided hereunder by the Adviser are not impaired. 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. 4 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. 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 the Portfolio on the later of the date of its execution or the date of the meeting of the shareholders of the Portfolio, which for this purpose may be the sole initial shareholder of the Portfolio, at which meeting the Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) 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 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 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. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to the 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 the 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. If the shareholders of the Portfolio fail to approve the Agreement or any continuance of the Agreement, the Adviser will continue to act as investment adviser with respect to the Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Adviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Adviser in respect of the Portfolio during the period will be in compliance with Rule 15a-4 under the Investment Company Act. 5 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) days' written notice to the Manager and the Adviser, or by the Manager or Adviser on sixty (60) days' written notice to the Trust and the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Investment Management Agreement between the Manager and the Trust is assigned or terminates for any other reason. This Agreement will also terminate upon written notice to the other party that the other party is in material breach of this Agreement, unless the other party in material breach of this Agreement cures such breach to the reasonable satisfaction of the party alleging the breach within thirty (30) days after written notice. 11. PROVISION OF CERTAIN INFORMATION BY ADVISER The Adviser will promptly notify the Manager in writing of the occurrence of any of the following events: 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. 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 6 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. 14. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties with respect to the Portfolio listed in Appendix A. 15. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 16. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of each applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. The specific person to whom notice shall be provided for each party will be specified in writing to the other party. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 17. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 18. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of the State of Delaware, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 7 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 under seal by their duly authorized officers as of the date first mentioned above. EQ FINANCIAL CONSULTANTS, INC. By:_________________________________ [Name, Title] ROWE PRICE-FLEMING INTERNATIONAL, INC. By:___________________________________ [Name, Title] 8 APPENDIX A The Manager shall pay the Adviser, at the end of each calendar month, compensation computed at an annual rate equal to the following:
Portfolio Advisory Fee - --------- ------------ T. Rowe Price International Stock Portfolio .75% of the Portfolio's average daily net assets up to and including $20 million; .60% of the Portfolio's average daily net assets over $20 million and up to and including $50 million; and .50% of the Portfolio's average daily net assets in excess of $50 million.
date: _____________ __, 1997 9 EX-5.(D) 8 FORM OF INVESTMENT ADVISORY AGREEMENT EXHIBIT 5(D) FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT, dated as of _____________ __, 1997 by and between EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and Putnam Investment Management, Inc., a Massachusetts corporation (the "Adviser"). WHEREAS, 787 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 Trustees of the Trust and EQ Financial desire to retain the Adviser to render investment advisory services to the portfolio specified in Appendix A hereto ("Portfolio") in the manner and on the terms hereinafter set forth; NOW, THEREFORE, EQ Financial and Adviser agree as follows: 1. APPOINTMENT OF ADVISER The Manager hereby appoints the Adviser to act as investment adviser for the Portfolio and to manage the investment and reinvestment of the assets of the 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. 2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST A. 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 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 the 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 2 in the Prospectus and the SAI of the Portfolio and any permissible reports and materials prepared by the Portfolio or its agent; and (vii) establish appropriate interfaces with the Trust's administrator and Manager in order to provide such administrator and Manager with all necessary information requested by the administrator and Manager. B. The Adviser, at its expense, will furnish: (i) all necessary investment and management facilities and investment personnel, including salaries, expenses and fees of any personnel required for it to faithfully perform its duties under this Agreement; and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolio (excluding that necessary for the determination of net asset value and shareholder accounting services). C. The Adviser will select brokers and dealers to effect all portfolio transactions subject to the conditions set forth herein. The Adviser will place all necessary orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Adviser is directed at all times to seek to execute brokerage transactions for the 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 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. 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 and 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. D. 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 3 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. E. 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. 3. COMPENSATION OF ADVISER The Manager will pay the Adviser, with respect to the 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 the 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 Portfolio, 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 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 so long as the services provided hereunder by the Adviser are not impaired. 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. 4 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. 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 the Portfolio on the later of the date of its execution or the date of the meeting of the shareholders of the Portfolio, which for this purpose may be the sole initial shareholder of the Portfolio, at which meeting the Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) 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 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 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. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to the 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 the 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. If the shareholders of the Portfolio fail to approve the Agreement or any continuance of the Agreement, the Adviser will continue to act as investment adviser with respect to the Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Adviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Adviser in respect of the Portfolio during the period will be in compliance with Rule 15a-4 under the Investment Company Act. 5 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) days' written notice to the Manager and the Adviser, or by the Manager or Adviser on sixty (60) days' written notice to the Trust and the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Investment Management Agreement between the Manager and the Trust is assigned or terminates for any other reason. This Agreement will also terminate upon written notice to the other party that the other party is in material breach of this Agreement, unless the other party in material breach of this Agreement cures such breach to the reasonable satisfaction of the party alleging the breach within thirty (30) days after written notice. 11. PROVISION OF CERTAIN INFORMATION BY ADVISER The Adviser will promptly notify the Manager in writing of the occurrence of any of the following events: 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. 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 6 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. 14. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties with respect to the Portfolio listed in Appendix A. 15. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 16. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of each applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. The specific person to whom notice shall be provided for each party will be specified in writing to the other party. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 17. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 18. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of the State of Delaware, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 7 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 under seal by their duly authorized officers as of the date first mentioned above. EQ FINANCIAL CONSULTANTS, INC. By:_________________________________ [Name, Title] PUTNAM INVESTMENT MANAGEMENT, INC. By:___________________________________ [Name, Title] 8 APPENDIX A The Manager shall pay the Adviser, at the end of each calendar month, compensation computed daily at an annual rate equal to the following:
Portfolio Advisory Fee - --------- ------------ Putnam Growth and Income Portfolio .50% of the Portfolio's average daily net assets up to and including $150 million; .45% 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. Putnam International Growth Portfolio .65% of the Portfolio's average daily net assets up to and including $150 million; .55% of the Portfolio's average daily net assets over $150 million and up to and including $300 million; and .45% of the Portfolio's average daily net assets in excess of $300 million.
date: ________________ __, 1997 9 EX-5.(E) 9 FORM OF INVESTMENT ADVISORY AGREEMENT EXHIBIT 5(E) FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT, dated as of ________________ __, 1997, by and between EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and Massachusetts Financial Services Company, a Delaware corporation (the "Adviser"). WHEREAS, 787 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 Trustees of the Trust and EQ Financial desire to retain the Adviser to render investment advisory services to the portfolio specified in Appendix A hereto ("Portfolio") in the manner and on the terms hereinafter set forth; NOW, THEREFORE, EQ Financial and Adviser agree as follows: 1. APPOINTMENT OF ADVISER The Manager hereby appoints the Adviser to act as investment adviser for the Portfolio and to manage the investment and reinvestment of the assets of the 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. 2. SERVICES TO BE RENDERED BY THE ADVISER TO THE TRUST A. 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 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 the 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 2 in the Prospectus and the SAI of the Portfolio and any permissible reports and materials prepared by the Portfolio or its agent; and (vii) establish appropriate interfaces with the Trust's administrator and Manager in order to provide such administrator and Manager with all necessary information requested by the administrator and Manager. B. The Adviser, at its expense, will furnish: (i) all necessary investment and management facilities and investment personnel, including salaries, expenses and fees of any personnel required for it to faithfully perform its duties under this Agreement; and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Portfolio (excluding that necessary for the determination of net asset value and shareholder accounting services). C. The Adviser will select brokers and dealers to effect all portfolio transactions subject to the conditions set forth herein. The Adviser will place all necessary orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Adviser is directed at all times to seek to execute brokerage transactions for the 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 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. 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 and 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. D. 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 3 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. E. 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. 3. COMPENSATION OF ADVISER The Manager will pay the Adviser, with respect to the 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 the 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 Portfolio, 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 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 so long as the services provided hereunder by the Adviser are not impaired. 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. 4 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. 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 the Portfolio on the later of the date of its execution or the date of the meeting of the shareholders of the Portfolio, which for this purpose may be the sole initial shareholder of the Portfolio, at which meeting the Agreement is approved by the vote of a majority of the outstanding voting securities (as defined in the Investment Company Act) 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 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 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. The required shareholder approval of the Agreement or of any continuance of the Agreement shall be effective with respect to the 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 the 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. If the shareholders of the Portfolio fail to approve the Agreement or any continuance of the Agreement, the Adviser will continue to act as investment adviser with respect to the Portfolio pending the required approval of the Agreement or its continuance or of any contract with the Adviser or a different adviser or subadviser or other definitive action; provided, that the compensation received by the Adviser in respect of the Portfolio during the period will be in compliance with Rule 15a-4 under the Investment Company Act. 5 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) days' written notice to the Manager and the Adviser, or by the Manager or Adviser on sixty (60) days' written notice to the Trust and the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Investment Management Agreement between the Manager and the Trust is assigned or terminates for any other reason. This Agreement will also terminate upon written notice to the other party that the other party is in material breach of this Agreement, unless the other party in material breach of this Agreement cures such breach to the reasonable satisfaction of the party alleging the breach within thirty (30) days after written notice. 11. PROVISION OF CERTAIN INFORMATION BY ADVISER The Adviser will promptly notify the Manager in writing of the occurrence of any of the following events: 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. 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 6 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. 14. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties with respect to the Portfolio listed in Appendix A. 15. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 16. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of each applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. The specific person to whom notice shall be provided for each party will be specified in writing to the other party. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 17. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 18. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of the State of Delaware, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 7 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 under seal by their duly authorized officers as of the date first mentioned above. EQ FINANCIAL CONSULTANTS, INC. By:______________________________________ [Name, Title] MASSACHUSETTS FINANCIAL SERVICES COMPANY By:______________________________________ [Name, Title] 8 APPENDIX A The Manager shall pay the Adviser, at the end of each calendar month, compensation computed daily at an annual rate equal to the following:
Portfolio Advisory Fee - --------- ------------ 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.
date: ______________ __, 1997 9 EX-9.(B) 10 FORM OF EXPENSE LIMITATION AGREEMENT EXHIBIT 9(B) FORM OF EXPENSE LIMITATION AGREEMENT EXPENSE LIMITATION AGREEMENT, effective as of ________ __, 1997, between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"), and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the T. Rowe Price International Stock Portfolio (the "Portfolio"). WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end diversified management company of the series type, and the Portfolio is one of the series of the Trust; and WHEREAS, the Trust and the Adviser have entered into an Investment Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render investment advisory services to the Portfolio for compensation based on the value of the average daily net assets of the Portfolio; and WHEREAS, the Trust and the Adviser have determined that it is appropriate and in the best interests of the Portfolio and its shareholders to maintain the expenses of the Portfolio at a level below the level to which the Portfolio would normally be subject during its start-up period. NOW THEREFORE, the parties hereto agree as follows: 1. Expense Limitation 1.1 Applicable Expense Limit. To the extent that the aggregate expenses of every character incurred by the Portfolio in any fiscal year, including but not limited to investment advisory fees of the Adviser (but excluding interest, taxes, brokerage commissions, and other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the Portfolio's business) ("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 Adviser. 1.2 Operating Expense Limit. The Operating Expense Limit in any year shall be 0.[xx]% of the average daily net assets of the Portfolio, or such other rate as may be agreed to in writing by the parties. 1.3 Method of Computation. To determine the Adviser's liability with respect to the Excess Amount, each month the Portfolio Operating Expenses for the Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month exceed the Operating Expense Limit, the Adviser 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 Adviser also shall remit to the Portfolio an amount that, together with the waived or reduced advisory fee, is sufficient to pay such Excess Amount. 1.4 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 advisory fees waived or reduced and other payments remitted by the Adviser to the Portfolio with respect to the previous fiscal year shall equal the Excess Amount. 2. Reimbursement of Fee Waivers and Expense Reimbursements. 2.1 Reimbursement. If in any year during which total Portfolio assets are greater than $___________ million and in which the Advisory Agreement is still in effect, the estimated aggregate Portfolio Operating Expenses 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 Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part as provided below, of the management fees waived or reduced and other payments remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to which the Adviser may be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all investment management fees previously waived or reduced by the Adviser and all other payments remitted by the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the previous [two (2)] fiscal years, less any reimbursement previously paid by the Portfolio to the Adviser, 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. 2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant to this provision in any semi-annual period, unless the Trust's Board of Trustees has determined that the payment of such reimbursement is in the best interests of the Portfolio and its shareholders. The Trust's Board of Trustees shall determine at least semi-annually in advance whether any reimbursement may be paid to the Adviser for such period. 2.3 Method of Computation. To determine the Portfolio's payments, if any, to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio Operating Expenses shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month are less than the Operating Expense Limit, the Portfolio shall pay to the Adviser an amount sufficient to increase the annualized Portfolio Operating Expenses to an amount no greater than the Operating Expense Limit, provided that such amount paid to the Adviser will in no event exceed the total Reimbursement Amount. 2.4 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 for the prior fiscal year (including any reimbursement payments hereunder with respect to such fiscal year) do not exceed the Operating Expense Limit. 2 3. Termination of Agreement. This Agreement shall continue in effect for a period of one year from the date of its execution and from year to year thereafter provided such continuance is specifically approved by a majority of the Trustees of the Trust who (a) are not "interested persons" of the Trust or any other party of this Agreement, as defined in the Act, and (b) have no direct or indirect financial interest in the operation of this Agreement ("Non-Interest Trustees"). Nevertheless, this Agreement may be terminated by either party hereto, without payment of any penalty, upon 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 on behalf of the Portfolio, 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 Portfolio. 4. Miscellaneous. 4.1 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. 4.2 Interpretation. Nothing herein contained shall be deemed to require the Portfolio or the Trust to take any action contrary to the Trust's Agreement and 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 Portfolio. 4.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the investment advisory 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 Advisory Agreement, shall have the same meaning as and be resolved by reference to such agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate or trust seals to be hereunto affixed, as of the day and year first above written. ATTEST: 787 TRUST, ON BEHALF OF THE T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ___________________________ By:_________________________________ Secretary Title:______________________________ 3 ATTEST: EQ FINANCIAL SERVICES, INC. ___________________________ By:_________________________________ Secretary Title:______________________________ 4 EX-9.(C) 11 FORM OF EXPENSE LIMITATION AGREEMENT EXHIBIT 9(C) FORM OF EXPENSE LIMITATION AGREEMENT EXPENSE LIMITATION AGREEMENT, effective as of ________ __, 1997, between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"), and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the T. Rowe Price Equity Income Portfolio (the "Portfolio"). WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end diversified management company of the series type, and the Portfolio is one of the series of the Trust; and WHEREAS, the Trust and the Adviser have entered into an Investment Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render investment advisory services to the Portfolio for compensation based on the value of the average daily net assets of the Portfolio; and WHEREAS, the Trust and the Adviser have determined that it is appropriate and in the best interests of the Portfolio and its shareholders to maintain the expenses of the Portfolio at a level below the level to which the Portfolio would normally be subject during its start-up period. NOW THEREFORE, the parties hereto agree as follows: 1. Expense Limitation 1.1 Applicable Expense Limit. To the extent that the aggregate expenses of every character incurred by the Portfolio in any fiscal year, including but not limited to investment advisory fees of the Adviser (but excluding interest, taxes, brokerage commissions, and other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the Portfolio's business) ("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 Adviser. 1.2 Operating Expense Limit. The Operating Expense Limit in any year shall be 0.[xx]% of the average daily net assets of the Portfolio, or such other rate as may be agreed to in writing by the parties. 1.3 Method of Computation. To determine the Adviser's liability with respect to the Excess Amount, each month the Portfolio Operating Expenses for the Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month exceed the Operating Expense Limit, the Adviser 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 Adviser also shall remit to the Portfolio an amount that, together with the waived or reduced advisory fee, is sufficient to pay such Excess Amount. 1.4 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 advisory fees waived or reduced and other payments remitted by the Adviser to the Portfolio with respect to the previous fiscal year shall equal the Excess Amount. 2. Reimbursement of Fee Waivers and Expense Reimbursements. 2.1 Reimbursement. If in any year during which total Portfolio assets are greater than $___________ million and in which the Advisory Agreement is still in effect, the estimated aggregate Portfolio Operating Expenses 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 Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part as provided below, of the management fees waived or reduced and other payments remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to which the Adviser may be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all investment management fees previously waived or reduced by the Adviser and all other payments remitted by the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the previous [two (2)] fiscal years, less any reimbursement previously paid by the Portfolio to the Adviser, 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. 2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant to this provision in any semi-annual period, unless the Trust's Board of Trustees has determined that the payment of such reimbursement is in the best interests of the Portfolio and its shareholders. The Trust's Board of Trustees shall determine at least semi-annually in advance whether any reimbursement may be paid to the Adviser for such period. 2.3 Method of Computation. To determine the Portfolio's payments, if any, to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio Operating Expenses shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month are less than the Operating Expense Limit, the Portfolio shall pay to the Adviser an amount sufficient to increase the annualized Portfolio Operating Expenses to an amount no greater than the Operating Expense Limit, provided that such amount paid to the Adviser will in no event exceed the total Reimbursement Amount. 2.4 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 for the prior fiscal year (including any reimbursement payments hereunder with respect to such fiscal year) do not exceed the Operating Expense Limit. 2 3. Termination of Agreement. This Agreement shall continue in effect for a period of one year from the date of its execution and from year to year thereafter provided such continuance is specifically approved by a majority of the Trustees of the Trust who (a) are not "interested persons" of the Trust or any other party of this Agreement, as defined in the Act, and (b) have no direct or indirect financial interest in the operation of this Agreement ("Non-Interest Trustees"). Nevertheless, this Agreement may be terminated by either party hereto, without payment of any penalty, upon 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 on behalf of the Portfolio, 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 Portfolio. 4. Miscellaneous. 4.1 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. 4.2 Interpretation. Nothing herein contained shall be deemed to require the Portfolio or the Trust to take any action contrary to the Trust's Agreement and 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 Portfolio. 4.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the investment advisory 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 Advisory Agreement, shall have the same meaning as and be resolved by reference to such agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate or trust seals to be hereunto affixed, as of the day and year first above written. ATTEST: 787 TRUST, ON BEHALF OF THE T. ROWE PRICE EQUITY INCOME PORTFOLIO ____________________________ By:________________________________________ Secretary Title:_____________________________________ 3 ATTEST: EQ FINANCIAL SERVICES, INC. ____________________________ By:________________________________________ Secretary Title:_____________________________________ 4 EX-9.(D) 12 FORM OF EXPENSE LIMITATION AGREEMENT EXHIBIT 9(D) FORM OF EXPENSE LIMITATION AGREEMENT EXPENSE LIMITATION AGREEMENT, effective as of __________ __, 1997, between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"), and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the Putnam Growth and Income Portfolio (the "Portfolio"). WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end diversified management company of the series type, and the Portfolio is one of the series of the Trust; and WHEREAS, the Trust and the Adviser have entered into an Investment Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render investment advisory services to the Portfolio for compensation based on the value of the average daily net assets of the Portfolio; and WHEREAS, the Trust and the Adviser have determined that it is appropriate and in the best interests of the Portfolio and its shareholders to maintain the expenses of the Portfolio at a level below the level to which the Portfolio would normally be subject during its start-up period. NOW THEREFORE, the parties hereto agree as follows: 1. Expense Limitation 1.1 Applicable Expense Limit. To the extent that the aggregate expenses of every character incurred by the Portfolio in any fiscal year, including but not limited to investment advisory fees of the Adviser (but excluding interest, taxes, brokerage commissions, and other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the Portfolio's business) ("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 Adviser. 1.2 Operating Expense Limit. The Operating Expense Limit in any year shall be 0.[xx]% of the average daily net assets of the Portfolio, or such other rate as may be agreed to in writing by the parties. 1.3 Method of Computation. To determine the Adviser's liability with respect to the Excess Amount, each month the Portfolio Operating Expenses for the Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month exceed the Operating Expense Limit, the Adviser 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 Adviser also shall remit to the Portfolio an amount that, together with the waived or reduced advisory fee, is sufficient to pay such Excess Amount. 1.4 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 advisory fees waived or reduced and other payments remitted by the Adviser to the Portfolio with respect to the previous fiscal year shall equal the Excess Amount. 2. Reimbursement of Fee Waivers and Expense Reimbursements. 2.1 Reimbursement. If in any year during which total Portfolio assets are greater than $___________ million and in which the Advisory Agreement is still in effect, the estimated aggregate Portfolio Operating Expenses 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 Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part as provided below, of the management fees waived or reduced and other payments remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to which the Adviser may be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all investment management fees previously waived or reduced by the Adviser and all other payments remitted by the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the previous [two (2)] fiscal years, less any reimbursement previously paid by the Portfolio to the Adviser, 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. 2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant to this provision in any semi-annual period, unless the Trust's Board of Trustees has determined that the payment of such reimbursement is in the best interests of the Portfolio and its shareholders. The Trust's Board of Trustees shall determine at least semi-annually in advance whether any reimbursement may be paid to the Adviser for such period. 2.3 Method of Computation. To determine the Portfolio's payments, if any, to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio Operating Expenses shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month are less than the Operating Expense Limit, the Portfolio shall pay to the Adviser an amount sufficient to increase the annualized Portfolio Operating Expenses to an amount no greater than the Operating Expense Limit, provided that such amount paid to the Adviser will in no event exceed the total Reimbursement Amount. 2.4 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 for the prior fiscal year (including any reimbursement payments hereunder with respect to such fiscal year) do not exceed the Operating Expense Limit. 2 3. Termination of Agreement. This Agreement shall continue in effect for a period of one year from the date of its execution and from year to year thereafter provided such continuance is specifically approved by a majority of the Trustees of the Trust who (a) are not "interested persons" of the Trust or any other party of this Agreement, as defined in the Act, and (b) have no direct or indirect financial interest in the operation of this Agreement ("Non-Interest Trustees"). Nevertheless, this Agreement may be terminated by either party hereto, without payment of any penalty, upon 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 on behalf of the Portfolio, 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 Portfolio. 4. Miscellaneous. 4.1 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. 4.2 Interpretation. Nothing herein contained shall be deemed to require the Portfolio or the Trust to take any action contrary to the Trust's Agreement and 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 Portfolio. 4.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the investment advisory 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 Advisory Agreement, shall have the same meaning as and be resolved by reference to such agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate or trust seals to be hereunto affixed, as of the day and year first above written. ATTEST: 787 TRUST, ON BEHALF OF PUTNAM GROWTH AND INCOME PORTFOLIO ______________________________ By:________________________________________ Secretary Title:_____________________________________ 3 ATTEST: EQ FINANCIAL SERVICES, INC. ______________________________ By:________________________________________ Secretary Title:_____________________________________ 4 EX-9.(E) 13 FORM OF EXPENSE LIMITATION AGREEMENT EXHIBIT 9(E) FORM OF EXPENSE LIMITATION AGREEMENT EXPENSE LIMITATION AGREEMENT, effective as of __________ __, 1997, between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"), and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the Putnam International Growth Portfolio (the "Portfolio"). WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end diversified management company of the series type, and the Portfolio is one of the series of the Trust; and WHEREAS, the Trust and the Adviser have entered into an Investment Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render investment advisory services to the Portfolio for compensation based on the value of the average daily net assets of the Portfolio; and WHEREAS, the Trust and the Adviser have determined that it is appropriate and in the best interests of the Portfolio and its shareholders to maintain the expenses of the Portfolio at a level below the level to which the Portfolio would normally be subject during its start-up period. NOW THEREFORE, the parties hereto agree as follows: 1. Expense Limitation 1.1 Applicable Expense Limit. To the extent that the aggregate expenses of every character incurred by the Portfolio in any fiscal year, including but not limited to investment advisory fees of the Adviser (but excluding interest, taxes, brokerage commissions, and other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the Portfolio's business) ("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 Adviser. 1.2 Operating Expense Limit. The Operating Expense Limit in any year shall be 0.[xx]% of the average daily net assets of the Portfolio, or such other rate as may be agreed to in writing by the parties. 1.3 Method of Computation. To determine the Adviser's liability with respect to the Excess Amount, each month the Portfolio Operating Expenses for the Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month exceed the Operating Expense Limit, the Adviser 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 Adviser also shall remit to the Portfolio an amount that, together with the waived or reduced advisory fee, is sufficient to pay such Excess Amount. 1.4 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 advisory fees waived or reduced and other payments remitted by the Adviser to the Portfolio with respect to the previous fiscal year shall equal the Excess Amount. 2. Reimbursement of Fee Waivers and Expense Reimbursements. 2.1 Reimbursement. If in any year during which total Portfolio assets are greater than $___________ million and in which the Advisory Agreement is still in effect, the estimated aggregate Portfolio Operating Expenses 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 Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part as provided below, of the management fees waived or reduced and other payments remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to which the Adviser may be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all investment management fees previously waived or reduced by the Adviser and all other payments remitted by the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the previous [two (2)] fiscal years, less any reimbursement previously paid by the Portfolio to the Adviser, 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. 2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant to this provision in any semi-annual period, unless the Trust's Board of Trustees has determined that the payment of such reimbursement is in the best interests of the Portfolio and its shareholders. The Trust's Board of Trustees shall determine at least semi-annually in advance whether any reimbursement may be paid to the Adviser for such period. 2.3 Method of Computation. To determine the Portfolio's payments, if any, to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio Operating Expenses shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month are less than the Operating Expense Limit, the Portfolio shall pay to the Adviser an amount sufficient to increase the annualized Portfolio Operating Expenses to an amount no greater than the Operating Expense Limit, provided that such amount paid to the Adviser will in no event exceed the total Reimbursement Amount. 2.4 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 for the prior fiscal year (including any reimbursement payments hereunder with respect to such fiscal year) do not exceed the Operating Expense Limit. 2 3. Termination of Agreement. This Agreement shall continue in effect for a period of one year from the date of its execution and from year to year thereafter provided such continuance is specifically approved by a majority of the Trustees of the Trust who (a) are not "interested persons" of the Trust or any other party of this Agreement, as defined in the Act, and (b) have no direct or indirect financial interest in the operation of this Agreement ("Non-Interest Trustees"). Nevertheless, this Agreement may be terminated by either party hereto, without payment of any penalty, upon 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 on behalf of the Portfolio, 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 Portfolio. 4. Miscellaneous. 4.1 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. 4.2 Interpretation. Nothing herein contained shall be deemed to require the Portfolio or the Trust to take any action contrary to the Trust's Agreement and 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 Portfolio. 4.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the investment advisory 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 Advisory Agreement, shall have the same meaning as and be resolved by reference to such agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate or trust seals to be hereunto affixed, as of the day and year first above written. ATTEST: 787 TRUST, ON BEHALF OF PUTNAM INTERNATIONAL GROWTH PORTFOLIO _________________________________ By:__________________________________ Secretary Title:_______________________________ 3 ATTEST: EQ FINANCIAL SERVICES, INC. _________________________________ By:__________________________________ Secretary Title:_______________________________ 4 EX-9.(F) 14 FORM OF EXPENSE LIMITATION AGREEMENT EXHIBIT 9(F) FORM OF EXPENSE LIMITATION AGREEMENT EXPENSE LIMITATION AGREEMENT, effective as of __________ __, 1997, between EQ Financial Services, Inc., a Delaware corporation (the "Adviser"), and the 787 Trust, a Delaware business trust (the "Trust"), on behalf of the MFS Research Portfolio (the "Portfolio"). WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end diversified management company of the series type, and the Portfolio is one of the series of the Trust; and WHEREAS, the Trust and the Adviser have entered into an Investment Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render investment advisory services to the Portfolio for compensation based on the value of the average daily net assets of the Portfolio; and WHEREAS, the Trust and the Adviser have determined that it is appropriate and in the best interests of the Portfolio and its shareholders to maintain the expenses of the Portfolio at a level below the level to which the Portfolio would normally be subject during its start-up period. NOW THEREFORE, the parties hereto agree as follows: 1. Expense Limitation 1.1 Applicable Expense Limit. To the extent that the aggregate expenses of every character incurred by the Portfolio in any fiscal year, including but not limited to investment advisory fees of the Adviser (but excluding interest, taxes, brokerage commissions, and other expenditures which are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the Portfolio's business) ("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 Adviser. 1.2 Operating Expense Limit. The Operating Expense Limit in any year shall be 0.[xx]% of the average daily net assets of the Portfolio, or such other rate as may be agreed to in writing by the parties. 1.3 Method of Computation. To determine the Adviser's liability with respect to the Excess Amount, each month the Portfolio Operating Expenses for the Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month exceed the Operating Expense Limit, the Adviser 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 Adviser also shall remit to the Portfolio an amount that, together with the waived or reduced advisory fee, is sufficient to pay such Excess Amount. 1.4 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 advisory fees waived or reduced and other payments remitted by the Adviser to the Portfolio with respect to the previous fiscal year shall equal the Excess Amount. 2. Reimbursement of Fee Waivers and Expense Reimbursements. 2.1 Reimbursement. If in any year during which total Portfolio assets are greater than $___________ million and in which the Advisory Agreement is still in effect, the estimated aggregate Portfolio Operating Expenses 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 Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part as provided below, of the management fees waived or reduced and other payments remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to which the Adviser may be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all investment management fees previously waived or reduced by the Adviser and all other payments remitted by the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the previous [two (2)] fiscal years, less any reimbursement previously paid by the Portfolio to the Adviser, 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. 2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant to this provision in any semi-annual period, unless the Trust's Board of Trustees has determined that the payment of such reimbursement is in the best interests of the Portfolio and its shareholders. The Trust's Board of Trustees shall determine at least semi-annually in advance whether any reimbursement may be paid to the Adviser for such period. 2.3 Method of Computation. To determine the Portfolio's payments, if any, to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio Operating Expenses shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month are less than the Operating Expense Limit, the Portfolio shall pay to the Adviser an amount sufficient to increase the annualized Portfolio Operating Expenses to an amount no greater than the Operating Expense Limit, provided that such amount paid to the Adviser will in no event exceed the total Reimbursement Amount. 2.4 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 for the prior fiscal year (including any reimbursement payments hereunder with respect to such fiscal year) do not exceed the Operating Expense Limit. 2 3. Termination of Agreement. This Agreement shall continue in effect for a period of one year from the date of its execution and from year to year thereafter provided such continuance is specifically approved by a majority of the Trustees of the Trust who (a) are not "interested persons" of the Trust or any other party of this Agreement, as defined in the Act, and (b) have no direct or indirect financial interest in the operation of this Agreement ("Non-Interest Trustees"). Nevertheless, this Agreement may be terminated by either party hereto, without payment of any penalty, upon 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 on behalf of the Portfolio, 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 Portfolio. 4. Miscellaneous. 4.1 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. 4.2 Interpretation. Nothing herein contained shall be deemed to require the Portfolio or the Trust to take any action contrary to the Trust's Agreement and 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 Portfolio. 4.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the investment advisory 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 Advisory Agreement, shall have the same meaning as and be resolved by reference to such agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate or trust seals to be hereunto affixed, as of the day and year first above written. ATTEST: 787 TRUST, ON BEHALF OF MFS RESEARCH PORTFOLIO __________________________________ By:_______________________________ Secretary Title:____________________________ 3 ATTEST: EQ FINANCIAL SERVICES, INC. __________________________________ By:_______________________________ Secretary Title:____________________________ 4 EX-10 15 OPINION AND CONSENT OF KATTEN MUCHIN & ZAVIS EXHIBIT 10 November 26, 1996 Opinion and Consent of Counsel 787 Trust 787 Seventh Avenue New York, NY 10019 Dear Gentlemen: This opinion is given in connection with the filing by the 787 Trust, a Delaware business trust, of its Registration Statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933 ("1933 Act") and the Investment Company Act of 1940 ("1940 Act") relating to an indefinite amount of its authorized shares of beneficial interest, at a par value of $.01 per share. The 787 Trust's authorized shares of beneficial interest, including each class of shares of beneficial interest for the five separate series of the 787 Trust (i.e., the T. Rowe Price International Stock Portfolio, the T. Rowe Price Equity Income Portfolio, the Putnam Growth and Income Portfolio, the Putnam International Growth Portfolio and the MFS Research Portfolio, collectively, the "Portfolios") are hereinafter referred to as the "Shares." We have examined the following: the 787 Trust's Declaration of Trust, dated October 31, 1996; the 787 Trust's Certificate of Trust, as filed with the Secretary of State of the State of Delaware on October 31, 1996; its By-Laws; its Board of Trustees resolutions dated November 26, 1996, authorizing the establishment and designation of the Shares for each of the five Portfolios; the form of the Registration Statement under the 1933 Act and the 1940 Act to be filed on December 2, 1996; pertinent provisions of the laws of the State of Delaware; and such other corporate records, certificates, documents and statutes that we have deemed relevant in order to render the opinion expressed herein. Based on such examination, we are of the opinion that: 1. The 787 Trust is a Delaware business trust duly organized, validly existing, and in good standing under the laws of the State of Delaware; and 2. The Shares to be offered for sale by the 787 Trust, when issued in the manner contemplated by the Registration Statement, will be legally issued, fully-paid and non-assessable. This letter expresses our opinion as to the Delaware Business Trust Act governing matters such as the due organization of the 787 Trust and the authorization and issuance of the Shares, but does not extend to the securities or "Blue Sky" laws of the State of Delaware or to federal securities or other laws. We consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to Katten Muchin & Zavis under the caption "Legal Matters" in the Statement of Additional Information, which is incorporated by reference into the Prospectus comprising a part of the Registration Statement. Very truly yours, /s/ Katten Muchin & Zavis KATTEN MUCHIN & ZAVIS EX-13 16 FORM OF STOCK SUBSCRIPTION AGREEMENT EXHIBIT 13 FORM OF STOCK SUBSCRIPTION AGREEMENT THIS AGREEMENT by and between The Equitable Life Assurance Society of the United States ("Equitable Life") and the 787 Trust, a business trust organized and existing under and by virtue of the laws of the State of Delaware. In consideration of the mutual promises set forth herein, the parties agree as follows: 1. The 787 Trust agrees to sell to Equitable Life and Equitable Life hereby subscribes to purchase the specified number of Class IA shares of beneficial interest of the following five series of the 787 Trust: 2,000 Class IA shares of the T. Rowe Price International Stock Portfolio; 2,000 Class IA shares of the T. Rowe Price Equity Income Portfolio; 2,000 Class IA shares of the Putnam Growth and Income Portfolio; 2,000 Class IA shares of the Putnam International Growth Portfolio; and 2,000 Class IA shares of the MFS Research Portfolio (together, the "Shares"), each with a par value of $.01 per Share, at a price of ten dollars ($10.00) per each Share. 2. Equitable Life agrees to pay $100,000 for such Shares at the time of their issuance, which shall occur upon call of the President of the 787 Trust, at any time on or before the effective date of the 787 Trust's Registration Statement filed by the 787 Trust on Form N-1A with the Securities and Exchange Commission ("Registration Statement") on December 3, 1996. 3. Equitable Life acknowledges that the Shares have not been, and will not be, registered under the federal securities laws and that, therefore, the 787 Trust is relying on certain exemptions from such registration requirements, including exemptions dependent on the intent of the undersigned in acquiring the Shares. Equitable Life also understands that any resale of the Shares, or any part thereof, may be subject to restrictions under the federal securities laws, and that Equitable Life may be required to bear the economic risk of any investment in the Shares for an indefinite period of time. 4. Equitable Life represents and warrants that it is acquiring the Shares solely for its own account and solely for investment purposes and not with a view to the resale or disposition of all or any part thereof, and that it has no present plan or intention to sell or otherwise dispose of the Shares or any part thereof. 5. Equitable Life agrees that it will not sell or dispose of the Shares or any part thereof unless the Registration Statement with respect to such Shares is then in effect under the Securities Act of 1933, as amended. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives this ______ day of ________, 1997. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By:__________________________________ Peter D. Noris Title: Executive Vice President and Chief Investment Officer 787 TRUST By:___________________________________ Peter D. Noris Title: President and Trustee EX-15 17 FORM OF DISTRIBUTION PLAN AGREEMENT EXHIBIT 15 787 TRUST CLASS IB DISTRIBUTION PLAN WHEREAS, The Board of Trustees of the 787 Trust (the "Trust"), including the independent trustees, have concluded in the exercise of their reasonable business judgment and in light of their fiduciary duties under the Investment Company Act of 1940, as amended (the "Act"), and state law that there is a reasonable likelihood that this Plan (the "Plan") will benefit each of the Trust's constituent portfolios (each a "Portfolio") and the Class IB shareholders thereto; NOW, THEREFORE, in consideration of the foregoing, this Plan is hereby adopted as follows: Section 1. The Trust is authorized to pay a fee (the "Distribution Fee") for services rendered and expenses borne in connection with the distribution of the Class IB shares of the Trust, at an annual rate with respect to each Portfolio not to exceed [.50%] of the average daily net assets attributable to the Portfolio's Class IB shares. Some or all of such Distribution Fee may be paid to the distributor of the Trust's Class IB shares (the "Class IB Distributor") pursuant to a distribution agreement. Subject to such limit and subject to the provisions of Section 9 hereof, the Distribution Fee shall be approved from time to time by: (a) a majority of this Board of Trustees of the Trust and (b) a majority of the Trustees who (i) are not "interested persons" of the Trust, as defined in the Act, and (ii) have no direct or indirect financial interest in the operation of the Plan or any agreements related thereto ("Independent Trustees"), and may be paid in respect of services rendered and expenses borne in the past in connection with the Portfolios' Class IB shares as to which no Distribution Fee was paid on account of such limitation. If at any time this Plan shall not be in effect with respect to the Class IB shares of all Portfolios of the Trust, the Distribution Fee shall be computed on the basis of the net assets of the Class IB shares of those Portfolios for which the Plan is in effect. The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. Section 2. Some or all of the Distribution Fee paid to the Class IB Distributor may be spent on any activities or expenses primarily intended to result in the sale of Class IB shares of the Trust, including but not limited to the following: (a) compensation to and expenses of employees of the Class IB Distributor, including overhead and telephone expenses, who engage in the distribution of the Class IB shares; (b) printing and mailing of prospectuses, statements of additional information, and reports for prospective purchasers of variable annuity or variable life insurance contracts ("Variable Contracts") investing indirectly in Class IB shares; (c) compensation to financial intermediaries and broker-dealers to pay or reimburse them for their services or expenses in connection with the distribution of Variable Contracts investing indirectly in Class IB shares; (d) expenses relating to the development, preparation, printing, and mailing of Trust advertisements, sales literature, and other promotional materials describing and/or relating to the Trust; (e) expenses of holding seminars and sales meetings designed to promote the distribution of the Class IB shares; (f) expenses of obtaining information and providing explanations to Variable Contract owners regarding Trust investment objectives and policies and other information about the Trust and its Portfolios, including the performance of the Portfolios; (g) expenses of training sales personnel regarding the Trust; (h) expenses of compensating sales personnel in connection with the allocation of cash values and premiums of the Variable Contracts to the Trust; and (i) expenses of personal services and/or maintenance of Variable Contract accounts with respect to Class IB shares attributable to such accounts. Section 3. This Plan shall not take effect until it has been approved, together with any related agreements, by votes of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, as defined herein, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Approval of the Plan in this manner, with respect to any Portfolio, prior to the initial public offering of the shares of such Portfolio shall be deemed to have been approved by that Portfolio's outstanding voting securities. Section 4. This Plan shall continue in effect for a period of more than one year after it takes effect only for so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Section 3 hereof. Section 5. Any person authorized to direct the disposition of monies paid or payable by the Class IB shares of the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 6. This Plan may be terminated at any time with respect to the Class IB shares of any Portfolio by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities representing the Class IB shares of that Portfolio. Section 7. All agreements with any person relating to implementation of this Plan with respect to the Class IB shares of any Portfolio shall be in writing, and any agreement related to this Plan with respect to the Class IB shares of any Portfolio shall provide: (a) That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities representing the Class IB shares of such Portfolio, on not more than 60 days' written notice to any other party to the agreement; and (b) That such agreement shall terminate automatically in the event of its assignment. Section 8. This Plan may not be amended to materially increase the amount of Distribution Fees permitted pursuant to Section 1 hereof until it has been approved by a vote of at least a majority of the outstanding voting securities representing the Class IB shares of that Portfolio. This Plan shall be deemed to have been effectively approved with respect to the Class IB shares of any Portfolio if a majority of the outstanding voting securities representing the Class IB shares of that Portfolio votes for the approval of this Plan, notwithstanding that this Plan has not been approved by a majority of the outstanding voting securities representing the Class IB shares of any other Portfolio or that this Plan has not been approved by a majority of the outstanding voting securities representing the Class IB shares of the Trust. Moreover, all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 3 hereof. Section 9. As used in this Plan, the terms "assignment", "interested person", and "majority of the outstanding voting securities" shall have the respective meanings specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. Adopted as of [ ], 1997. EX-18 18 FORM OF PLAN EXHIBIT 18 787 TRUST PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT OF 1940 This Plan (the "Plan") is adopted by the 787 Trust (the "Trust") pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "Act"), and sets forth the general characteristics of, and the general conditions under which the Trust may offer, multiple classes of shares of its now existing and hereafter created series. This Plan is intended to allow the Trust to offer multiple classes of shares to the full extent and in the manner permitted by Rule 18f-3 under the Act (the "Rule"), subject to the requirements and conditions imposed by the Rule. This Plan may be revised or amended from time to time as provided below. CLASS DESIGNATIONS Each of the Trust's constituent series (each, a "Portfolio") may from time to time issue one or more of the following classes of shares: Class IA shares and Class IB shares. Each of the two classes of shares will represent interests in the same portfolio of investments of the Portfolio and, except as described herein, shall have the same rights and obligations as each other class. Each class shall be subject to such investment minimums and other conditions of eligibility as are set forth in the Trust's prospectus or statement of additional information as from time to time in effect (the "Prospectus"). CLASS CHARACTERISTICS Class IA shares are offered at a public offering price that is equal to their net asset value ("NAV") without an initial sales charge or a contingent deferred sales charge ("CDSC"). Class IB shares are offered at their NAV, without an initial sales charge or a CDSC, but may be subject to a fee imposed in accordance with Rule 12b-1 under the Act ("Rule 12b-1 fees"), which may include a service fee, as described in the Prospectus. The Class IA shares and Class IB shares may subsequently be offered pursuant to an initial sales charge and/or CDSC (each of which may be subject to reduction or waiver) as permitted by the Act, and as described in the Prospectus. ALLOCATIONS TO EACH CLASS EXPENSE ALLOCATIONS The following expenses shall be allocated, to the extent practicable, on a class-by-class basis: (i) Rule 12b-1 fees payable by the Trust to the distributor or principal underwriter of the Trust's Class IB shares (the "Class IB Distributor"),1 and (ii) transfer agency costs attributable to Class IA shares and Class IB shares. Subject to the approval of a majority of the Trust's Board of Trustees, including a majority of the Independent Trustees (as defined in the Class IB Distribution Plan), the following "Class Expenses" may, to the extent not required to be borne by the Trust's investment adviser (the "Adviser") pursuant to the Trust's Investment Advisory Agreement, be allocated on a class-by-class basis: (a) printing and postage expenses related to preparing and distributing materials such as shareholder reports, Prospectuses and proxy statements to current shareholders of a specific class; (b) SEC registration fees incurred with respect to a specific class; (c) state blue sky and foreign registration fees and expenses incurred with respect to a specific class; (d) the expenses of administrative personnel and services required to support shareholders of a specific class; (e) litigation and other legal expenses relating to a specific class; (f) Trustees' fees or expenses incurred as a result of issues relating to a specific class of shares; (g) accounting and consulting expenses relating to a specific class; (h) any fees imposed pursuant to a non-Rule 12b-1 shareholder services plan that relate to a specific class; and (i) any additional expenses, not including advisory or custodial fees or other expenses relating to the management of the Trust's assets, if such expenses are actually incurred in a different amount with respect to a class that are of a different kind or to a different degree than with respect to one or more other classes. All expenses not hereafter designated as Class Expenses will be allocated to each class on the basis of the net asset value of that class in relation to the net asset value of the Portfolio ("Portfolio Expenses"). However, notwithstanding the above, the Trust may allocate all expenses other than Class Expenses on the basis of the relative net assets (settled shares) of each class, as permitted by Rule 18f-3(c)(2) under the Act. WAIVERS AND REIMBURSEMENTS The Adviser or Class IB Distributor may choose to waive or reimburse Rule 12b-1 fees, transfer agency fees or any Class Expenses on a voluntary basis. Such waiver or reimbursement may be applicable to some or all of the classes and may be in different amounts for one or more classes. - -------- 1 As of the date of this Plan, only the Class IB shares have adopted a Distribution Plan pursuant to Rule 12b-1 under the Act ("Distribution Plan"). INCOME, GAINS AND LOSSES Income and realized and unrealized capital gains and losses shall be allocated to each class on the basis of the net asset value of that class in relation to the net asset value of the Portfolio. The Portfolio may allocate income and realized and unrealized capital gains and losses to each share based on relative net assets (settled shares) of each class, as permitted by Rule 18f- 3(c)(2) under the Act. CONVERSION AND EXCHANGE Neither Class IA shares nor Class IB shares shall convert into the other. Subsequent classes of shares (each a "Converting Class") may automatically convert into another class of shares (the "Conversion Class"), subject to such terms as may be approved by the Trustees. In the event of any material increase in payments authorized under the Distribution Plan (or, if presented to shareholders, any material increase in payments authorized by a non-Rule 12b-1 shareholder services plan) applicable to any Conversion Class, existing Converting Class shares will not be permitted to convert into Conversion Class shares unless the Converting Class shareholders, voting separately as a class, approve the material increase in such payments. Pending approval of such increase, or if such increase is not approved, the Trustees shall take such action as is necessary to ensure that existing Converting Class shares are exchanged or converted into a new class of shares ("New Conversion Class") identical in all material respects to the Conversion Class shares as they existed prior to the implementation of the material increase in payments, no later than the time such shares were scheduled to convert to the Conversion Class shares. Converting Class shares sold after the implementation of the fee increase may convert into Conversion Class shares subject to the higher maximum payment, provided that the material features of the Conversion Class plan and the relationship of such plan to the Converting Class shares were disclosed in an effective registration statement. EXCHANGE FEATURES Shares of each class generally will be permitted to be exchanged only for shares of a class with similar characteristics in another Portfolio; Class IA shares may be exchanged for Class IA shares of another Portfolio; Class IB shares may be exchanged for Class IB shares of another Portfolio. All exchange features applicable to each class will be described in the Prospectus. DIVIDENDS Dividends paid by the Trust with respect to its Class IA and Class IB shares, to the extent any dividends are paid, will be calculated in the same manner, at the same time and will be in the same amount, except that any Rule 12b-1 fee payments relating to a class of shares will be borne exclusively by that class and any incremental transfer agency costs or, if applicable, Class Expenses relating to a class shall be borne exclusively by that class. -3- VOTING RIGHTS Each share of each Portfolio entitles the shareholder of record to one vote. Each class of shares of the Portfolio will vote separately as a class with respect to any Distribution Plan, as defined herein, applicable to that class and on other matters for which class voting is required under applicable law. Class IB shareholders will vote separately as a class to approve any material increase in payments authorized under the Distribution Plan applicable to Class IB shares. RESPONSIBILITIES OF THE TRUSTEES On an ongoing basis, the Trustees will monitor the Trust and each Portfolio for the existence of any material conflicts among the interests of the two classes of shares. The Trustees shall further monitor on an ongoing basis the use of waivers or reimbursement by the Adviser and the Class IB Distributor of expenses to guard against cross-subsidization between classes. The Trustees, including a majority of the Independent Trustees, shall take such action as is reasonably necessary to eliminate any such conflict that may develop. If a conflict arises, the Adviser and Class IB Distributor and the distributor of the Class IA shares (together with the Class IB Distributor, the "Distributors"), at their own cost, will remedy such conflict up to and including establishing one or more new registered management investment companies. REPORTS TO THE TRUSTEES The Adviser and the Distributors will be responsible for reporting any potential or existing conflicts among the two classes of shares to the Trustees. In addition, the Trustees will receive quarterly and annual statements concerning distributions and shareholder servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1. In the statements, only expenditures properly attributable to the direct or indirect sale or servicing of a particular class of shares shall be used to justify any distribution or service fee charged to that class. The statements, including the allocations upon which they are based, will be subject to the review of the Independent Trustees in the exercise of their fiduciary duties. AMENDMENTS The Plan may be amended from time to time in accordance with the provisions and Requirements of Rule 18f-3 under the Act. Adopted this [] day of [ ], 1997. -4- -----END PRIVACY-ENHANCED MESSAGE-----