-----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, HQLWUPCrdkmE2CBeDhW7drgfbrGLlJ+X/LPLDWjLQ2okEcOyeeAEKMPwJ/VPFzmI guQxoa+rMRynGrTZPTgHgg== 0000950136-97-000396.txt : 19970409 0000950136-97-000396.hdr.sgml : 19970409 ACCESSION NUMBER: 0000950136-97-000396 CONFORMED SUBMISSION TYPE: N-1A EL/A PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19970407 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQ ADVISORS 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/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-17217 FILM NUMBER: 97575756 FILING VALUES: FORM TYPE: N-1A EL/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-07953 FILM NUMBER: 97575757 BUSINESS ADDRESS: STREET 1: 787 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125543743 MAIL ADDRESS: STREET 1: 1755 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019-3743 FORMER COMPANY: FORMER CONFORMED NAME: 787 TRUST DATE OF NAME CHANGE: 19961125 N-1A EL/A 1 AMENDED REGISTRATION STATEMENT Registration Nos. 333-17217 811-07953 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. 2 /x/ Post-Effective Amendment No. / / and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / Amendment No. 2 /x/ (Check appropriate box or boxes) EQ ADVISORS TRUST (formerly 787 Trust) (Exact name of registrant as specified in charter) 1290 Avenue of the Americas New York, New York 10104 (Address of principal executive offices) Registrant's Telephone Number, including area code: (212) 554-1234 Peter D. Noris, Executive Vice President and Chief Investment Officer The Equitable Life Assurance Society of the United States 1290 Avenue of the Americas New York, New York 10104 (Name and address of agent for service) Please send copies of all communications to: Jane A. Kanter Mary P. Breen Katten Muchin & Zavis Vice President & Associate General Counsel 1025 Thomas Jefferson Street, N.W. The Equitable Life Assurance Society of the United States Society of the United States East Lobby, Suite 700 1290 Avenue of the Americas Washington, D.C. 20007 New York, New York 10104 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. EQ ADVISORS 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 EQ ADVISORS 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 Strategy 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 Financial Statements 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.
PROSPECTUS DATED MAY 1, 1997 EQ ADVISORS TRUST 1290 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10104 EQ Advisors Trust ("Trust") is a 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 twelve Portfolios currently offered by the Trust. * T. Rowe Price International Stock Portfolio * T. Rowe Price Equity Income Portfolio * EQ/Putnam Growth & Income Value Portfolio * EQ/Putnam International Equity Portfolio * EQ/Putnam Investors Growth Portfolio * EQ/Putnam Balanced Portfolio * MFS Research Portfolio * MFS Emerging Growth Companies Portfolio * Morgan Stanley Emerging Markets Equity Portfolio * Warburg Pincus Small Company Value Portfolio * Merrill Lynch World Strategy Portfolio * Merrill Lynch Basic Value Equity 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 May 1, 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 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 twelve Portfolios. Each Portfolio is a separate series of the Trust with its own objective and policies. All of the Portfolios, except for the Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch World Strategy Portfolio, are diversified for 1940 Act purposes. 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., Massachusetts Financial Services Company, Morgan Stanley Asset Management Inc., Warburg, Pincus Counsellors, Inc., and Merrill Lynch Asset Management, L.P. 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 EQ/Putnam Growth & Putnam Investment Management, Income Value Portfolio Inc. EQ/Putnam International Putnam Investment Management, Equity Portfolio Inc. EQ/Putnam Investors Putnam Investment Management, Growth Portfolio Inc. EQ/Putnam Balanced Putnam Investment Management, Portfolio Inc. MFS Research Portfolio Massachusetts Financial Services Company MFS Emerging Growth Companies Massachusetts Financial Services Portfolio Company Morgan Stanley Emerging Markets Morgan Stanley Asset Management Equity Portfolio Inc. -3- Warburg Pincus Small Company Warburg, Pincus Counsellors, Inc. Value Portfolio Merrill Lynch Merrill Lynch Asset Management, World Strategy Portfolio L.P. Merrill Lynch Basic Value Merrill Lynch Asset Management, Equity Portfolio L.P. The Trust offers two classes of shares on behalf of each Portfolio: Class IA shares and Class IB shares. EQ Financial Consultants, Inc. ("EQ Financial"), the Trust's Manager, serves as one of the distributors for the Class IA shares of the Trust offered by this Prospectus. Equitable Distributors, Inc. ("EDI") also serves as one of the distributors for the Class IA shares of the Trust. (EQ Financial and EDI are collectively referred to as the "Distributors"). 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. Inquiries regarding Class IB shares should be addressed to Equitable, at 1290 Avenue of the Americas, New York, NY 10104. 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-United States 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 -4- 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. 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 United States 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 -5- 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, United States Government securities, convertible securities, borrowings, derivatives, investment grade fixed-income securities, 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). 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 United States 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 -6- program. The Portfolio may invest up to 25% of its total assets in foreign securities. These include non-dollar denominated securities traded outside the United States and dollar-denominated securities traded in the United States (such as American Depositary Receipts ("ADRs"). 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"). Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, convertible securities, borrowings, foreign securities, repurchase agreements, derivatives, United States government securities, securities loans, foreign currency transactions, illiquid securities and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO The investment objective of the EQ/Putnam Growth & Income Value 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. -7- 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. 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, foreign securities, securities loans, convertible securities, borrowings, repurchase agreements, illiquid securities, forward commitments, zero-coupon bonds, derivatives, United States Government securities, foreign currency transactions, passive foreign investment companies, payment-in-kind bonds, and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO The investment objective of the EQ/Putnam International Equity Portfolio is capital appreciation. The Portfolio is designed for investors seeking capital appreciation primarily through a diversified portfolio of equity securities of companies organized under the laws of a country other than the United States. Such equity securities normally will include common stocks, preferred stocks, securities convertible into common or preferred stocks, and -8- 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 the United States. The Portfolio will consider an issuer to be located outside the United States if the issuer is organized under the laws of a country outside the United States. 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. 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, borrowings, derivatives, repurchase agreements, futures contracts, foreign securities, forward commitments, foreign currency transactions, securities loans, and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. -9- EQ/PUTNAM INVESTORS GROWTH PORTFOLIO The investment objective of the EQ/Putnam Investors Growth Portfolio is long-term growth of capital and any increased income that results from this growth. The Adviser intends to invest primarily in common stocks in view of the Adviser's belief that equity ownership affords the best opportunity for capital growth over the long term. The Portfolio may also purchase convertible bonds, convertible preferred stocks, preferred stocks and debt securities if the Adviser believes that they will help to achieve the Portfolio's objective. In addition, the Portfolio may hold a portion of its assets in cash or money market instruments. In analyzing potential investments, the Adviser considers three main factors: (i) the general outlook of the economy; (ii) a study of various industries to determine those with the best possibilities for long-term growth; and (iii) a detailed study of what appear to be the most promising individual companies. In evaluating individual companies, the Adviser gives more weight to growth potential characteristics than to dividend income. In particular, the Adviser believes that evaluating a company's probable future earnings, dividends, financial strength, working assets and competitive position may be more profitable in the long run than seeking current dividend income. Although the Portfolio's investments are not limited to any particular type of company, the Adviser currently expects that the Portfolio will invest a substantial portion of its assets in common stocks of companies with equity market capitalizations of more than $1 billion. The Portfolio may also invest in small to medium-sized companies having a proprietary product or profitable market niche and the potential to grow very rapidly. The Adviser believes that such small to medium-sized companies may present greater opportunities for capital appreciation because of their high potential earnings growth, but also may involve greater risk. 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, preferred stocks, United States government and agency obligations, cash or money market instruments, 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. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and entering into foreign currency exchange contracts. -10- Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, borrowings, futures contracts, foreign securities, foreign currency transactions, securities loans, illiquid securities, derivatives, repurchase agreements and forward commitments) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM BALANCED PORTFOLIO The investment objective of the EQ/Putnam Balanced Portfolio is to provide a balanced investment composed of a well-diversified portfolio of stocks and bonds that will produce both capital growth and current income. In seeking its objective, the Portfolio may invest in almost any type of security or negotiable instrument, including cash or money market instruments. While the proportion invested in each type of security is not fixed, ordinarily the Adviser will invest no more than 75% of the Portfolio's assets in common stocks and conversion rights with respect to convertible securities. The Adviser may, however, invest more than 75% of the Portfolio's assets in such securities if it determines that unusual market or economic conditions make it appropriate to do so. The Portfolio may also invest in debt securities, including lower-rated debt securities (commonly referred to as "junk bonds"). The Portfolio will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase. However, the Adviser will consider such reduction in its determination of whether the Portfolio should continue to hold the security. 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, preferred stocks, United States government and agency obligations, cash or money market instruments, 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. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, foreign securities, securities loans, illiquid securities, zero-coupon bonds, investment grade and lower quality fixed-income securities, payment-in-kind bonds, derivatives, foreign currency transactions, repurchase agreements, forward commitments and investment grade and lower quality fixed-income securities) are -11- 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. The portfolio securities of the Portfolio are selected by a committee of investment research analysts. This committee includes investment analysts employed not only by the Adviser but also by MFS International (U.K.) Limited, a wholly-owned subsidiary of the Adviser. The Portfolio's assets are allocated among industries by the analysts acting together as a group. Individual analysts are then responsible for selecting what they view as the securities best suited to meet the Portfolio's investment objective within their assigned industry responsibility. 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 dollar-denominated and non-dollar-denominated foreign securities. 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, convertible securities, borrowings, repurchase agreements, securities loans, illiquid securities and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MFS EMERGING GROWTH COMPANIES PORTFOLIO The investment objective of the MFS Emerging Growth Companies Portfolio is to provide long-term growth of capital. Dividend and interest income from portfolio securities, if any, is incidental to the Portfolio's investment objective. In pursuing its objective, the Portfolio invests -12- primarily (i.e., at least 80% of its assets under normal circumstances) in common stocks of emerging growth companies that the Adviser believes are early in their life cycle but which have the potential to become major enterprises. Such emerging growth companies generally are expected to: (i) show earnings growth over time that is well above the growth rate of the overall economy and the rate of inflation; and (ii) have the products, technologies, management and market and other opportunities that are usually necessary to become more widely recognized as growth companies. Emerging growth companies can be of any size and the Portfolio may invest in larger or more established companies whose rates of earnings growth are expected to accelerate because of special factors, such as rejuvenated management, new products, changes in customer demand, or basic changes in the economic environment. Investing in emerging growth companies involves greater risk than is customarily associated with investments in more established companies. Emerging growth companies often have limited product lines, markets or financial resources and may be more dependent on one-person management. In addition, there may be less research available on many promising small or medium-sized emerging growth companies, making it more difficult both to identify and to analyze such companies. Moreover, the securities of such companies may have limited marketability and may be subject to more abrupt or erratic market movements than the securities of larger, more established companies. While the Portfolio may invest primarily in common stocks, the Portfolio may, to a limited extent, seek long-term growth in other types of securities such as convertible securities and warrants. To the extent that such investments comply with the Portfolio's investment objective, the Portfolio may invest up to 25% 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 also invest in debt securities and hold cash and cash equivalents. In addition, the Portfolio may invest in lower-rated debt securities (commonly referred to as "junk bonds"). The Portfolio is aggressively managed and, therefore, the value of its shares is subject to greater fluctuation and investment in its shares generally involves a higher degree of risk than would be the case with an investment in a conservative equity or growth fund investing entirely in proven growth companies. Certain investment strategies and practices which may be employed by the Portfolio (such as foreign securities, repurchase agreements, loan participations, derivatives, United States Government securities, securities loans, forward commitments, asset-backed securities, borrowings, options, futures contracts, convertible securities, foreign currency transactions, illiquid securities and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. -13- MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO The investment objective of the Morgan Stanley Emerging Markets Equity Portfolio is long-term capital appreciation by investing primarily in equity securities of emerging market country issuers. In pursuing its investment objective, the Adviser focuses on issuers in emerging market countries in which it believes the economies are developing strongly and in which the markets are becoming more sophisticated. Under normal circumstances, at least 65% of the Portfolio's total assets will be invested in emerging market country equity securities, including common stocks, preferred stocks, convertible securities, rights and warrants to purchase common stocks, depository receipts and other equity securities of emerging market country issuers. For these purposes, an emerging market country security is a security issued by a company that has one or more of the following characteristics: (i) its principal securities trading market is in an emerging market country; (ii) alone or on a consolidated basis, it derives 50% or more of its revenue from either goods produced, sales made or services performed in emerging markets countries; or (iii) it is organized under the laws of, and has a principal office in, an emerging market country. The Adviser will base determinations as to eligibility on publicly available information and inquiries made to the companies. The Portfolio intends to invest primarily in some or all of the following emerging market countries: Argentina, Botswana, Brazil, Chile, China, Colombia, Greece, Hong Kong, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Malaysia, Mexico, Nigeria, Pakistan, Peru, Philippines, Poland, Portugal, Russia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. As markets in other countries develop, the Portfolio expects to expand and further diversify the emerging market countries in which it invests. The Portfolio does not intend to invest in any security in a country where the currency is not freely convertible to United States dollars, unless: (i) the Portfolio has obtained the necessary governmental licensing to convert such currency or other appropriately licensed or sanctioned contractual guarantees to protect such investment against loss of that currency's external value, or (ii) the Portfolio has a reasonable expectation at the time the investment is made that such governmental licensing or other appropriately licensed or sanctioned guarantees would be obtained or that the currency in which the security is quoted would be freely convertible at the time of any proposed sale of the security by the Portfolio. Currently, investing in many emerging market countries is not feasible or may involve unacceptable political risks. In selecting industries and particular issuers, the Adviser will analyze assets, revenues and earnings of an issuer and, with respect to particular countries, evaluate costs of labor and raw materials, access to technology, export of products and government regulation. Although the Portfolio seeks to invest in larger companies, it may invest in small and medium-size companies that, in the Adviser's view, have potential for growth. The Portfolio may also invest in fixed-income securities denominated in the currency of an emerging market country or issued or guaranteed by an emerging market country company or -14- the government of an emerging market country. In addition, the Portfolio may invest in equity or fixed-income securities of corporate or governmental issuers located in industrialized countries, foreign currency and investment funds (i.e., funds specifically authorized to invest in companies of a particular emerging market country). The Portfolio may also invest in debt securities issued or guaranteed by international organizations designed or supported by multiple governmental entities to promote economic reconstruction or development such as the International Bank for Reconstruction and Development (i.e., the World Bank). The Portfolio may invest up to 10% of its total assets (measured at the time of investment) in fixed-income securities that are not investment grade securities (commonly referred to as "junk bonds"). For temporary defensive purposes, the Portfolio may invest less than 65% of its assets in equity securities of emerging market countries in which case the Portfolio may invest in other equity securities or fixed income securities. Moreover, the Portfolio may invest without limitation in high-quality money market instruments. The value of the Portfolio's investments and the income they generate will vary from day to day and generally reflect market conditions, interest rates, and other company, political, or economic news both in the United States and abroad. In the short-term, stock prices can fluctuate dramatically in response to these factors. Over time, however, stocks have shown greater growth potential than other types of securities. The prices of fixed-income securities also fluctuate and generally move in the opposite direction from interest rates. The Portfolio is a non-diversified portfolio under the 1940 Act, which means that it may invest a greater proportion of its assets in the securities of a small number of issuers than a diversified investment company. In this regard, the Portfolio is not subject to the general limitation that it not invest more than 5% of its total assets in the securities of a single issuer. As a result, because the Portfolio is permitted greater flexibility to invest its assets in the obligations of a single issuer it is exposed to increased risk of loss if such an investment underperforms expectations. However, the Portfolio intends to limit its investments so as to comply with diversification requirements imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a "regulated investment company." The Portfolio spreads investment risk by limiting its holdings in any one company or industry. Nevertheless, the Portfolio will experience price volatility, the extent of which will be affected by the types of securities and techniques the Portfolio uses. The Adviser may use various investment techniques to hedge risks, including derivatives, but there is no guarantee that these strategies will work as intended. Certain investment strategies and practices which may be employed by the Portfolio such as the purchase and sale of options, futures contracts, United States Government securities, hybrid instruments, illiquid securities, foreign securities, securities loans, borrowings, payment-in-kind bonds, passive foreign investment companies, derivatives, convertible securities, zero coupon bonds, investment grade and lower quality fixed-income securities, mortgage-backed securities, forward commitments, stripped mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, floaters, inverse floaters, foreign currency transactions, loan -15- participations, repurchase agreements, structured notes and swaps are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO. The investment objective of the Warburg Pincus Small Company Value Portfolio is to seek long-term capital appreciation. The Portfolio is a diversified management investment company that pursues its investment objective by investing primarily in a portfolio of equity securities of small capitalization companies (i.e., companies having market capitalizations of $1 billion or less at the time of initial purchase) that the Adviser considers to be relatively undervalued. Current income is a secondary consideration in selecting portfolio investments. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in common stock, preferred stocks, debt securities convertible into common stocks, warrants and other rights of small companies. The Portfolio may invest up to 10% of its total assets in warrants. The Adviser will determine whether a company is undervalued based on a variety of measures, including: price/earnings ratio, price/book ratio, price/cash flow ratio, earnings growth and debt/capital ratio. Other relevant factors, including a company's asset value, franchise value and quality of management, will also be considered. The Portfolio will invest primarily in companies whose securities are traded on United States stock exchanges or in the United States over-the-counter market, but it may invest up to 20% of its total assets in foreign securities. The Portfolio may also invest up to 20% of its total assets in investment grade securities (other than money market obligations) that are not convertible into common stock for the purpose of seeking capital appreciation. Subsequent to its purchase by the Portfolio, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Portfolio. Neither event will require the sale of such securities by the Portfolio. The Adviser will consider such events in its determination of whether the Portfolio should continue to hold the securities. The interest income to be derived may be considered as one factor in selecting debt securities by the Adviser. The Portfolio is authorized to invest, under normal market conditions, up to 20% of its total assets in domestic and foreign short-term (one year or less remaining to maturity) and medium-term (five years of less remaining to maturity) money market obligations. For temporary defensive purposes, the Portfolio may invest in these securities without limit. These instruments consist of: obligations issued or guaranteed by the United States Government or a foreign government, their agencies or instrumentalities; bank obligations (including certificates of deposit, time deposits and bankers' acceptances of domestic or foreign banks, domestic savings and loans and similar institutions) that are high-quality investments or, if unrated, deemed by the Adviser to be high-quality investments; commercial paper rated no lower than A-2 by Standard & Poor's Rating Service ("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or the equivalent from another NRSRO or, if unrated, of an issuer -16- having an outstanding, unsecured debt issue then rated within the three highest rating categories by any NRSRO; and repurchase agreements with respect to the foregoing. When the Adviser believes that a defensive posture is warranted, the Portfolio may invest temporarily, without limit, in investment grade debt obligations and in domestic and foreign money market instruments, including repurchase agreements. Certain investment strategies and practices which may be employed by the Portfolio (such as foreign securities, repurchase agreements, borrowings, options, futures contracts, foreign currency transactions, United States Government securities, short sales against the box, convertible securities, investment grade and lower-quality fixed-income securities, and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MERRILL LYNCH WORLD STRATEGY PORTFOLIO The investment objective of the Merrill Lynch World Strategy Portfolio is to seek high total investment return by investing primarily in a portfolio of equity and fixed income securities, including convertible securities, of U.S. and foreign issuers. Total investment return consists of interest, dividends, discount accruals and capital changes, including changes in the value of non-dollar denominated securities and other assets and liabilities resulting from currency fluctuations. Investing in foreign securities involves special considerations. The Portfolio may employ a variety of instruments and techniques to enhance income and to hedge against market and currency risk. The Portfolio seeks to achieve its objective by investing primarily in the securities of issuers located in the United States, Canada, Western Europe and the Far East. There are no prescribed limits on the geographical allocation of the Portfolio among these regions. Such allocation will be made primarily on the basis of the anticipated total return from investments in the securities of issuers wherever located, considering such factors as: the condition and growth potential of the various economies and securities markets and the issuers domiciled therein; anticipated movements in interest rates in the various capital markets and in the value of foreign currencies relative to the U.S. dollar; tax considerations; and economic, social, financial, national and political factors that may affect the climate for investing within the various securities markets. When in the judgment of the Adviser, economic or market conditions warrant, the Portfolio reserves the right to concentrate its investments in one or more capital markets, including the United States. The equity and convertible preferred securities in which the Portfolio may invest are primarily securities issued by quality companies. Generally, the characteristics of such companies include a strong balance sheet, good financial resources, a satisfactory rate of return on capital, a good industry position and superior management. The corporate debt securities, including convertible debt securities, in which the Portfolio may invest will be primarily investment grade securities those rated BBB or better by S&P or Baa or better by Moody's or of comparable quality. The Fund may also invest in debt obligations issued or guaranteed by sovereign governments, political subdivisions thereof (including states, provinces and municipalities) or their agencies or instrumentalities or issued or guaranteed by international organizations designated or supported by governmental entities to promote -17- economic reconstruction or development (`supranational entities') such as the International Bank for Reconstruction and Development (the "World Bank) and the European Coal and Steel Community. Investments in securities of supranational entities are subject to the risk that member governments will fail to make required capital contributions and that a supranational entity will thus be unable to meet its obligations. When market or financial conditions warrant, the Portfolio may invest as a temporary defensive measure up to 100% of its assets in United States Government or Government agency securities issued or guaranteed by the United States Government or its agencies or instrumentalities, money market securities or other fixed income securities deemed by the Adviser to be consistent with a defensive posture, or may hold its assets in cash. The Portfolio is non-diversified for the 1940 Act purposes and as such may invest a larger percentage of its assets in individual issuers than a diversified investment company. In this regard, the Portfolio is not subject to the general limitation that it not invest more than 5% of its total assets in the securities of any one issuer. To the extent the Portfolio makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. However, the Portfolio's investments will be limited so as to qualify for the special tax treatment afforded "regulated investment companies" under the Code. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, floaters, futures contracts, foreign securities, foreign currency transactions, United States Government securities, convertible securities, borrowings, derivatives, investment grade fixed-income securities, repurchase agreements, securities loans, illiquid securities and forward commitments) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO The investment objective of the Merrill Lynch Basic Value Equity Portfolio is to seek capital appreciation and, secondarily, income by investing in securities, primarily equities, that the Adviser of the Portfolio believes are undervalued and therefore represent basic investment value. The Portfolio seeks special opportunities in securities that are selling at a discount, either from book value or historical price-earnings ratios, or seem capable of recovering from temporarily out of favor considerations. Particular emphasis is placed on securities that provide an above-average dividend return and sell at a below-average price-earnings ratio. The investment policy of the Portfolio is based on the belief that the pricing mechanism of the securities market lacks total efficiency and has a tendency to inflate prices of securities in favorable market climates and depress prices of securities in unfavorable climates. Based on this premise, the Adviser believes that favorable changes in market prices are more likely to begin when securities are out of favor, earnings are depressed, price-earnings ratios are relatively low, -18- investment expectations are limited, and there is no real general interest in the particular security or industry involved. On the other hand, the Adviser believes that negative developments are more likely to occur when investment expectations are generally high, stock prices are advancing or have advanced rapidly, price-earnings ratios have been inflated, and the industry or issue continues to gain new investment acceptance on an accelerated basis. In other words, the Adviser believes that market prices of securities with relative high price-earnings ratios are more susceptible to unexpected adverse developments while securities with relatively low price-earnings rations are more favorably positioned to benefit from favorable, but generally unanticipated events. This investment policy departs from traditional philosophy. The Adviser believes that the market risk involved in this policy is moderated somewhat by an emphasis on securities with above-average dividend returns. The current institutionally-dominated market tends to ignore, to some extent, the numerous secondary issues whose market capitalizations are below those of the relatively few larger size growth companies. It is expected that the Portfolio's portfolio generally will have significant representation in this secondary segment of the market. The Adviser is responsible for the management of the Portfolio's securities portfolio and makes portfolio decisions based on its own research information supplemented by research information provided by other sources. The basic orientation of the Portfolio's investment policies is such that at times a large portion of its common stock holdings may carry less than favorable research ratings from research analysts. Investment emphasis is on equities, primarily common stock and, to a lesser extent, securities convertible into common stocks. The Portfolio also may invest in preferred stocks and non-convertible investment grade debt securities and utilize covered call options with respect to -19- portfolio securities. The Portfolio has the right, as a defensive measure, to hold other types of securities, including United States Government and Government agency securities, money market securities, or other fixed-income securities deemed by the Adviser to be consistent with a defensive posture, or cash, in such proportions as, in the opinion of the Adviser, prevailing market or economic conditions warrant. The Portfolio may invest up to 10% of its total assets, taken at market value at the time of acquisition, in the securities of foreign issuers. Certain investment strategies and instruments which may be employed by the Portfolio (such as options, convertible securities, United States Government securities, repurchase agreements, securities loans, foreign securities, borrowings and illiquid securities) 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, loans and other direct indebtedness and engage in forward foreign currency exchange transactions. They may also enter into repurchase agreements, lend their portfolio securities, and borrow funds under certain limited circumstances. In addition, each Portfolio may engage in other types of investment strategies as described below. Each Portfolio may invest in or utilize any of these investment strategies and instruments or engage in any of these practices except where otherwise prohibited by law or the Portfolio's own investment restrictions. Portfolios that anticipate committing 5% or more of their net assets to a particular type of investment strategy or instruments are specifically referred to in the descriptions below of such investment strategy or instrument. Certain investment strategies and instruments 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. ASSET-BACKED SECURITIES. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may invest in asset-backed securities. These asset-backed securities, issued by trusts and special purpose corporations, are collateralized by a pool of assets, such as credit card or automobile loans, home equity loans or computer leases, and represent the obligations of a number of different parties. Asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Due to the possibility that prepayments (on automobile loans and other collateral) will alter the cash flow on asset-backed securities, it is not possible to determine in advance the actual final maturity date or average life. Faster prepayment will shorten the average life and slower prepayments will lengthen it. However, it is possible to determine what the range of that movement could be and to calculate the effect that it will have on the price of the security. In selecting these securities, the Adviser will look for those securities that offer a higher yield to compensate for any variation in average maturity. -20- 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 Portfolio, T. Rowe Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity, Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio may not exceed 33 1/3% of each Portfolio's total assets. Borrowings for the Warburg Pincus Small Company Value Portfolio may not exceed 30% of the Portfolio's total assets. Borrowings for the EQ/Putnam Growth & Income Value Portfolio, the EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio may not exceed 10% of each 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. See also "Reverse Repurchase Agreements" for information concerning an investment technique that may be deemed to involve a borrowing. Further information concerning each Portfolio's fundamental policy with respect to borrowings is provided in the Statement of Additional Information. CONVERTIBLE SECURITIES. Each of the Portfolios may invest in convertible securities, including both convertible debt and convertible preferred stock. Such securities may be converted into shares of the underlying common stock at either a stated price or stated rate. Because of this feature, convertible securities enable an investor to benefit from increases in the market price of the underlying common stock. Convertible securities provide higher yields than the underlying common stocks, but generally offer lower yields than non-convertible securities of similar quality. Like bonds, the value of convertible securities fluctuates in relation to changes in interest rates and, in addition, fluctuates in relation to the underlying common stock. Subsequent to purchase by a Portfolio, convertible securities may cease to be rated or a rating may be reduced below the minimum required for purchase by that Portfolio. Neither event will require sale of such securities, although each Adviser will consider such event in its determination of whether a Portfolio should continue to hold the securities. DERIVATIVES. Each Portfolio (except the MFS Research Portfolio) may invest in one or more types of derivatives. Derivatives are financial products or instruments that derive their value from the value of one or more underlying assets, reference rates or indices. Derivatives include, but are not limited to, the following: asset-backed securities, collateralized mortgage obligations, floaters, futures, hybrid instruments, inverse floaters, mortgage-backed securities, options, stripped mortgage-backed securities, structured notes and swaps. Further information about these instruments and the risks involved in their use are contained under the description of each of these instruments in this section or the Statement of Additional Information. FLOATERS AND INVERSE FLOATERS. The EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity Portfolio each may invest in floaters, which are fixed-income securities with a floating or variable rate of interest, i.e., the rate of interest varies with changes in specified market rates or indices, such as the prime rate, or at specified intervals. Certain floaters may carry a demand feature that permits -21- the holder to tender them back to the issuer of the underlying instrument, or to a third party, at par value prior to maturity. When the demand feature of certain floaters represents an obligation of a foreign entity, the demand feature will be subject to certain risks discussed under "Foreign Investment". In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest in inverse floating rate obligations which are fixed-income securities that have coupon rates that vary inversely at a multiple of a designated floating rate, such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the reference rate of an inverse floater (as a consequence of an increase in interest rates) causes a drop in the coupon rate while any drop in the reference rate of an inverse floater causes an increase in the coupon rate. Inverse floaters may exhibit substantially greater price volatility than fixed rate obligations having similar credit quality, redemption provisions and maturity, and inverse floater collateralized mortgage obligations ("CMOs") exhibit greater price volatility than the majority of mortgage-related securities. In addition, some inverse floater collateralized mortgage obligations exhibit extreme sensitivity to changes in prepayments. As a result, the yield to maturity of an inverse floater collateralized mortgage obligation is sensitive not only to changes in interest rates but also to changes in prepayment rates on the related underlying mortgage assets. 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 United States dollar will result in a change in the United States dollar value of a Portfolio's assets and income. In addition, although a portion of a Portfolio's investment income may be received or realized in such currencies, the Portfolio will be required to compute and distribute its income in United States dollars. Therefore, if the exchange rate for any such currency declines after a Portfolio's income has been earned and computed in United States dollars but before conversion and payment, the Portfolio could be required to liquidate portfolio securities to make such distributions. The value of foreign investments and the investment income derived from them may also be affected unfavorably by changes in currency exchange control regulations. Although the Portfolios will invest only in securities denominated in foreign currencies that are fully exchangeable into United States dollars without legal restriction at the time of investment, there can be no assurance that currency controls will not be imposed subsequently. In addition, the value of foreign fixed income investments may fluctuate in response to changes in United States and foreign interest rates. There may be less information publicly available about a foreign issuer than about a United States issuer, and a foreign issuer is not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States Foreign stock markets are generally not as developed or efficient as, and may be more volatile than, those in the United States. While growing in volume, they usually have substantially less volume than United States markets and a Portfolio's investment securities may be less liquid and subject to -22- more rapid and erratic price movements than securities of comparable United States companies. Equity securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the United States. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets. Such differences may include delays beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to a 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 or global 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. In addition, investment in foreign securities may also include the risk of expropriation by a foreign government. Moreover, investments in foreign government debt securities, particularly those of emerging market country governments, involve special risks. Certain emerging market countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. The issuer or governmental authority that controls the repayment of an emerging market country's debt may not be able to willing to repay the principal and/or interest when due in accordance with the terms of such debt. A debtor's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, and, in the case of a government debtor, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole and the political constraints to which a government debtor may be subject. Government debtors may default on -23- their debt and may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. Holders of government debt may be requested to participate in the rescheduling of such debt and to extend further loans to government debtors. Certain Portfolios may invest in the following types of foreign securities or engage in the following types of transactions related to foreign securities. Brady Bonds. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio each may invest in "Brady Bonds," which are fixed-income securities created through the exchange of existing commercial bank loans to foreign entities for new obligations in connection with debt restructuring under a plan introduced by Nicholas F. Brady when he was the United States Secretary of the Treasury. Brady Bonds have been issued only recently, and, accordingly, do not have a long payment history. They may be collateralized or uncollateralized and issued in various currencies (although most are United States dollar-denominated) and they are actively traded in the over-the-counter ("OTC") secondary market. The Morgan Stanley Emerging Markets Equity Portfolio will invest in Brady Bonds only if they are consistent with quality specifications established from time to time by the Adviser to that Portfolio. Depositary Receipts. Each of the Portfolios may purchase depositary receipts, which are securities representing ownership interests in securities of foreign companies (an "underlying issuer") and are deposited with a securities depositary. Depositary receipts are not necessarily denominated in the same currency as the underlying securities. Depositary receipts include ADRs and Global Depositary Receipts ("GDRs") and other types of depositary receipts (which, together with ADRs and GDRs, are hereinafter collectively referred to as "Depositary Receipts"). ADRs are dollar-denominated Depositary Receipts typically issued by a United States financial institution which evidence ownership interests in a security or pool of securities issued by a foreign issuer. ADRs are listed and traded in the United States. GDRs and other types of depositary receipts are typically issued by foreign banks or trust companies, although they also may be issued by United States financial institutions, and evidence ownership interests in a security or pool of securities issued by either a foreign or a United States corporation. Generally, depositary receipts in registered form are designed for use in the United States securities market and depositary receipts in bearer form are designed for use in securities markets outside the United States. Although there may be more reliable information available regarding issuers of certain ADRs that are issued under so-called "sponsored" programs and ADRs do not involve foreign currency risks, ADRs and other Depositary Receipts are subject to the risks of other investments in foreign securities, as described directly above. FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios (except the MFS Research Portfolio) 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 and sell exchange traded call and put options on foreign currency futures contracts -24- and on foreign currencies. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch World Strategy Portfolio may engage in OTC options on foreign currency transactions. The Merrill Lynch World Strategy Portfolio will engage in OTC options on foreign currency transactions only with financial institutions that have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The MFS Emerging Growth Companies Portfolio may only enter into forward contracts on currencies in the OTC market. The Advisers may engage in these transactions to protect against uncertainty in the level of future exchange rates in connection with the purchase and sale of portfolio securities ("transaction hedging") and to protect the value of specific portfolio positions ("position hedging"). Hedging transactions involve costs and may result in losses. Each of the Portfolios (except the 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. FORWARD COMMITMENTS. Each Portfolio (except the Warburg Pincus Small Company Value 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 liquid securities in an amount sufficient to meet the purchase price, or if it enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in value of the Portfolio's other assets. Where such purchases are made through dealers, a Portfolio relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to a Portfolio of an advantageous yield or price. -25- HYBRID INSTRUMENTS. The T. Rowe Price International Stock Portfolio , T. Rowe Price Equity Income Portfolio and Morgan Stanley Emerging Markets Equity 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. ILLIQUID SECURITIES. The Warburg Pincus Small Company Value 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 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 10% or 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 10% or 15% of its assets invested in illiquid or not readily marketable securities. INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio may invest in or hold a portion of its total assets in investment grade or lower quality fixed income securities. The T. Rowe Price International Stock Portfolio and the Merrill Lynch Basic Value Equity Portfolio each may invest in or hold investment grade securities, but not lower quality fixed income securities. Investment grade securities are securities rated Baa or higher by Moody's or BBB or higher by S&P and comparable unrated securities. Investment grade securities rated Baa by Moody's or BAA by S&P while normally exhibiting adequate protection parameters, have speculative characteristics, and, consequently, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of such issuers to make principal and interest payments than is the case for higher grade fixed -26- income securities. Lower quality fixed income securities are securities that are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's and BB or lower by S&P) or comparable unrated securities. Such lower quality securities are known as "junk bonds" and are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. (Each NRSRO's descriptions of these bond ratings are set forth in the Appendix to the Statement of Additional Information.) Because investment in lower quality securities involves greater investment risk, achievement of a Portfolio's investment objective will be more dependent on the Adviser's analysis than would be the case if that Portfolio were investing in higher quality bonds. In addition, lower quality securities may be more susceptible to real or perceived adverse economic and individual corporate developments than would investment grade bonds. Moreover, the secondary trading market for lower quality securities may be less liquid than the market for investment grade bonds. This potential lack of liquidity may make it more difficult for the Adviser to value accurately certain portfolio securities. LOAN PARTICIPATIONS. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio and the Morgan Stanley Emerging Markets Equity Portfolio may invest a portion of each of their assets in loan participations and other direct indebtedness. By purchasing a loan, a Portfolio acquires some or all of the interest of a bank or other lending institution in a loan to a corporate borrower. Many such loans are secured, and most impose restrictive covenants that must be met by the borrower. These loans are made generally to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate activities. Such loans may be in default at the time of purchase. The MFS Emerging Growth Companies Portfolio may also purchase other direct indebtedness such as trade or other claims against companies, which generally represent money owed by a company to a supplier of goods and services. These claims may also be purchased at a time when the company is in default. Certain of the loans and other direct indebtedness acquired by the Portfolio may involve revolving credit facilities or other standby financing commitments which obligate the Portfolio to pay additional cash on a certain date or on demand. The highly leveraged nature of many such loans and other direct indebtedness may make such loans especially vulnerable to adverse changes in economic or market conditions. Loans and other direct indebtedness may not be in the form of securities or may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, the Portfolio may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value. MORTGAGE-RELATED SECURITIES. The EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may invest in mortgage-related securities (i.e., mortgage-backed securities). A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages. Some mortgage-backed securities, such as CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types of mortgages including those on commercial real estate or residential properties. -27- The value of mortgage-backed securities may change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Mortgage-backed securities are subject to prepayment risk. Prepayment, which occurs when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities of these securities and may lower their returns. Stripped mortgage-backed securities are created when a United States government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security ("PO") receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security ("IO") receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. MUNICIPAL SECURITIES. The Morgan Stanley Emerging Markets Equity Portfolio may invest in municipal securities ("municipals"), which are debt obligations issued by local, state and regional governments that provide interest income that is exempt from federal income taxes. Municipals include both municipal bonds (those securities with maturities of five years or more) and municipal notes (those with maturities of less than five years). Municipal bonds are issued for a wide variety of reasons: to construct public facilities, such as airports, highways, bridges, schools, hospitals, mass transportation, streets, water and sewer works; to obtain funds for operating expenses; to refund outstanding municipal obligations; and to loan funds to various public institutions and facilities. Certain industrial development bonds are also considered municipal bonds if their interest is exempt from federal income tax. Industrial development bonds are issued by or on behalf of public authorities to obtain funds for various privately-operated manufacturing facilities, housing, sports arenas, convention centers, airports, mass transportation systems and water, gas or sewer works. Industrial development bonds are ordinarily dependent on the credit quality of a private user, not the public issuer. OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research Portfolio) may utilize futures contracts and write and purchase put and call options. Futures contracts (a type of potentially high-risk security) enable the investor to buy or sell an asset in the future at an agreed upon price. Options (another type of potentially high-risk security) give the purchaser of an option the right, but not the obligation, to buy or sell in the future an asset at a predetermined price during the term of the option. (The writer of a put or call option would be obligated to buy or sell the underlying asset at a predetermined price during the term of the option.) Each Portfolio will write put and call options only if such options are considered to be "covered". A call option on a security is covered, for example, when the writer of the call option owns throughout the option period the security on which the option is written (or a security convertible into such a security without the payment of additional consideration). A put -28- option on a security is covered, for example, when the writer of the put has deposited and maintained in a segregated account throughout the option period sufficient cash or other liquid assets in an amount equal to or greater than the exercise price of the put option. 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 (other than the Warburg Pincus Small Company Value Portfolio) will not commit more than 5% of its total assets to premiums when purchasing call or put options. The Warburg Pincus Small Company Value Portfolio may commit up to 10% of its total assets to premiums when purchasing put or call options. In addition, the total market value of securities against which a Portfolio has written call or put options may not exceed 25% of its total assets. The Merrill Lynch Basic Value Equity Portfolio will not write covered call options on underlying securities exceeding 15% of the value of its total assets. The MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio will not enter a futures contract if the obligations underlying all such futures contracts would exceed 50% of the value of each such Portfolio's total assets. The Warburg Pincus Small Company Value Portfolio may utilize up to 10% of its total assets to purchase exchange-listed and OTC put and call options on stock indexes. The EQ/Putnam Growth & Income Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolios, EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio , Merrill Lynch World Strategy Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may engage in OTC put and call option transactions. Options traded in the OTC market may not be as actively traded as those on an exchange, so it may be more difficult to value such options. In addition, it may be difficult to enter into closing transactions with respect to such options. Such OTC options, and the securities used as "cover" for such options, may be considered illiquid securities. Each Portfolio may buy and sell futures and options contracts for any number of reasons, including: to manage its exposure to changes in securities prices and foreign currencies; as an efficient means of adjusting its overall exposure to certain markets; in an effort to enhance income; and to protect the value of portfolio securities. Each Portfolio may purchase, sell, or write call and put options and futures contracts on securities, financial indices, and foreign currencies and options on futures contracts. The risk of loss in trading futures contracts can be substantial because of the low margin deposits required and the extremely high degree of leveraging involved in futures pricing. As a result, a relatively small price movement in a futures contract may cause an immediate and substantial loss or gain. The primary risks associated with the use of futures contracts and options are: (i) imperfect correlation between the change in market value of the stocks held by a Portfolio and the prices of futures contracts and options; and (ii) possible lack of a liquid secondary market for a futures contract or an OTC option and the resulting inability to close a futures position or OTC option prior to its maturity date. PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock Portfolio, EQ/Putnam International Equity Portfolio, and Morgan Stanley Emerging Markets Equity Portfolio may purchase the securities of certain foreign investment funds or trusts called passive foreign -29- 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. Like other foreign securities, interests in passive foreign investment companies also involve the risk of foreign securities, as described above. PAYMENT-IN-KIND BONDS. The EQ/Putnam Growth & Income Value Portfolio, the EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity 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 Portfolios are nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Portfolios could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements with qualified and Board approved banks, broker-dealers or other financial institutions as a means of earning a fixed rate of return on its cash reserves for periods as short as overnight. A repurchase agreement is a contract pursuant to which a Portfolio, against receipt of securities of at least equal value including accrued interest, agrees to advance a specified sum to the financial institution which agrees to reacquire the securities at a mutually agreed upon time (usually one day) and price. Each repurchase agreement entered into by a Portfolio will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest. A Portfolio's right to liquidate such securities in the event of a default by the seller could involve certain costs, losses or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase are less than the repurchase price, the Portfolio could suffer a loss. REVERSE REPURCHASE AGREEMENTS. The Morgan Stanley Emerging Markets Equity Portfolio may enter into reverse repurchase agreements with brokers, dealers, domestic and foreign banks or other financial institutions. In a reverse repurchase agreement, the Portfolio sells a security and agrees to repurchase it at a mutually agreed upon date and price, reflecting the interest rate effective for the term of the agreement. It may also be viewed as the borrowing of money by the Portfolio. The Portfolio's investment of the proceeds of a reverse repurchase agreement is the speculative factor known as leverage. The Portfolio may enter into a reverse repurchase agreement only if the interest income from investment of the proceeds is greater than the interest expense of the transaction and the proceeds are invested for a period no longer than the term of the agreement. The Portfolio will maintain with the custodian a separate account with a segregated portfolio of unencumbered liquid assets in an amount at least equal to its purchase obligations under these agreements. If interest rates rise during a reverse repurchase agreement, it may adversely affect the Portfolio's net asset value. See "Borrowing" for more information concerning restrictions on borrowing by each Portfolio. SECURITIES LOANS. The T. Rowe Price International Stock Portfolio, T. Rowe Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio, and Morgan Stanley Emerging Markets Equity Portfolio may seek to obtain additional income by making secured loans of portfolio securities with a value up to 33 1/3% of their respective total assets. The EQ/ Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio may lend portfolio securities in an amount up to 25% of their respective total assets. The Merrill Lynch Basic Value Equity Portfolio, Merrill Lynch World Strategy Portfolio, and Warburg Pincus Small Company Value Portfolio may each lend portfolio securities in an amount up to 20% of their respective total assets. All securities loans will be made pursuant to agreements requiring the -30- loans to be continuously secured by collateral in cash or high-grade debt obligations at least equal at all times to the market value of the loaned securities. The borrower pays to the Portfolios an amount equal to any dividends or interest received on loaned securities. The Portfolios retain all or a portion of the interest received on investment of cash collateral or receive a fee from the borrower. Lending portfolio securities involves risks of delay in recovery of the loaned securities or in some cases loss of rights in the collateral should the borrower fail financially. Further information concerning each Portfolio's fundamental policy with respect to loans is provided in the Statement of Additional Information. SHORT SALES AGAINST THE BOX. The Warburg Pincus Small Company Value Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may enter into a "short sale" of securities in circumstances in which, at the time the short position is open, the Portfolio owns an equal amount of the securities sold short or owns preferred stocks or debt securities, convertible or exchangeable without payment of further consideration, into an equal number of securities sold short. This kind of short sale, which is referred to as one "against the box," may be entered into by each Portfolio to, for example, lock in a sale price for a security the Portfolio does not wish to sell immediately or to postpone a gain or loss for federal income tax purposes. Each Portfolio will deposit, in a segregated account with its custodian or a qualified subcustodian, the securities sold short or convertible or exchangeable preferred stocks or debt securities sold in connection with short sales against the box. Each Portfolio will endeavor to offset transaction costs associated with short sales against the box with the income from the investment of the cash proceeds. Not more than 10% of a Portfolio's net assets (taken at current value) may be held as collateral for short sales against the box at any one time. The extent to which a Portfolio may make short sales may be limited by Code requirements for qualification as a regulated investment company. SMALL COMPANY SECURITIES. The EQ/Putnam International Equity Portfolio, EQ/Putnam Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio and Warburg Pincus Small Company Value Portfolio may invest in the securities of smaller capitalization companies. Investing in securities of small companies may involve greater risks since these securities may have limited marketability and, thus, may be more volatile. Because smaller companies normally have fewer shares outstanding than larger companies, it may be more difficult for Portfolio to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. In addition, small companies are typically subject to a greater degree of changes in earnings and business prospects than are larger, more established companies. There is typically less publicly available information concerning smaller companies than for larger, more established ones. Therefore, an investment -31- in these Portfolios may involve a greater degree of risk than an investment in other Portfolios that seek capital appreciation by investing in better-known, larger companies. STRUCTURED NOTES. The Morgan Stanley Emerging Markets Equity Portfolio may invest in structured notes, which are derivatives on which the amount of principal repayment and/or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and LIBOR) and stock indices such as the S&P 500. In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The use of structured notes allows the Portfolio to tailor its investments to the specific risks and returns the Adviser wishes to accept while avoiding or reducing certain other risks. SWAPS. The Morgan Stanley Emerging Markets Equity Portfolio may invest in swap contracts, which are derivatives in the form of a contract or other similar instrument which is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The payment streams are calculated by reference to a specified index and agreed upon notional amount. The term "specified index" includes, but is not limited to, currencies, fixed interest rates, prices and total return on interest rate indices, fixed-income indices, stock indices and commodity indices (as well as amounts derived from arithmetic operations on these indices). For example, the Portfolio may agree to swap the return generated by a fixed-income index for the return generated by a second fixed-income index. The Portfolio will usually enter into swaps on a net basis, i.e., the two return streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Portfolio receiving or paying, as the case may be, only the net amount of -32- the two returns. The Portfolio's obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash, United States Governments, or high grade debt obligations. The Portfolio will not enter into any swap agreement unless the counterparty meets the rating requirements set forth in guidelines established by the Trust's Board of Trustees. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Swaps that include more recent innovations for which standardized documentation has not yet been fully developed are less liquid than "traditional" swaps. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Adviser is incorrect in its forecasts of market values, interest rates, and currency exchange rates, the investment performance of the Portfolio would be less favorable than it would have been if this investment technique were not used. UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt obligations of varying maturities issued or guaranteed by the United States government, its agencies or instrumentalities ("United States government securities"). Direct obligations of the United States Treasury include a variety of securities that differ in their interest rates, maturities and dates of issuance. United States government securities also include securities issued or guaranteed by government agencies that are supported by the full faith and credit of the United States (e.g., securities issued by the Government National Mortgage Association); securities issued or guaranteed by government agencies that are supported by the ability to borrow from the United States Treasury (e.g., securities issued by the Federal National Mortgage Association); and securities issued or guaranteed by government agencies that are only supported by the credit of the particular agency (e.g., the Tennessee Valley Authority). WARRANTS. Warrants are securities that give the holder the right, but not the obligation to purchase equity issues of the company issuing the warrants, or a related company, at a fixed price either on a date certain or during a set period. At the time of issue, the cost of a warrant is substantially less than the cost of the underlying security itself, and price movements in the underlying security are generally magnified in the price movements of the warrant. This effect enables the investor to gain exposure to the underlying security with a relatively low capital investment but increases an investor's risk in the event of a decline in the value of the underlying security and can result in a complete loss of the amount invested in the warrant. In addition, the price of a warrant tends to be more volatile than, and may not correlate exactly to, the price of the underlying security. If the market price of the underlying security. If the market price of the underlying security is below the exercise price of the warrant on its expiration date, the warrant will generally expire without value. ZERO-COUPON BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity 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 -33- 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 investors in such instruments. Thus, each Portfolio could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Portfolio is known as "portfolio turnover." 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 Amended and Restated 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"). It is located at 1755 Broadway, New York, New York 10019. 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, subject to review and approval by the Trustees, 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 Trust's business, and also supervises the provision of services by third parties such as the Trust's custodian. -34- As compensation for managing the T. Rowe Price Equity Income Portfolio, EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio and Merrill Lynch Basic Value Equity Portfolio the Trust pays the Manager a monthly fee at the annual rate of .55% of the respective 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 of .75% of the Portfolio's average daily net assets . As compensation for managing the EQ/Putnam International Equity Portfolio, and Merrill Lynch World Strategy Portfolio, the Trust pays the Manager a monthly fee at an annual rate of .70% of the respective Portfolio's average daily net assets . As compensation for managing the Morgan Stanley Emerging Markets Equity Portfolio, the Trust pays the Manager a monthly fee at an annual rate of 1.15% of the Portfolio's average daily net assets . As compensation for managing the Warburg Pincus Small Company Value Portfolio, the Trust pays the Manager a monthly fee at an annual rate of .65% of the Portfolio's average daily net assets. 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. The Class IB shares may pay for certain distribution related expenses in connection with activities primarily intended to result in the sale of its shares, pursuant to a distribution plan for the Class IB shares adopted pursuant to Rule 12b-1 under the 1940 Act. 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 an advisory fee based on a percentage of the average daily net assets of the Portfolio that it advises. Monthly, with respect to each Portfolio, each Adviser is paid the pro rata portion of an annual fee, based on the monthly average of the assets of the Portfolio for which it serves as the Adviser. The Manager will retain, as compensation for the services described under "The Manager" and to pay its expenses, the difference between the fees paid to each Adviser and the management fee of the applicable Portfolio. Each Adviser has agreed that once the Portfolio has paid the Manager its management fee the Adviser will look only to the Manager as the party responsible for making the payment of its advisory fee. The Advisers are employed for management of the assets of a Portfolio pursuant to investment -35- advisory agreements approved by the Board of Trustees of the Trust (including a majority of certain Trustees who are not interested persons of the Trust or the Manager), and an Adviser's services may be terminated at any time by the Manager, the Board of Trustees, or the shareholders of an affected Portfolio. The Trust has submitted an application requesting an exemptive order from the Securities and Exchange Commission ("SEC") that would permit the Manager, subject to certain conditions, and without the approval of shareholders to: (a) employ a new Adviser or Advisers for any Portfolio pursuant to the terms of a new Advisory Agreement, in each case either as a replacement for an existing Adviser or as an additional Adviser; (b) change the terms of any Advisory Agreement; and (c) continue the employment of an existing Adviser on the same advisory contract terms where a contract has been assigned because of a change in control of the Adviser. In such circumstances, shareholders would receive notice of such action, including the information concerning the Adviser that normally is provided in the Prospectus. It is uncertain at this time whether such exemptive relief will be granted by the SEC. T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100 East Pratt Street, Baltimore, MD 21202, has been the Adviser to the T. Rowe Price Equity Income Portfolio since the Portfolio commenced its operations. 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 $95 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"), 100 East Pratt Street, Baltimore, MD 21202, has been 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 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. -36- 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 United States equivalent of approximately $25 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 the 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") has been the Adviser to the EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio since each Portfolio commenced operations. As compensation for services as the Adviser to the EQ/Putnam Growth & Income Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio, the Manager pays Putnam Management a monthly fee at an annual rate equal to: .50% of the respective Portfolio's average daily net assets up to and including $150 million; .45% of the respective Portfolio's average daily net assets over $150 million and up to and including $300 million; and .35% of the respective Portfolio's average daily net assets in excess -37- of $300 million. As compensation for services as the EQ/Putnam International Equity Portfolio's Adviser, the Manager pays Putnam Management a monthly fee at the annual 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 has been managing mutual funds since 1937. Putnam Management is located at One Post Office Square, Boston, MA 02109. As of December 31, 1996, Putnam Management and its affiliates managed more than $173 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 has been responsible for the day to day management of the EQ/Putnam Growth & Income Value Portfolio since the Portfolio commenced operations, 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 EQ/Putnam International Equity 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. Ms. C. Beth Cotner and Messrs. Richard England, Manuel Weiss Herrero and David J. Santos are responsible for the day to day management of the EQ/Putnam Investors Growth Portfolio, which includes investment decisions made on behalf of the Portfolio. Ms. Cotner has been employed by Putnam Management as an investment professional since 1995. Prior to 1995, Ms. Cotner was Executive Vice President of Kemper Financial Services. Mr. England has been employed by Putnam Management as an investment professional since December, 1992. Prior to December, 1992, Mr. England was an investment officer at Aetna Equity Investors. Mr. Herrero has been employed by Putnam Management as an investment professional since 1987. Mr. Santos has been employed by Putnam Management as an investment professional since 1988. Messrs. Edward P. Bousa , Kenneth J. Taubes and Robert M. Paine are responsible for the day to day management of the EQ/Putnam Balanced Portfolio, which includes investment decisions made on behalf of the Portfolio. Mr. Bousa has been employed by Putnam Management as an investment professional since October, 1992. Prior to October, 1992, Mr. Bousa was Vice President and Portfolio Manager at Fidelity Investments. Mr. Taubes has been employed by Putnam Management as an investment professional since 1991. Mr. Paine has been employed by Putnam Management as an investment professional since 1987. Massachusetts Financial Services Company ("MFS") has been the Adviser to the MFS Research Portfolio and the MFS Emerging Growth Companies Portfolio since each Portfolio commenced operations. As compensation for services as the Adviser to each of those Portfolios, the Manager pays MFS a monthly fee at an annual rate equal to: .40% of the respective Portfolio's average daily net assets up to and including $150 million; .375% of the respective Portfolio's average daily net assets over $150 million and up to and including $300 million; and .35% of the respective Portfolio's average daily net assets in excess of $300 million. MFS has -38- agreed to waive its advisory fees for the first six months after the commencement of each Portfolio's investment operations. MFS is America's oldest mutual fund organization. MFS is located at 500 Boylston Street, Boston, MA 02116. 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 January 31, 1996, MFS managed more than $54.0 billion on behalf of over 2.3 million investors accounts. MFS is a subsidiary of Sun Life of Canada (United States), which, in turn, is a wholly-owned subsidiary of Sun Life Assurance Company of Canada. 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. The portfolio securities of the MFS Research Portfolio are selected by a committee of investment research analysts. This committee includes investment analysts employed not only by MFS but also by MFS International (U.K.) Limited, a wholly owned subsidiary of MFS. The assets of the MFS Research Portfolio are allocated among industries by the analysts acting together as a group. Individual analysts are then responsible for selecting what they view as the securities best suited to meet the investment objectives of the MFS Research Portfolio within their assigned industry responsibility. Since it commenced operations the MFS Emerging Growth Companies Portfolio has been managed by John W. Ballen, a Senior Vice President of MFS, who has been employed by the Adviser as a portfolio manager since 1984, and Toni K. Shimura, a Vice President of MFS, who has been employed as a portfolio manager by the Adviser since 1987. Morgan Stanley Asset Management Inc. ("MSAM") has been the Adviser to the Morgan Stanley Emerging Markets Equity Portfolio since each Portfolio commenced operations. MSAM is located at 1221 Avenue of the Americas, New York, NY 10020. As compensation for services as the Portfolio's Adviser, the Manager pays MSAM a monthly fee at an annual rate equal to: 1.15% of the Portfolio's average daily net assets up to and including $100 million; .90% of the Portfolio's average daily net assets over $100 million and up to and including $150 million; .80% of the Portfolio's average daily net assets over $150 million and up to and including $200 million; .60% of the Portfolio's average daily net assets over $200 million and up to and including $500 million; and .40% of the Portfolio's average daily net assets in excess of $500 million. MSAM conducts a worldwide investment management business, providing a broad range of portfolio management services to customers in the United States and abroad. MSAM is a wholly owned subsidiary of Morgan Stanley Group Inc., which is a publicly owned financial services -39- corporation listed on the New York, London and Pacific stock exchanges. MSAM serves an investment adviser to numerous open-end and closed-end investment companies. As of December 31, 1996, MSAM, together with its affiliated asset management companies, had approximately $172 billion in assets under management and fiduciary care. On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co. announced that they had entered into an Agreement and Plan of Merger to form Morgan Stanley, Dean Witter, Discover & Co. Morgan Stanley Group Inc. is the direct parent of MSAM. It is currently anticipated that the transaction will close in mid-1997. Thereafter, MSAM will be a subsidiary of Morgan Stanley, Dean Witter, Discover & Co. Dean Witter, Discover & Co. is a financial services company with three major businesses: full service brokerage, credit services and asset management. Madhav Dhar and Marianne L. Hay have been responsible for the day to day management of the Morgan Stanley Emerging Markets Equity Portfolio, which includes investment decisions made on behalf of the Portfolio, since the Portfolio commenced operations. Mr. Dhar is a Managing Director of MSAM and Morgan Stanley & Co. Incorporated ("Morgan Stanley") and a Director of the Morgan Stanley Emerging Markets Fund, Inc. He joined MSAM in 1984. Ms. Hay is a Managing Director of MSAM and Morgan Stanley. She joined MSAM in June 1993. Prior to joining MSAM, she was a director of Martin Currie Investment Management, Ltd., where her responsibilities included geographic asset allocation and portfolio management for global and emerging markets funds. Warburg, Pincus Counsellors, Inc. ("WPC") has been the Adviser to the Warburg Pincus Small Company Value Portfolio since the Portfolio commenced operations. WPC is located at 466 Lexington Avenue, New York, New York 10017-3147. As compensation for services as the Portfolio's Adviser, the Manager pays WPC a monthly fee at an annual rate of .50% of the Portfolio's average daily net assets. WPC is a professional investment counselling firm that provides investment services to investment companies, employee benefit plans, endowment funds, foundations and other institutions and individuals. As of January 31, 1997, WPC managed approximately $17.9 billion in assets. WPC, incorporated in 1970, is a wholly-owned subsidiary of Warburg, Pincus Counsellors G.P. ("Warburg G.P."), a New York general partnership, which itself is controlled by Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and WPC. Warburg G. P. has no business other than being a holding company of WPC and its subsidiaries. George U. Wyper has been responsible for the day to day management of the Warburg Pincus Small Company Value Portfolio, which includes investment decisions made on behalf of the Portfolio, since the Portfolio commenced operations. Mr. Wyper is a managing director of WPC, which he joined in August, 1994. Before joining WPC, he was chief investment officer of White River Corporation and president of Hanover Advisors, Inc. from 1993 to August, 1994. Prior to that position, he was chief investment officer of Fund American -40- Enterprises, Inc. from 1990 to 1993. Kyle F. Frey, a senior vice president of WPC, is associate portfolio manager and research analysts of the Portfolio. Mr. Frey has been with WPC since 1989. Merrill Lynch Asset Management, L.P. ("MLAM") has been the Adviser to the Merrill Lynch World Strategy Portfolio and the Merrill Lynch Basic Value Equity Portfolio since each Portfolio commenced operations. MLAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08543-9011. As compensation for services as the Merrill Lynch World Strategy Portfolio's Adviser, the Manager pays MLAM a monthly fee at an annual rate equal to: .50% of the Portfolio's average daily net assets up to and including $100 million; .45% of the Portfolio's average daily net assets over $100 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 Merrill Lynch Basic Value Equity Portfolio's Adviser, the Manager pays MLAM a monthly fee at an annual rate equal to: .40% of the Portfolio's average daily net assets up to and including $100 million; .375% of the Portfolio's average daily net assets over $100 million and up to and including $300 million; and .35% of the Portfolio's average daily net assets in excess of $300 million. MLAM is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc., a financial services holding company and the parent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The general partner of MLAM is Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc. MLAM and its affiliates act as the manager for more than 130 registered investment companies. MLAM also offers portfolio management and portfolio analysis services to individuals and institutions. As of December 31, 1996, the Adviser and its affiliates had a total of approximately $234 billion in investment company and other portfolio assets under management, including assets of certain affiliates of MLAM. Thomas R. Robinson is the portfolio manager of the Merrill Lynch World Strategy Portfolio. Mr. Robinson has served as a Senior Portfolio Manager of MLAM since 1995. Mr. Robinson has been primarily responsible for the day to day management of the Portfolio's securities portfolio since it commenced operations. Kevin Rendino is the portfolio manager of the Merrill Lynch Basic Value Equity Portfolio. Mr. Rendino has been a Vice President of MLAM since 1993 and was a Senior Research Analyst of MLAM from 1990 to 1992. Mr. Rendino has been primarily responsible for the day to day management of the Portfolio's securities portfolio since it commenced operations. THE ADMINISTRATOR Pursuant to an agreement ("Mutual Funds Service Agreement"), Chase Global Funds Services Company (the "Administrator") assists the Manager in the performance of its administrative responsibilities to the Trust and provides the Trust with other necessary administrative, fund accounting and compliance services. In addition, the Administrator makes available the office -41- space, equipment, personnel and facilities required to provide such services to the Trust. For these services, the Trust pays the Administrator a monthly fee at the annual rate of .0525 of 1% of the total Trust assets, plus $25,000 for each Portfolio, until the total Trust assets reach $2.0 billion, and when the total Trust assets exceed $2.0 billion: .0425 of 1% of the first $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets; .025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of the next $2.5 billion of the total Trust assets; .01 of 1% of the total Trust assets in excess of $6.0 billion; and except that the annual fee payable to Chase with respect to any Portfolio which commences operation after July 1, 1997 and whose assets do not exceed $200 million shall be computed at the annual rate of .0525% of the Portfolio's total assets plus $25,000. THE TRANSFER AGENT Equitable serves as the transfer agent and dividend disbursing agent of the Trust and receives no compensation for serving in such capacity. EXPENSE LIMITATION AGREEMENTS In the interest of limiting expenses of the Portfolios, the Manager has entered into an expense limitation agreement with the Trust, with respect to each Portfolio, ("Expense Limitation Agreements") pursuant to which the Manager has agreed to waive or limit its fees and to assume other expenses so that the total annual operating expenses of each Portfolio are limited to: .85% of the respective average daily net assets of the T. Rowe Price Equity Income, EQ/Putnam Growth & Income Value, EQ/Putnam Investors Growth, MFS Research, MFS Emerging Growth Companies and Merrill Lynch Basic Value Equity Portfolios; .90% of the EQ/Putnam Balanced Portfolio's average daily net assets; 1.00% of the Warburg Pincus Small Company Value Portfolio's average daily net assets; 1.20% of the respective average daily net assets of the T. Rowe Price International Stock, EQ/Putnam International Equity and Merrill Lynch World Strategy Portfolios; and 1.75% of the Morgan Stanley Emerging Markets Equity Portfolio's average daily net assets; Each Portfolio may at a later date reimburse to the Manager the management fees waived or limited and other expenses assumed and paid by the Manager pursuant to the Expense Limitation Agreement provided such Portfolio has reached a sufficient asset size to permit such reimbursement to be made without causing the total annual expense ratio of each Portfolio to exceed the percentage limits stated above. Consequently, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's assets exceed $100 million; (ii) the Portfolio's total annual expense ratio is less than the respective percentages stated above; and (iii) the payment of such reimbursement has been approved by the Trust's Board of Trustees on a quarterly basis. -42- BROKERAGE PRACTICES In selecting brokers and dealers, the Manager and each Adviser may consider research and brokerage services furnished to either company and their affiliates. Subject to seeking the most favorable net price and execution available, the Manager and each Adviser may also consider sales of shares of the Trust as a factor in the selection of brokers and dealers. TRANSACTIONS WITH AFFILIATES In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc. ("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities Corporation, is one of the nation's largest investment banking and securities firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that markets independently originated research to institutions. Through the Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ supplies security execution and clearance services to financial intermediaries including broker-dealers and banks. To the extent permitted by law, the Trust may engage in securities and other transactions with 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, which are persons indirectly related to the Adviser, acting as an agent in accordance with procedures established by the Trust's Board of Trustees. The Adviser to the Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio may execute portfolio transactions through certain of the Adviser's affiliates. The Adviser to the Morgan Stanley Emerging Markets Equity Portfolio may execute portfolio transactions through certain affiliates. 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 May 1, 1997, Separate Account FP, a separate account of Equitable, owned 100% of -43- the shares of the T. Rowe Price Equity Income Portfolio and through such ownership may be deemed a controlling person of each Portfolio. The Trust currently is divided into twelve 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 Amended and Restated 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 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. -44- PURCHASE AND REDEMPTION OF SHARES EQ Financial , 1755 Broadway, New York, New York, 10019, formerly Equico Securities, Inc., a wholly-owned subsidiary of Equitable, serves as one of the Distributors for the Trust's Class IA shares pursuant to a distribution agreement with the Trust. EDI, 1290 Avenue of the Americas, New York, New York, 10104, also serves as one of the Distributors for the Trust's Class IA shares pursuant to a distribution agreement with the Trust. 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 Amended and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of the same class by the same shareholder on the same day will be netted for each Portfolio. All redemption requests will be processed and payment with respect thereto 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. 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 United States are valued at representative quoted prices in the currency of the country of origin. Foreign currency amounts are translated into United States dollars at the bid price last quoted by a composite list of major United States banks. o Short-term debt securities in the Portfolios which mature in 60 days or less are valued at amortized cost, which approximates market value. -45- 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 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 Code, each Portfolio will also comply with the investment diversification requirements of Subchapter L of the Code. Were any Portfolio to fail to comply with those requirements, owners of Contracts (other than "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 Administrator and 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 -46- 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 (or series) managed by each Adviser, that has investment objectives, 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 past performance of any of the Portfolios or the future performance of any Portfolio or its Adviser. Consequently, potential investors should not consider this performance data as an indication of the future performance of any Portfolio of the Trust or of its Adviser. Each Adviser's performance data shown below 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. -47- T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., T. Rowe Price International Stock Fund which is managed by the Rowe Price-Fleming International, Inc. However, T. Rowe Price International Stock Fund may be subject to different expenses than the T. Rowe Price International Stock Portfolio. The investment results of T. Rowe Price International Stock Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the T. Rowe Price International Stock Portfolio or an individual investor investing in the T. Rowe Price International Stock Portfolio. T. ROWE PRICE MSCI EAFE YEAR INTERNATIONAL STOCK FUND(1) INDEX(2) ---- --------------------------- -------- One Year(3) Three Years(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The Morgan Stanley Capital International Europe, Australia, and Far East Indes ("MSCI EAFE Index") is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia, the Far East and Canada. MSCI EAFE Index returns assume dividends reinvested net of withholding tax and do not reflect any fees or expenses. 3 Through December 31, 1996. -48- T. ROWE PRICE EQUITY INCOME PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., T. Rowe Price Equity Income Fund which is managed by the T. Rowe Price Associates, Inc. However, the T. Rowe Price Equity Income Fund may be subject to different expenses than the T. Rowe Price Equity Income Portfolio. The investment results of T. Rowe Price Equity Income Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the T. Rowe Price Equity Income Portfolio or an individual investor investing in the T. Rowe Price Equity Income Portfolio. S&P 500 YEAR T. ROWE PRICE EQUITY INCOME FUND(1) INDEX(2) ---- ----------------------------------- -------- One Year(3) Three Years(3) Five Years(3) Ten Years(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996. The investment advisory fee applicable to the T. Rowe Price Equity Income Fund was capped at 1.00% in 1986 and capped at the maximum state-allowed fee in 1987. -49- EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Putnam Growth & Income Fund II which is managed by the Putnam Investment Management, Inc. However, the Putnam Growth & Income Fund II may be subject to different expenses than the EQ/Putnam Growth & Income Value Portfolio. The investment results of Putnam Growth & Income Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam Growth & Income Value Portfolio or an individual investor investing in the EQ/Putnam Growth & Income Value Portfolio. S&P 500 YEAR PUTNAM GROWTH & INCOME FUND II(1) INDEX(2) ---- --------------------------------- -------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996 for the Class A shares of the Putnam Growth & Income Fund II. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -50- EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Putnam International Growth Fund which is managed by the Putnam Investment Management, Inc. However, the Putnam International Growth Fund may be subject to different expenses than the EQ/Putnam International Equity Portfolio. The investment results of Putnam International Growth Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam International Equity Portfolio or an individual investor investing in the EQ/Putnam International Equity Portfolio. MSCI EAFE YEAR PUTNAM INTERNATIONAL GROWTH FUND(1) INDEX(2) ---- ----------------------------------- ------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The MSCI EAFE ("Index") is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia, the Far East and Canada. MSCI EAFE Index returns assume dividends reinvested net of withholding tax and do not reflect any fees or expenses. 3 Through December 31, 1996 for the Class A shares of the Putnam International Growth Fund. The inception date of the Class A shares of the Putnam International Growth Fund was _______ __, 199__. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -51- EQ/PUTNAM INVESTORS GROWTH PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Putnam Investors Fund which is managed by the Putnam Investment Management, Inc. However, the Putnam Investors Fund may be subject to different expenses than the EQ/Putnam Investors Growth Portfolio. The investment results of Putnam Investors Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam Investors Growth Portfolio or an individual investor investing in the EQ/Putnam Investors Growth Portfolio. S&P 500 YEAR PUTNAM INVESTORS FUND(1) INDEX(2) ---- ------------------------ -------- One Year(3) Five Years(3) Ten Years(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996 for the Class A shares of the Putnam Investors Fund. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -52- EQ/PUTNAM BALANCED PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., The George Putnam Fund of Boston which is managed by the Putnam Investment Management, Inc. However, The George Putnam Fund of Boston may be subject to different expenses than the EQ/Putnam Balanced Portfolio. The investment results of The George Putnam Fund of Boston presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam Balanced Portfolio or an individual investor investing in the EQ/Putnam Balanced Portfolio. S&P LEHMAN BROS. 500 GOV'T/CORP. YEAR THE GEORGE PUTNAM FUND OF BOSTON(1) INDEX(2) BOND INDEX(3) ---- ----------------------------------- -------- ------------- One Year(4) Five Years(4) Ten Years(4) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 The Lehman Brothers Government/Corporate Bond Index is an unmanaged list of publicly issued U.S. Treasury obligations, debt obligations or U.S. government agencies (excluding mortgage-backed securities), and fixed-rate, nonconvertible investment-grade corporate debt securities. 4 Through December 31, 1996 for the Class A shares of The George Putnam Fund of Boston. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -53- MFS RESEARCH PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., MFS Research Fund which is managed by the Massachusetts Financial Services Company. However, MFS Research Fund may be subject to different expenses than the MFS Research Portfolio. The investment results of MFS Research Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the MFS Research Portfolio or an individual investor investing in the MFS Research Portfolio. S&P 500 YEAR MFS RESEARCH FUND(1) INDEX(2) ---- -------------------- -------- One Year(3) Five Years(3) Ten Years(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996 for the Class C shares of the MFS Research Fund. Class A shares are subject to a maximum sales charge of 5.75%. Class B shares are subject to a contingent deferred sales charge ("CDSC"). Class C share performance includes the performance of the fund's Class A shares for periods prior to the commencement offering of Class C shares on April 1, 1996. Sales charges and operating expenses for Class A, Class B, and Class C shares differ. Class C share performance has not been adjusted, however to reflect differences in operating expenses (e.g., Rule 12b-1 fees). -54- MFS EMERGING GROWTH COMPANIES PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., MFS Emerging Growth Fund which is managed by the Massachusetts Financial Services Company. However, MFS Emerging Growth Fund may be subject to different expenses than the MFS Emerging Growth Companies Portfolio. The investment results of MFS Emerging Growth Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the MFS Emerging Growth Companies Portfolio or an individual investor investing in the MFS Emerging Growth Companies Portfolio. RUSSELL 2000 YEAR MFS EMERGING GROWTH FUND(1) INDEX(2) ---- --------------------------- ------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The Russell 2000 Index is an unmanaged index (with no defined investment objective) of 2000 small-cap stocks and it includes reinvestments of dividends. It is compiled by the Frank Russell Company. 3 Through December 31, 1996 for the Class C shares of the MFS Emerging Growth Fund. Class A shares are subject to a maximum sales charge of 5.75%. Class B shares are subject to a contingent deferred sales charge ("CDSC"). Class C shares have no initial sales charge but, along with Class B shares, have higher annual fees and expenses than Class A shares. Class C shares redeemed within 12 months of purchase are subject to an CDSC. Class C share performance includes the performance of the fund's Class B shares for period prior to the commencement of offering of Class A on September 13, 1993 and Class C shares on April 1, 1996. The Class B share performance included within the Class C share SEC performance has been adjusted to reflect the lower CDSC generally applicable to Class C shares rather than the higher CDSC generally applicable to Class B shares. Class A and Class C share performance has not been adjusted, however, to reflect differences in operating expenses (e.g., Rule 12b-1 fees). -55- MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio which is managed by the Morgan Stanley Asset Management Inc. However, the Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio may be subject to different expenses than the Morgan Stanley Emerging Markets Equity Portfolio. The investment results of Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Morgan Stanley Emerging Markets Equity Portfolio or an individual investor investing in the Morgan Stanley Emerging Markets Equity Portfolio. IFC GLOBAL MORGAN STANLEY UNIVERSAL FUNDS, INC. - TOTAL RETURN YEAR EMERGING MARKETS EQUITY PORTFOLIO(1, 2) COMPOSITE INDEX(3) ---- --------------------------------------- ------------------ One Year(4) Three Years(4) Since inception(4) - ---------------------------------- 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 Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio was capped at ____% for the period __________ to __________ (reflecting annualized reimbursement of expenses of ____%). The expense ratio of the Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio is capped at 1.75% through December 31, 1996. 3 The IFC Global Total Return Composite Index includes the constituents of all IFCG market indices, with some delays between the introduction of a new IFC index market and its inclusion in the composite and with some exception to coverage. 4 Through December 31, 1996 for the Class A shares of the Morgan Stanley Universal Funds, Inc. Emerging Markets Equity Portfolio. The Class A shares of the Emerging Markets Equity Portfolio are not subject to a Rule 12b-1 fee. The Class B shares of the Emerging Markets Equity Portfolio are subject to a Rule 12b-1 fee equal to 0.25% of the Portfolio's assets. The inception date for the Emerging Markets Equity Portfolio was September 25, 1992. -56- WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Warburg Pincus Small Company Value Fund which is managed by the Warburg, Pincus Counsellors, Inc. However, the Warburg Pincus Small Company Value Fund may be subject to different expenses than the Warburg Pincus Small Company Value Portfolio. The investment results of Warburg Pincus Small Company Value Portfolio presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Warburg Pincus Small Company Value Portfolio or an individual investor investing in such Portfolio and should not be considered a substitute for the Warburg Pincus Small Company Value Portfolio's own performance information. RUSSELL 2000 YEAR WARBURG PINCUS SMALL COMPANY VALUE FUND(1, 2) INDEX(3) ---- --------------------------------------------- -------- One Year(4) Since inception(4) - ---------------------------------- 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 Warburg Pincus Small Company Value Fund was capped at 1.75% for the period __________ to __________ (reflecting annualized reimbursement of expenses of ____%). Absent this reimbursement, the performance of Warburg Pincus Small Company Value Fund would have been lower. 3 The Russell 2000 Index is an unmanaged index (with no defined investment objective) of 2,000 small-cap stocks, and includes reinvestment of dividends. It is compiled by the Frank Russell Company. 4 December 29, 1995 through December 31, 1996. -57- MERRILL LYNCH WORLD STRATEGY PORTFOLIO In the table below, the only account which is a series of another registered investment company, i.e., Merrill Lynch Global Strategy Focus Fund, a series of Merrill Lynch Variable Series Funds, Inc., which is managed by Merrill Lynch Asset Management, L.P. However, the Merrill Lynch Global Strategy Focus Fund may be subject to different expenses than the Merrill Lynch World Strategy Portfolio. The investment results of Merrill Lynch Global Strategy Focus Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Merrill Lynch World Strategy Portfolio or an individual investor investing in the Merrill Lynch World Strategy Portfolio. MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL LYNCH GLOBAL MSCI EAFE YEAR STRATEGY FOCUS FUND(1) INDEX(2) ---- ---------------------- -------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The Morgan Stanley Capital International Europe, Australia, and Far East Index ("MSCI EAFE Index") is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia, the Far East and Canada. MSCI EAFE Index returns assume dividends reinvested net of withholding tax and do not reflect any fees or expenses. 3 Through December 31, 1996. The inception date for the Merrill Lynch Global Strategy Focus Fund was February 28, 1992. -58- MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO In the table below, the only account which is another registered investment company, i.e., Merrill Lynch Basic Value Focus Fund, a series of Merrill Lynch Variable Series Funds, Inc., which is managed by Merrill Lynch Asset Management, L.P. However, the Merrill Lynch Basic Value Focus Fund may be subject to different expenses than the Merrill Lynch Basic Value Equity Portfolio. The investment results of Merrill Lynch Basic Value Focus Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Merrill Lynch Basic Value Equity Portfolio or an individual investor investing in the Merrill Lynch Basic Value Equity Portfolio. MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - S&P 500 YEAR MERRILL LYNCH BASIC VALUE FOCUS FUND(1) INDEX(2) ---- -------------------------------------- ------- One Year(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996. The inception date for the Merrill Lynch Basic Value Focus Fund was July __, 1993. -59- PROSPECTUS DATED MAY 1, 1997 EQ ADVISORS TRUST 1290 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10104 EQ Advisors Trust ("Trust") is a 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 twelve Portfolios currently offered by the Trust. * T. Rowe Price International Stock Portfolio * T. Rowe Price Equity Income Portfolio * EQ/Putnam Growth & Income Value Portfolio * EQ/Putnam International Equity Portfolio * EQ/Putnam Investors Growth Portfolio * EQ/Putnam Balanced Portfolio * MFS Research Portfolio * MFS Emerging Growth Companies Portfolio * Morgan Stanley Emerging Markets Equity Portfolio * Warburg Pincus Small Company Value Portfolio * Merrill Lynch World Strategy Portfolio * Merrill Lynch Basic Value Equity 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 May 1, 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 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 twelve Portfolios. Each Portfolio is a separate series of the Trust with its own objective and policies. All of the Portfolios, except for the Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch World Strategy Portfolio, are diversified for 1940 Act purposes. 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., Massachusetts Financial Services Company, Morgan Stanley Asset Management Inc., Warburg, Pincus Counsellors, Inc., and Merrill Lynch Asset Management, L.P. 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 EQ/Putnam Growth & Putnam Investment Management, Income Value Portfolio Inc. EQ/Putnam International Putnam Investment Management, Equity Portfolio Inc. EQ/Putnam Investors Putnam Investment Management, Growth Portfolio Inc. EQ/Putnam Balanced Putnam Investment Management, Portfolio Inc. MFS Research Portfolio Massachusetts Financial Services Company MFS Emerging Growth Companies Massachusetts Financial Services Portfolio Company Morgan Stanley Emerging Markets Morgan Stanley Asset Management Equity Portfolio Inc. -3- Warburg Pincus Small Company Warburg, Pincus Counsellors, Inc. Value Portfolio Merrill Lynch Merrill Lynch Asset Management, World Strategy Portfolio L.P. Merrill Lynch Basic Value Merrill Lynch Asset Management, Equity Portfolio L.P. The Trust offers two classes of shares on behalf of each Portfolio: Class IA shares and Class IB shares. EQ Financial Consultants, Inc. ("EQ Financial"), the Trust's Manager, serves as one of the distributors for the Class IB shares of the Trust offered by this Prospectus. Equitable Distributors, Inc. ("EDI") also serves as one of the distributors for the Class IB shares of the Trust as well as one of the distributors of the Class IA shares. (EQ Financial and EDI are collectively referred to as the "Distributors"). 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 ("Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940 Act. Inquiries regarding Class IA shares should be addressed to Equitable, at 1290 Avenue of the Americas, New York, NY 10104. 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-United States companies. The Adviser intends to invest substantially all of the Portfolio's assets outside -4- 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. 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 United States 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 -5- 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, United States Government securities, convertible securities, borrowings, derivatives, investment grade fixed-income securities, 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). 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. -6- Although the Portfolio will invest primarily in United States 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 United States and dollar-denominated securities traded in the United States (such as American Depositary Receipts ("ADRs"). 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"). Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, convertible securities, borrowings, foreign securities, repurchase agreements, derivatives, United States government securities, securities loans, foreign currency transactions, illiquid securities and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO The investment objective of the EQ/Putnam Growth & Income Value 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. -7- 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. 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. 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, foreign securities, securities loans, convertible securities, borrowings, repurchase agreements, illiquid securities, forward commitments, zero-coupon bonds, derivatives, United States Government securities, foreign currency transactions, passive foreign investment companies, payment-in-kind bonds, and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO -8- The investment objective of the EQ/Putnam International Equity Portfolio is capital appreciation. The Portfolio is designed for investors seeking capital appreciation primarily through a diversified portfolio of equity securities of companies organized under the laws of a country other than the United States. 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 the United States. The Portfolio will consider an issuer to be located outside the United States if the issuer is organized under the laws of a country outside the United States. 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. 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. -9- Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, borrowings, derivatives, repurchase agreements, futures contracts, foreign securities, forward commitments, foreign currency transactions, securities loans, and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM INVESTORS GROWTH PORTFOLIO The investment objective of the EQ/Putnam Investors Growth Portfolio is long-term growth of capital and any increased income that results from this growth. The Adviser intends to invest primarily in common stocks in view of the Adviser's belief that equity ownership affords the best opportunity for capital growth over the long term. The Portfolio may also purchase convertible bonds, convertible preferred stocks, preferred stocks and debt securities if the Adviser believes that they will help to achieve the Portfolio's objective. In addition, the Portfolio may hold a portion of its assets in cash or money market instruments. In analyzing potential investments, the Adviser considers three main factors: (i) the general outlook of the economy; (ii) a study of various industries to determine those with the best possibilities for long-term growth; and (iii) a detailed study of what appear to be the most promising individual companies. In evaluating individual companies, the Adviser gives more weight to growth potential characteristics than to dividend income. In particular, the Adviser believes that evaluating a company's probable future earnings, dividends, financial strength, working assets and competitive position may be more profitable in the long run than seeking current dividend income. Although the Portfolio's investments are not limited to any particular type of company, the Adviser currently expects that the Portfolio will invest a substantial portion of its assets in common stocks of companies with equity market capitalizations of more than $1 billion. The Portfolio may also invest in small to medium-sized companies having a proprietary product or profitable market niche and the potential to grow very rapidly. The Adviser believes that such small to medium-sized companies may present greater opportunities for capital appreciation because of their high potential earnings growth, but also may involve greater risk. 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, preferred stocks, United States government and agency obligations, cash or money market instruments, 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 -10- 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. The Portfolio may also engage in a variety of investment management practices such as buying and selling options and futures contracts and entering into foreign currency exchange contracts. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, borrowings, futures contracts, foreign securities, foreign currency transactions, securities loans, illiquid securities, derivatives, repurchase agreements and forward commitments) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. EQ/PUTNAM BALANCED PORTFOLIO The investment objective of the EQ/Putnam Balanced Portfolio is to provide a balanced investment composed of a well-diversified portfolio of stocks and bonds that will produce both capital growth and current income. In seeking its objective, the Portfolio may invest in almost any type of security or negotiable instrument, including cash or money market instruments. While the proportion invested in each type of security is not fixed, ordinarily the Adviser will invest no more than 75% of the Portfolio's assets in common stocks and conversion rights with respect to convertible securities. The Adviser may, however, invest more than 75% of the Portfolio's assets in such securities if it determines that unusual market or economic conditions make it appropriate to do so. The Portfolio may also invest in debt securities, including lower-rated debt securities (commonly referred to as "junk bonds"). The Portfolio will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase. However, the Adviser will consider such reduction in its determination of whether the Portfolio should continue to hold the security. 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, preferred stocks, United States government and agency obligations, cash or money market instruments, 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. -11- Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, futures contracts, foreign securities, securities loans, illiquid securities, zero-coupon bonds, investment grade and lower quality fixed-income securities, payment-in-kind bonds, derivatives, foreign currency transactions, repurchase agreements, forward commitments and investment grade and lower quality fixed-income 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. The portfolio securities of the Portfolio are selected by a committee of investment research analysts. This committee includes investment analysts employed not only by the Adviser but also by MFS International (U.K.) Limited, a wholly-owned subsidiary of the Adviser. The Portfolio's assets are allocated among industries by the analysts acting together as a group. Individual analysts are then responsible for selecting what they view as the securities best suited to meet the Portfolio's investment objective within their assigned industry responsibility. 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 dollar-denominated and non-dollar-denominated foreign securities . 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, convertible securities, borrowings, repurchase agreements, securities loans, illiquid securities and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. -12- MFS EMERGING GROWTH COMPANIES PORTFOLIO The investment objective of the MFS Emerging Growth Companies Portfolio is to provide long-term growth of capital. Dividend and interest income from portfolio securities, if any, is incidental to the Portfolio's investment objective. In pursuing its objective, the Portfolio invests primarily (i.e., at least 80% of its assets under normal circumstances) in common stocks of emerging growth companies that the Adviser believes are early in their life cycle but which have the potential to become major enterprises. Such emerging growth companies generally are expected to: (i) show earnings growth over time that is well above the growth rate of the overall economy and the rate of inflation; and (ii) have the products, technologies, management and market and other opportunities that are usually necessary to become more widely recognized as growth companies. Emerging growth companies can be of any size and the Portfolio may invest in larger or more established companies whose rates of earnings growth are expected to accelerate because of special factors, such as rejuvenated management, new products, changes in customer demand, or basic changes in the economic environment. Investing in emerging growth companies involves greater risk than is customarily associated with investments in more established companies. Emerging growth companies often have limited product lines, markets or financial resources and may be more dependent on one-person management. In addition, there may be less research available on many promising small or medium-sized emerging growth companies, making it more difficult both to identify and to analyze such companies. Moreover, the securities of such companies may have limited marketability and may be subject to more abrupt or erratic market movements than the securities of larger, more established companies. While the Portfolio may invest primarily in common stocks, the Portfolio may, to a limited extent, seek long-term growth in other types of securities such as convertible securities and warrants. To the extent that such investments comply with the Portfolio's investment objective, the Portfolio may invest up to 25% 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 also invest in debt securities and hold cash and cash equivalents. In addition, the Portfolio may invest in lower-rated debt securities (commonly referred to as "junk bonds"). The Portfolio is aggressively managed and, therefore, the value of its shares is subject to greater fluctuation and investment in its shares generally involves a higher degree of risk than would be the case with an investment in a conservative equity or growth fund investing entirely in proven growth companies. Certain investment strategies and practices which may be employed by the Portfolio (such as foreign securities, repurchase agreements, loan participations, derivatives, United States Government securities, securities loans, forward commitments, asset-backed securities, -13- borrowings, options, futures contracts, convertible securities, foreign currency transactions, illiquid securities and investment grade and lower quality fixed-income securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO The investment objective of the Morgan Stanley Emerging Markets Equity Portfolio is long-term capital appreciation by investing primarily in equity securities of emerging market country issuers. In pursuing its investment objective, the Adviser focuses on issuers in emerging market countries in which it believes the economies are developing strongly and in which the markets are becoming more sophisticated. Under normal circumstances, at least 65% of the Portfolio's total assets will be invested in emerging market country equity securities, including common stocks, preferred stocks, convertible securities, rights and warrants to purchase common stocks, depository receipts and other equity securities of emerging market country issuers. For these purposes, an emerging market country security is a security issued by a company that has one or more of the following characteristics: (i) its principal securities trading market is in an emerging market country; (ii) alone or on a consolidated basis, it derives 50% or more of its revenue from either goods produced, sales made or services performed in emerging markets countries; or (iii) it is organized under the laws of, and has a principal office in, an emerging market country. The Adviser will base determinations as to eligibility on publicly available information and inquiries made to the companies. The Portfolio intends to invest primarily in some or all of the following emerging market countries: Argentina, Botswana, Brazil, Chile, China, Colombia, Greece, Hong Kong, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Malaysia, Mexico, Nigeria, Pakistan, Peru, Philippines, Poland, Portugal, Russia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. As markets in other countries develop, the Portfolio expects to expand and further diversify the emerging market countries in which it invests. The Portfolio does not intend to invest in any security in a country where the currency is not freely convertible to United States dollars, unless: (i) the Portfolio has obtained the necessary governmental licensing to convert such currency or other appropriately licensed or sanctioned contractual guarantees to protect such investment against loss of that currency's external value, or (ii) the Portfolio has a reasonable expectation at the time the investment is made that such governmental licensing or other appropriately licensed or sanctioned guarantees would be obtained or that the currency in which the security is quoted would be freely convertible at the time of any proposed sale of the security by the Portfolio. Currently, investing in many emerging market countries is not feasible or may involve unacceptable political risks. In selecting industries and particular issuers, the Adviser will analyze assets, revenues and earnings of an issuer and, with respect to particular countries, evaluate costs of labor and raw materials, access to technology, export of products and government regulation. Although the -14- Portfolio seeks to invest in larger companies, it may invest in small and medium-size companies that, in the Adviser's view, have potential for growth. The Portfolio may also invest in fixed-income securities denominated in the currency of an emerging market country or issued or guaranteed by an emerging market country company or the government of an emerging market country. In addition, the Portfolio may invest in equity or fixed-income securities of corporate or governmental issuers located in industrialized countries, foreign currency and investment funds (i.e., funds specifically authorized to invest in companies of a particular emerging market country). The Portfolio may also invest in debt securities issued or guaranteed by international organizations designed or supported by multiple governmental entities to promote economic reconstruction or development such as the International Bank for Reconstruction and Development (i.e., the World Bank). The Portfolio may invest up to 10% of its total assets (measured at the time of investment) in fixed-income securities that are not investment grade securities (commonly referred to as "junk bonds"). For temporary defensive purposes, the Portfolio may invest less than 65% of its assets in equity securities of emerging market countries in which case the Portfolio may invest in other equity securities or fixed income securities. Moreover, the Portfolio may invest without limitation in high-quality money market instruments. The value of the Portfolio's investments and the income they generate will vary from day to day and generally reflect market conditions, interest rates, and other company, political, or economic news both in the United States and abroad. In the short-term, stock prices can fluctuate dramatically in response to these factors. Over time, however, stocks have shown greater growth potential than other types of securities. The prices of fixed-income securities also fluctuate and generally move in the opposite direction from interest rates. The Portfolio is a non-diversified portfolio under the 1940 Act, which means that it may invest a greater proportion of its assets in the securities of a small number of issuers than a diversified investment company. In this regard, the Portfolio is not subject to the general limitation that it not invest more than 5% of its total assets in the securities of a single issuer. As a result, because the Portfolio is permitted greater flexibility to invest its assets in the obligations of a single issuer it is exposed to increased risk of loss if such an investment underperforms expectations. However, the Portfolio intends to limit its investments so as to comply with diversification requirements imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a "regulated investment company." The Portfolio spreads investment risk by limiting its holdings in any one company or industry. Nevertheless, the Portfolio will experience price volatility, the extent of which will be affected by the types of securities and techniques the Portfolio uses. The Adviser may use various investment techniques to hedge risks, including derivatives, but there is no guarantee that these strategies will work as intended. Certain investment strategies and practices which may be employed by the Portfolio such as the purchase and sale of options, futures contracts, United States Government securities, hybrid instruments, illiquid securities, foreign securities, securities loans, borrowings, payment-in-kind -15- bonds, passive foreign investment companies, derivatives, convertible securities, zero coupon bonds, investment grade and lower quality fixed-income securities, mortgage-backed securities, forward commitments, stripped mortgage-backed securities, collateralized mortgage obligations, asset-backed securities, floaters, inverse floaters, foreign currency transactions, loan participations, repurchase agreements, structured notes and swaps are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO. The investment objective of the Warburg Pincus Small Company Value Portfolio is to seek long-term capital appreciation. The Portfolio is a diversified management investment company that pursues its investment objective by investing primarily in a portfolio of equity securities of small capitalization companies (i.e., companies having market capitalizations of $1 billion or less at the time of initial purchase) that the Adviser considers to be relatively undervalued. Current income is a secondary consideration in selecting portfolio investments. Under normal market conditions, the Portfolio will invest at least 65% of its total assets in common stock, preferred stocks, debt securities convertible into common stocks, warrants and other rights of small companies. The Portfolio may invest up to 10% of its total assets in warrants. The Adviser will determine whether a company is undervalued based on a variety of measures, including: price/earnings ratio, price/book ratio, price/cash flow ratio, earnings growth and debt/capital ratio. Other relevant factors, including a company's asset value, franchise value and quality of management, will also be considered. The Portfolio will invest primarily in companies whose securities are traded on United States stock exchanges or in the United States over-the-counter market, but it may invest up to 20% of its total assets in foreign securities. The Portfolio may also invest up to 20% of its total assets in investment grade securities (other than money market obligations) that are not convertible into common stock for the purpose of seeking capital appreciation. Subsequent to its purchase by the Portfolio, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Portfolio. Neither event will require the sale of such securities by the Portfolio. The Adviser will consider such events in its determination of whether the Portfolio should continue to hold the securities. The interest income to be derived may be considered as one factor in selecting debt securities by the Adviser. The Portfolio is authorized to invest, under normal market conditions, up to 20% of its total assets in domestic and foreign short-term (one year or less remaining to maturity) and medium-term (five years of less remaining to maturity) money market obligations. For temporary defensive purposes, the Portfolio may invest in these securities without limit. These instruments consist of: obligations issued or guaranteed by the United States Government or a foreign government, their agencies or instrumentalities; bank obligations (including certificates of deposit, time deposits and bankers' acceptances of domestic or foreign banks, domestic -16- savings and loans and similar institutions) that are high-quality investments or, if unrated, deemed by the Adviser to be high-quality investments; commercial paper rated no lower than A-2 by Standard & Poor's Rating Service ("S&P") or Prime-2 by Moody's Investors Service, Inc. ("Moody's") or the equivalent from another NRSRO or, if unrated, of an issuer having an outstanding, unsecured debt issue then rated within the three highest rating categories by any NRSRO; and repurchase agreements with respect to the foregoing. When the Adviser believes that a defensive posture is warranted, the Portfolio may invest temporarily, without limit, in investment grade debt obligations and in domestic and foreign money market instruments, including repurchase agreements. Certain investment strategies and practices which may be employed by the Portfolio (such as foreign securities, repurchase agreements, borrowings, options, futures contracts, foreign currency transactions, United States Government securities, short sales against the box, convertible securities, investment grade and lower-quality fixed-income securities, and illiquid securities) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MERRILL LYNCH WORLD STRATEGY PORTFOLIO The investment objective of the Merrill Lynch World Strategy Portfolio is to seek high total investment return by investing primarily in a portfolio of equity and fixed income securities, including convertible securities, of U.S. and foreign issuers. Total investment return consists of interest, dividends, discount accruals and capital changes, including changes in the value of non-dollar denominated securities and other assets and liabilities resulting from currency fluctuations. Investing in foreign securities involves special considerations. The Portfolio may employ a variety of instruments and techniques to enhance income and to hedge against market and currency risk. The Portfolio seeks to achieve its objective by investing primarily in the securities of issuers located in the United States, Canada, Western Europe and the Far East. There are no prescribed limits on the geographical allocation of the Portfolio among these regions. Such allocation will be made primarily on the basis of the anticipated total return from investments in the securities of issuers wherever located, considering such factors as: the condition and growth potential of the various economies and securities markets and the issuers domiciled therein; anticipated movements in interest rates in the various capital markets and in the value of foreign currencies relative to the U.S. dollar; tax considerations; and economic, social, financial, national and political factors that may affect the climate for investing within the various securities markets. When in the judgment of the Adviser, economic or market conditions warrant, the Portfolio reserves the right to concentrate its investments in one or more capital markets, including the United States. The equity and convertible preferred securities in which the Portfolio may invest are primarily securities issued by quality companies. Generally, the characteristics of such companies include a strong balance sheet, good financial resources, a satisfactory rate of return on capital, a good industry position and superior management. -17- The corporate debt securities, including convertible debt securities, in which the Portfolio may invest will be primarily investment grade securities those rated BBB or better by S&P or Baa or better by Moody's or of comparable quality. The Fund may also invest in debt obligations issued or guaranteed by sovereign governments, political subdivisions thereof (including states, provinces and municipalities) or their agencies or instrumentalities or issued or guaranteed by international organizations designated or supported by governmental entities to promote economic reconstruction or development (`supranational entities') such as the International Bank for Reconstruction and Development (the "World Bank) and the European Coal and Steel Community. Investments in securities of supranational entities are subject to the risk that member governments will fail to make required capital contributions and that a supranational entity will thus be unable to meet its obligations. When market or financial conditions warrant, the Portfolio may invest as a temporary defensive measure up to 100% of its assets in United States Government or Government agency securities issued or guaranteed by the United States Government or its agencies or instrumentalities, money market securities or other fixed income securities deemed by the Adviser to be consistent with a defensive posture, or may hold its assets in cash. The Portfolio is non-diversified for the 1940 Act purposes and as such may invest a larger percentage of its assets in individual issuers than a diversified investment company. In this regard, the Portfolio is not subject to the general limitation that it not invest more than 5% of its total assets in the securities of any one issuer. To the extent the Portfolio makes investments in excess of 5% of its assets in a particular issuer, its exposure to credit and market risks associated with that issuer is increased. However, the Portfolio's investments will be limited so as to qualify for the special tax treatment afforded "regulated investment companies" under the Code. Certain investment strategies and instruments which may be employed by the Portfolio (such as the purchase and sale of options, floaters, futures contracts, foreign securities, foreign currency transactions, United States Government securities, convertible securities, borrowings, derivatives, investment grade fixed-income securities, repurchase agreements, securities loans, illiquid securities and forward commitments) are discussed under the caption "Investment Strategies" below and in the Statement of Additional Information. MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO The investment objective of the Merrill Lynch Basic Value Equity Portfolio is to seek capital appreciation and, secondarily, income by investing in securities, primarily equities, that the Adviser of the Portfolio believes are undervalued and therefore represent basic investment value. The Portfolio seeks special opportunities in securities that are selling at a discount, either from book value or historical price-earnings ratios, or seem capable of recovering from temporarily out of favor considerations. Particular emphasis is placed on securities that provide an above-average dividend return and sell at a below-average price-earnings ratio. -18- The investment policy of the Portfolio is based on the belief that the pricing mechanism of the securities market lacks total efficiency and has a tendency to inflate prices of securities in favorable market climates and depress prices of securities in unfavorable climates. Based on this premise, the Adviser believes that favorable changes in market prices are more likely to begin when securities are out of favor, earnings are depressed, price-earnings ratios are relatively low, investment expectations are limited, and there is no real general interest in the particular security or industry involved. On the other hand, the Adviser believes that negative developments are more likely to occur when investment expectations are generally high, stock prices are advancing or have advanced rapidly, price-earnings ratios have been inflated, and the industry or issue continues to gain new investment acceptance on an accelerated basis. In other words, the Adviser believes that market prices of securities with relative high price-earnings ratios are more susceptible to unexpected adverse developments while securities with relatively low price-earnings rations are more favorably positioned to benefit from favorable, but generally unanticipated events. This investment policy departs from traditional philosophy. The Adviser believes that the market risk involved in this policy is moderated somewhat by an emphasis on securities with above-average dividend returns. The current institutionally-dominated market tends to ignore, to some extent, the numerous secondary issues whose market capitalizations are below those of the relatively few larger size growth companies. It is expected that the Portfolio's portfolio generally will have significant representation in this secondary segment of the market. The Adviser is responsible for the management of the Portfolio's securities portfolio and makes portfolio decisions based on its own research information supplemented by research information provided by other sources. The basic orientation of the Portfolio's investment policies is such that at times a large portion of its common stock holdings may carry less than favorable research ratings from research analysts. Investment emphasis is on equities, primarily common stock and, to a lesser extent, securities convertible into common stocks. The Portfolio also may invest in preferred stocks and non-convertible investment grade debt securities and utilize covered call options with respect to portfolio securities. The Portfolio has the right, as a defensive measure, to hold other types of securities, including United States Government and Government agency securities, money market securities, or other fixed-income securities deemed by the Adviser to be consistent with a defensive posture, or cash, in such proportions as, in the opinion of the Adviser, prevailing market or economic conditions warrant. The Portfolio may invest up to 10% of its total assets, taken at market value at the time of acquisition, in the securities of foreign issuers. Certain investment strategies and instruments which may be employed by the Portfolio (such as options, convertible securities, United States Government securities, repurchase agreements, securities loans, foreign securities, borrowings and illiquid securities) 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, loans and other direct indebtedness and engage in forward foreign currency exchange transactions. They may also enter into repurchase agreements, lend their portfolio securities, and borrow funds under certain limited circumstances. In addition, each Portfolio may engage in other types of investment strategies as described below. Each Portfolio may invest in or utilize any of these investment strategies and instruments or engage in any of these practices except where otherwise prohibited by law or the Portfolio's own investment restrictions. Portfolios that anticipate committing 5% or more of their net assets to a particular type of investment strategy or instruments are specifically referred to in the descriptions below of such investment strategy or instrument. Certain investment strategies and instruments 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. ASSET-BACKED SECURITIES. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may invest in asset-backed securities. These asset-backed securities, issued by trusts and special purpose corporations, are collateralized by a pool of assets, such as credit card or automobile loans, home equity loans or computer leases, and represent the obligations of a number of different parties. Asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Due to the possibility that prepayments (on automobile loans and other collateral) will alter the cash flow on asset-backed securities, it is not possible to determine in advance the -19- actual final maturity date or average life. Faster prepayment will shorten the average life and slower prepayments will lengthen it. However, it is possible to determine what the range of that movement could be and to calculate the effect that it will have on the price of the security. In selecting these securities, the Adviser will look for those securities that offer a higher yield to compensate for any variation in average maturity. 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 Portfolio, T. Rowe Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity, Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio may not exceed 33 1/3% of each Portfolio's total assets. Borrowings for the Warburg Pincus Small Company Value Portfolio may not exceed 30% of the Portfolio's total assets. Borrowings for the EQ/Putnam Growth & Income Value Portfolio, the EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio may not exceed 10% of each 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. See also "Reverse Repurchase Agreements" for information concerning an investment technique that may be deemed to involve a borrowing. Further information concerning each Portfolio's fundamental policy with respect to borrowings is provided in the Statement of Additional Information. CONVERTIBLE SECURITIES. Each of the Portfolios may invest in convertible securities, including both convertible debt and convertible preferred stock. Such securities may be converted into shares of the underlying common stock at either a stated price or stated rate. Because of this feature, convertible securities enable an investor to benefit from increases in the market price of the underlying common stock. Convertible securities provide higher yields than the underlying common stocks, but generally offer lower yields than non-convertible securities of similar quality. Like bonds, the value of convertible securities fluctuates in relation to changes in interest rates and, in addition, fluctuates in relation to the underlying common stock. Subsequent to purchase by a Portfolio, convertible securities may cease to be rated or a rating may be reduced below the minimum required for purchase by that Portfolio. Neither event will require sale of such securities, although each Adviser will consider such event in its determination of whether a Portfolio should continue to hold the securities. DERIVATIVES. Each Portfolio (except the MFS Research Portfolio) may invest in one or more types of derivatives. Derivatives are financial products or instruments that derive their value from the value of one or more underlying assets, reference rates or indices. Derivatives include, but are not limited to, the following: asset-backed securities, collateralized mortgage obligations, floaters, futures, hybrid instruments, inverse floaters, mortgage-backed securities, options, stripped mortgage-backed securities, structured notes and swaps. Further information about these instruments and the risks involved in their use are contained under the description of each of these instruments in this section or the Statement of Additional Information. -20- FLOATERS AND INVERSE FLOATERS. The EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity Portfolio each may invest in floaters, which are fixed-income securities with a floating or variable rate of interest, i.e., the rate of interest varies with changes in specified market rates or indices, such as the prime rate, or at specified intervals. Certain floaters may carry a demand feature that permits the holder to tender them back to the issuer of the underlying instrument, or to a third party, at par value prior to maturity. When the demand feature of certain floaters represents an obligation of a foreign entity, the demand feature will be subject to certain risks discussed under "Foreign Investment". In addition, the Morgan Stanley Emerging Markets Equity Portfolio may invest in inverse floating rate obligations which are fixed-income securities that have coupon rates that vary inversely at a multiple of a designated floating rate, such as London Inter-Bank Offered Rate ("LIBOR"). Any rise in the reference rate of an inverse floater (as a consequence of an increase in interest rates) causes a drop in the coupon rate while any drop in the reference rate of an inverse floater causes an increase in the coupon rate. Inverse floaters may exhibit substantially greater price volatility than fixed rate obligations having similar credit quality, redemption provisions and maturity, and inverse floater collateralized mortgage obligations ("CMOs") exhibit greater price volatility than the majority of mortgage-related securities. In addition, some inverse floater collateralized mortgage obligations exhibit extreme sensitivity to changes in prepayments. As a result, the yield to maturity of an inverse floater collateralized mortgage obligation is sensitive not only to changes in interest rates but also to changes in prepayment rates on the related underlying mortgage assets. 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 United States dollar will result in a change in the United States dollar value of a Portfolio's assets and income. In addition, although a portion of a Portfolio's investment income may be received or realized in such currencies, the Portfolio will be required to compute and distribute its income in United States dollars. Therefore, if the exchange rate for any such currency declines after a Portfolio's income has been earned and computed in United States dollars but before conversion and payment, the Portfolio could be required to liquidate portfolio securities to make such distributions. The value of foreign investments and the investment income derived from them may also be affected unfavorably by changes in currency exchange control regulations. Although the Portfolios will invest only in securities denominated in foreign currencies that are fully exchangeable into United States dollars without legal restriction at the time of investment, there can be no assurance that currency controls will not be imposed subsequently. In addition, the value of foreign fixed income investments may fluctuate in response to changes in United States and foreign interest rates. -21- There may be less information publicly available about a foreign issuer than about a United States issuer, and a foreign issuer is not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States Foreign stock markets are generally not as developed or efficient as, and may be more volatile than, those in the United States. While growing in volume, they usually have substantially less volume than United States markets and a Portfolio's investment securities may be less liquid and subject to more rapid and erratic price movements than securities of comparable United States companies. Equity securities may trade at price/earnings multiples higher than comparable United States securities and such levels may not be sustainable. There is generally less government supervision and regulation of foreign stock exchanges, brokers and listed companies than in the United States. Moreover, settlement practices for transactions in foreign markets may differ from those in United States markets. Such differences may include delays beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a "failed settlement." Failed settlements can result in losses to a 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 or global 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. In addition, investment in foreign securities may also include the risk of expropriation by a foreign government. Moreover, investments in foreign government debt securities, particularly those of emerging market country governments, involve special risks. Certain emerging market countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. The issuer or governmental authority that controls the repayment of an emerging market country's debt may not be able to willing to repay -22- the principal and/or interest when due in accordance with the terms of such debt. A debtor's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, and, in the case of a government debtor, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole and the political constraints to which a government debtor may be subject. Government debtors may default on their debt and may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. Holders of government debt may be requested to participate in the rescheduling of such debt and to extend further loans to government debtors. Certain Portfolios may invest in the following types of foreign securities or engage in the following types of transactions related to foreign securities. Brady Bonds. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio each may invest in "Brady Bonds," which are fixed-income securities created through the exchange of existing commercial bank loans to foreign entities for new obligations in connection with debt restructuring under a plan introduced by Nicholas F. Brady when he was the United States Secretary of the Treasury. Brady Bonds have been issued only recently, and, accordingly, do not have a long payment history. They may be collateralized or uncollateralized and issued in various currencies (although most are United States dollar-denominated) and they are actively traded in the over-the-counter ("OTC") secondary market. The Morgan Stanley Emerging Markets Equity Portfolio will invest in Brady Bonds only if they are consistent with quality specifications established from time to time by the Adviser to that Portfolio. Depositary Receipts. Each of the Portfolios may purchase depositary receipts, which are securities representing ownership interests in securities of foreign companies (an "underlying issuer") and are deposited with a securities depositary. Depositary receipts are not necessarily denominated in the same currency as the underlying securities. Depositary receipts include ADRs and Global Depositary Receipts ("GDRs") and other types of depositary receipts (which, together with ADRs and GDRs, are hereinafter collectively referred to as "Depositary Receipts"). ADRs are dollar-denominated Depositary Receipts typically issued by a United States financial institution which evidence ownership interests in a security or pool of securities issued by a foreign issuer. ADRs are listed and traded in the United States. GDRs and other types of depositary receipts are typically issued by foreign banks or trust companies, although they also may be issued by United States financial institutions, and evidence ownership interests in a security or pool of securities issued by either a foreign or a United States corporation. Generally, depositary receipts in registered form are designed for use in the United States securities market and depositary receipts in bearer form are designed for use in securities markets outside the United States. Although there may be more reliable information available regarding issuers of certain ADRs that are issued under so-called "sponsored" programs and ADRs do not involve foreign currency risks, ADRs and other Depositary Receipts are subject to the risks of other investments in foreign securities, as described directly above. -23- FOREIGN CURRENCY TRANSACTIONS. Each of the Portfolios (except the MFS Research Portfolio) 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 and sell exchange traded call and put options on foreign currency futures contracts and on foreign currencies. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch World Strategy Portfolio may engage in OTC options on foreign currency transactions. The Merrill Lynch World Strategy Portfolio will engage in OTC options on foreign currency transactions only with financial institutions that have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The MFS Emerging Growth Companies Portfolio may only enter into forward contracts on currencies in the OTC market. The Advisers may engage in these transactions to protect against uncertainty in the level of future exchange rates in connection with the purchase and sale of portfolio securities ("transaction hedging") and to protect the value of specific portfolio positions ("position hedging"). Hedging transactions involve costs and may result in losses. Each of the Portfolios (except the 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. FORWARD COMMITMENTS. Each Portfolio (except the Warburg Pincus Small Company Value 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 liquid securities in an amount sufficient to meet the purchase price, or if it enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves and involve a risk of -24- 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. HYBRID INSTRUMENTS. The T. Rowe Price International Stock Portfolio , T. Rowe Price Equity Income Portfolio and Morgan Stanley Emerging Markets Equity 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. ILLIQUID SECURITIES. The Warburg Pincus Small Company Value 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 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 10% or 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 10% or 15% of its assets invested in illiquid or not readily marketable securities. INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES. Each Portfolio may invest in or hold a portion of its total assets in investment grade or lower quality fixed income securities. The T. Rowe Price International Stock Portfolio and the Merrill Lynch Basic Value Equity Portfolio each may invest in or hold investment grade securities, but not lower quality fixed income securities. Investment grade -25- securities are securities rated Baa or higher by Moody's or BBB or higher by S&P and comparable unrated securities. Investment grade securities rated Baa by Moody's or BAA by S&P while normally exhibiting adequate protection parameters, have speculative characteristics, and, consequently, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of such issuers to make principal and interest payments than is the case for higher grade fixed income securities. Lower quality fixed income securities are securities that are rated in the lower categories by NRSROs (i.e., Ba or lower by Moody's and BB or lower by S&P) or comparable unrated securities. Such lower quality securities are known as "junk bonds" and are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. (Each NRSRO's descriptions of these bond ratings are set forth in the Appendix to the Statement of Additional Information.) Because investment in lower quality securities involves greater investment risk, achievement of a Portfolio's investment objective will be more dependent on the Adviser's analysis than would be the case if that Portfolio were investing in higher quality bonds. In addition, lower quality securities may be more susceptible to real or perceived adverse economic and individual corporate developments than would investment grade bonds. Moreover, the secondary trading market for lower quality securities may be less liquid than the market for investment grade bonds. This potential lack of liquidity may make it more difficult for the Adviser to value accurately certain portfolio securities. LOAN PARTICIPATIONS. The EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio and the Morgan Stanley Emerging Markets Equity Portfolio may invest a portion of each of their assets in loan participations and other direct indebtedness. By purchasing a loan, a Portfolio acquires some or all of the interest of a bank or other lending institution in a loan to a corporate borrower. Many such loans are secured, and most impose restrictive covenants that must be met by the borrower. These loans are made generally to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs and other corporate activities. Such loans may be in default at the time of purchase. The MFS Emerging Growth Companies Portfolio may also purchase other direct indebtedness such as trade or other claims against companies, which generally represent money owed by a company to a supplier of goods and services. These claims may also be purchased at a time when the company is in default. Certain of the loans and other direct indebtedness acquired by the Portfolio may involve revolving credit facilities or other standby financing commitments which obligate the Portfolio to pay additional cash on a certain date or on demand. The highly leveraged nature of many such loans and other direct indebtedness may make such loans especially vulnerable to adverse changes in economic or market conditions. Loans and other direct indebtedness may not be in the form of securities or may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, the Portfolio may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value. MORTGAGE-RELATED SECURITIES. The EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may invest in mortgage-related securities (i.e., mortgage-backed securities). A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a -26- direct interest in an underlying pool of mortgages. Some mortgage-backed securities, such as CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types of mortgages including those on commercial real estate or residential properties. The value of mortgage-backed securities may change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Mortgage-backed securities are subject to prepayment risk. Prepayment, which occurs when unscheduled or early payments are made on the underlying mortgages, may shorten the effective maturities of these securities and may lower their returns. Stripped mortgage-backed securities are created when a United States government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security ("PO") receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security ("IO") receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. MUNICIPAL SECURITIES. The Morgan Stanley Emerging Markets Equity Portfolio may invest in municipal securities ("municipals"), which are debt obligations issued by local, state and regional governments that provide interest income that is exempt from federal income taxes. Municipals include both municipal bonds (those securities with maturities of five years or more) and municipal notes (those with maturities of less than five years). Municipal bonds are issued for a wide variety of reasons: to construct public facilities, such as airports, highways, bridges, schools, hospitals, mass transportation, streets, water and sewer works; to obtain funds for operating expenses; to refund outstanding municipal obligations; and to loan funds to various public institutions and facilities. Certain industrial development bonds are also considered municipal bonds if their interest is exempt from federal income tax. Industrial development bonds are issued by or on behalf of public authorities to obtain funds for various privately-operated manufacturing facilities, housing, sports arenas, convention centers, airports, mass transportation systems and water, gas or sewer works. Industrial development bonds are ordinarily dependent on the credit quality of a private user, not the public issuer. OPTIONS AND FUTURES TRANSACTIONS. Each Portfolio (except the MFS Research Portfolio) may utilize futures contracts and write and purchase put and call options. Futures contracts (a type of potentially high-risk security) enable the investor to buy or sell an asset in the future at an agreed upon price. Options (another type of potentially high-risk security) give the purchaser of an option the right, but not the obligation, to buy or sell in the future an asset -27- at a predetermined price during the term of the option. (The writer of a put or call option would be obligated to buy or sell the underlying asset at a predetermined price during the term of the option.) Each Portfolio will write put and call options only if such options are considered to be "covered". A call option on a security is covered, for example, when the writer of the call option owns throughout the option period the security on which the option is written (or a security convertible into such a security without the payment of additional consideration). A put option on a security is covered, for example, when the writer of the put has deposited and maintained in a segregated account throughout the option period sufficient cash or other liquid assets in an amount equal to or greater than the exercise price of the put option. 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 (other than the Warburg Pincus Small Company Value Portfolio) will not commit more than 5% of its total assets to premiums when purchasing call or put options. The Warburg Pincus Small Company Value Portfolio may commit up to 10% of its total assets to premiums when purchasing put or call options. In addition, the total market value of securities against which a Portfolio has written call or put options may not exceed 25% of its total assets. The Merrill Lynch Basic Value Equity Portfolio will not write covered call options on underlying securities exceeding 15% of the value of its total assets. The MFS Emerging Growth Companies Portfolio and Morgan Stanley Emerging Markets Equity Portfolio will not enter a futures contract if the obligations underlying all such futures contracts would exceed 50% of the value of each such Portfolio's total assets. The Warburg Pincus Small Company Value Portfolio may utilize up to 10% of its total assets to purchase exchange-listed and OTC put and call options on stock indexes. The EQ/Putnam Growth & Income Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolios, EQ/Putnam Balanced Portfolio, MFS Emerging Growth Companies Portfolio , Merrill Lynch World Strategy Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may engage in OTC put and call option transactions. Options traded in the OTC market may not be as actively traded as those on an exchange, so it may be more difficult to value such options. In addition, it may be difficult to enter into closing transactions with respect to such options. Such OTC options, and the securities used as "cover" for such options, may be considered illiquid securities. Each Portfolio may buy and sell futures and options contracts for any number of reasons, including: to manage its exposure to changes in securities prices and foreign currencies; as an efficient means of adjusting its overall exposure to certain markets; in an effort to enhance income; and to protect the value of portfolio securities. Each Portfolio may purchase, sell, or write call and put options and futures contracts on securities, financial indices, and foreign currencies and options on futures contracts. The risk of loss in trading futures contracts can be substantial because of the low margin deposits required and the extremely high degree of leveraging involved in futures pricing. As a result, a relatively small price movement in a futures contract may cause an immediate and substantial loss or gain. The primary risks associated with the use of futures contracts and options are: (i) imperfect correlation between the change in market value of the stocks held by a Portfolio and the prices of futures contracts and options; and (ii) possible lack of a liquid secondary -28- market for a futures contract or an OTC option and the resulting inability to close a futures position or OTC option prior to its maturity date. PASSIVE FOREIGN INVESTMENT COMPANIES. The T. Rowe Price International Stock Portfolio, EQ/Putnam International Equity Portfolio, and Morgan Stanley Emerging Markets Equity 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. Like other foreign securities, interests in passive foreign investment companies also involve the risk of foreign securities, as described above. PAYMENT-IN-KIND BONDS. The EQ/Putnam Growth & Income Value Portfolio, the EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity 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 Portfolios are nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Portfolios could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase agreements with qualified and Board approved banks, broker-dealers or other financial institutions as a means of earning a fixed rate of return on its cash reserves for periods as short as overnight. A repurchase agreement is a contract pursuant to which a Portfolio, against receipt of securities of at least equal value including accrued interest, agrees to advance a specified sum to the financial institution which agrees to reacquire the securities at a mutually agreed upon time (usually one day) and price. Each repurchase agreement entered into by a Portfolio will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to the repurchase price, including any accrued interest. A Portfolio's right to liquidate such securities in the event of a default by the seller could involve certain costs, losses or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase are less than the repurchase price, the Portfolio could suffer a loss. REVERSE REPURCHASE AGREEMENTS. The Morgan Stanley Emerging Markets Equity Portfolio may enter into reverse repurchase agreements with brokers, dealers, domestic and foreign banks or other financial institutions. In a reverse repurchase agreement, the Portfolio sells a security and agrees to repurchase it at a mutually agreed upon date and price, reflecting the interest rate effective for the term of the agreement. It may also be viewed as the borrowing of money by the Portfolio. The Portfolio's investment of the proceeds of a reverse repurchase agreement is the speculative factor known as leverage. The Portfolio may enter into a reverse repurchase agreement only if the interest income from investment of the proceeds is greater than the interest expense of the transaction and the proceeds are invested for a period no longer than the term of the agreement. The Portfolio will maintain with the custodian a separate account with a segregated portfolio of unencumbered liquid assets in an amount at least equal to its purchase obligations under these agreements. If interest rates rise during a reverse repurchase agreement, it may adversely affect the Portfolio's net asset value. See "Borrowing" for more information concerning restrictions on borrowing by each Portfolio. SECURITIES LOANS. The T. Rowe Price International Stock Portfolio, T. Rowe Price Equity Income Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio, and Morgan Stanley Emerging Markets Equity Portfolio may seek to obtain additional income by making secured loans of portfolio securities with a value up to 33 1/3% of their respective total assets. The EQ/ Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio may lend portfolio securities in an amount up to -29- 25% of their respective total assets. The Merrill Lynch Basic Value Equity Portfolio, Merrill Lynch World Strategy Portfolio, and Warburg Pincus Small Company Value Portfolio may each lend portfolio securities in an amount up to 20% of their respective 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 receive a fee from the borrower. Lending portfolio securities involves risks of delay in recovery of the loaned securities or in some cases loss of rights in the collateral should the borrower fail financially. Further information concerning each Portfolio's fundamental policy with respect to loans is provided in the Statement of Additional Information. SHORT SALES AGAINST THE BOX. The Warburg Pincus Small Company Value Portfolio and Morgan Stanley Emerging Markets Equity Portfolio may enter into a "short sale" of securities in circumstances in which, at the time the short position is open, the Portfolio owns an equal amount of the securities sold short or owns preferred stocks or debt securities, convertible or exchangeable without payment of further consideration, into an equal number of securities sold short. This kind of short sale, which is referred to as one "against the box," may be entered into by each Portfolio to, for example, lock in a sale price for a security the Portfolio does not wish to sell immediately or to postpone a gain or loss for federal income tax purposes. Each Portfolio will deposit, in a segregated account with its custodian or a qualified subcustodian, the securities sold short or convertible or exchangeable preferred stocks or debt securities sold in connection with short sales against the box. Each Portfolio will endeavor to offset transaction costs associated with short sales against the box with the income from the investment of the cash proceeds. Not more than 10% of a Portfolio's net assets (taken at current value) may be held as collateral for short sales against the box at any one time. The extent to which a Portfolio may make short sales may be limited by Code requirements for qualification as a regulated investment company. SMALL COMPANY SECURITIES. The EQ/Putnam International Equity Portfolio, EQ/Putnam Balanced Portfolio, Morgan Stanley Emerging Markets Equity Portfolio and Warburg Pincus Small Company Value Portfolio may invest in the securities of smaller capitalization companies. Investing in securities of small companies may involve greater risks since these securities may have limited marketability and, -30- thus, may be more volatile. Because smaller companies normally have fewer shares outstanding than larger companies, it may be more difficult for Portfolio to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. In addition, small companies are typically subject to a greater degree of changes in earnings and business prospects than are larger, more established companies. There is typically less publicly available information concerning smaller companies than for larger, more established ones. Therefore, an investment in these Portfolios may involve a greater degree of risk than an investment in other Portfolios that seek capital appreciation by investing in better-known, larger companies. STRUCTURED NOTES. The Morgan Stanley Emerging Markets Equity Portfolio may invest in structured notes, which are derivatives on which the amount of principal repayment and/or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and LIBOR) and stock indices such as the S&P 500. In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The use of structured notes allows the Portfolio to tailor its investments to the specific risks and returns the Adviser wishes to accept while avoiding or reducing certain other risks. SWAPS. The Morgan Stanley Emerging Markets Equity Portfolio may invest in swap contracts, which are derivatives in the form of a contract or other similar instrument which is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The payment streams are calculated by reference to a specified index and agreed upon notional amount. The term "specified index" includes, but is not limited to, currencies, fixed interest rates, prices and total return on interest rate indices, fixed-income indices, stock indices and commodity indices (as well as amounts derived from arithmetic operations on these indices). For example, the Portfolio may agree to -31- swap the return generated by a fixed-income index for the return generated by a second fixed-income index. The Portfolio will usually enter into swaps on a net basis, i.e., the two return streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Portfolio receiving or paying, as the case may be, only the net amount of the two returns. The Portfolio's obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of cash, United States Governments, or high grade debt obligations. The Portfolio will not enter into any swap agreement unless the counterparty meets the rating requirements set forth in guidelines established by the Trust's Board of Trustees. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Swaps that include more recent innovations for which standardized documentation has not yet been fully developed are less liquid than "traditional" swaps. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Adviser is incorrect in its forecasts of market values, interest rates, and currency exchange rates, the investment performance of the Portfolio would be less favorable than it would have been if this investment technique were not used. UNITED STATES GOVERNMENT SECURITIES. Each Portfolio may invest in debt obligations of varying maturities issued or guaranteed by the United States government, its agencies or instrumentalities ("United States government securities"). Direct obligations of the United States Treasury include a variety of securities that differ in their interest rates, maturities and dates of issuance. United States government securities also include securities issued or guaranteed by government agencies that are supported by the full faith and credit of the United States (e.g., securities issued by the Government National Mortgage Association); securities issued or guaranteed by government agencies that are supported by the ability to borrow from the United States Treasury (e.g., securities issued by the Federal National Mortgage Association); and securities issued or guaranteed by government agencies that are only supported by the credit of the particular agency (e.g., the Tennessee Valley Authority). WARRANTS. Warrants are securities that give the holder the right, but not the obligation to purchase equity issues of the company issuing the warrants, or a related company, at a fixed price either on a date certain or during a set period. At the time of issue, the cost of a warrant is substantially less than the cost of the underlying security itself, and price movements in the underlying security are generally magnified in the price movements of the warrant. This effect enables the investor to gain exposure to the underlying security with a relatively low capital investment but increases an investor's risk in the event of a decline in the value of the underlying security and can result in a complete loss of the amount invested in the warrant. In addition, the price of a warrant tends to be more volatile than, and may not correlate exactly to, the price of the underlying security. If the market price of the underlying security. If the market price of the underlying security is below the exercise price of the warrant on its expiration date, the warrant will generally expire without value. -32- ZERO-COUPON BONDS. The EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam Balanced Portfolio and Morgan Stanley Emerging Markets Equity 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 investors in such instruments. Thus, each Portfolio could be required, at times, to liquidate other investments in order to satisfy its distribution requirements. PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Portfolio is known as "portfolio turnover." 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 Amended and Restated 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"). It is located at 1755 Broadway, New York, New York 10019. 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, subject to review and approval by the Trustees, the investment advisers for the Trust's Portfolios and monitors the Advisers' investment programs and results, reviews brokerage matters, oversees compliance by the Trust -33- 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 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, EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio and Merrill Lynch Basic Value Equity Portfolio the Trust pays the Manager a monthly fee at the annual rate of .55% of the respective 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 of .75% of the Portfolio's average daily net assets. As compensation for managing the EQ/Putnam International Equity Portfolio, and Merrill Lynch World Strategy Portfolio, the Trust pays the Manager a monthly fee at an annual rate of .70% of the respective Portfolio's average daily net assets. As compensation for managing the Morgan Stanley Emerging Markets Equity Portfolio, the Trust pays the Manager a monthly fee at an annual rate of 1.15% of the Portfolio's average daily net assets . As compensation for managing the Warburg Pincus Small Company Value Portfolio, the Trust pays the Manager a monthly fee at an annual rate of .65% of the Portfolio's average daily net assets. 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 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 an advisory fee based on a percentage of the average daily net assets of the Portfolio that it advises. Monthly, with respect to each Portfolio, each Adviser is paid the pro rata portion of an annual fee, based on the monthly average of the assets of the Portfolio for which it serves as the Adviser. The Manager will retain, as compensation for the services described under "The Manager" and to pay its expenses, the difference between the fees paid to each Adviser and the management fee of the applicable Portfolio. Each Adviser has agreed that once the Portfolio has paid the Manager its management fee the Adviser will look only to the Manager as the party responsible for making the payment of its advisory fee. -34- The Advisers are employed for management of the assets of a Portfolio pursuant to investment advisory agreements approved by the Board of Trustees of the Trust (including a majority of certain Trustees who are not interested persons of the Trust or the Manager), and an Adviser's services may be terminated at any time by the Manager, the Board of Trustees, or the shareholders of an affected Portfolio. The Trust has submitted an application requesting an exemptive order from the Securities and Exchange Commission ("SEC") that would permit the Manager, subject to certain conditions, and without the approval of shareholders to: (a) employ a new Adviser or Advisers for any Portfolio pursuant to the terms of a new Advisory Agreement, in each case either as a replacement for an existing Adviser or as an additional Adviser; (b) change the terms of any Advisory Agreement; and (c) continue the employment of an existing Adviser on the same advisory contract terms where a contract has been assigned because of a change in control of the Adviser. In such circumstances, shareholders would receive notice of such action, including the information concerning the Adviser that normally is provided in the Prospectus. It is uncertain at this time whether such exemptive relief will be granted by the SEC. T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100 East Pratt Street, Baltimore, MD 21202, has been the Adviser to the T. Rowe Price Equity Income Portfolio since the Portfolio commenced its operations. 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 $95 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"), 100 East Pratt Street, Baltimore, MD 21202, has been 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 -35- 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. 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 United States equivalent of approximately $25 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 the 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") has been the Adviser to the EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio since each Portfolio commenced operations. As compensation for services as the Adviser to the EQ/Putnam Growth & Income Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam -36- Balanced Portfolio, the Manager pays Putnam Management a monthly fee at an annual rate equal to: .50% of the respective Portfolio's average daily net assets up to and including $150 million; .45% of the respective Portfolio's average daily net assets over $150 million and up to and including $300 million; and .35% of the respective Portfolio's average daily net assets in excess of $300 million. As compensation for services as the EQ/Putnam International Equity Portfolio's Adviser, the Manager pays Putnam Management a monthly fee at the annual 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 has been managing mutual funds since 1937. Putnam Management is located at One Post Office Square, Boston, MA 02109. As of December 31, 1996, Putnam Management and its affiliates managed more than $173 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 has been responsible for the day to day management of the EQ/Putnam Growth & Income Value Portfolio since the Portfolio commenced operations, 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 EQ/Putnam International Equity 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. Ms. C. Beth Cotner and Messrs. Richard England, Manuel Weiss Herrero and David J. Santos are responsible for the day to day management of the EQ/Putnam Investors Growth Portfolio, which includes investment decisions made on behalf of the Portfolio. Ms. Cotner has been employed by Putnam Management as an investment professional since 1995. Prior to 1995, Ms. Cotner was Executive Vice President of Kemper Financial Services. Mr. England has been employed by Putnam Management as an investment professional since December, 1992. Prior to December, 1992, Mr. England was an investment officer at Aetna Equity Investors. Mr. Herrero has been employed by Putnam Management as an investment professional since 1987. Mr. Santos has been employed by Putnam Management as an investment professional since 1988. Messrs. Edward P. Bousa , Kenneth J. Taubes and Robert M. Paine are responsible for the day to day management of the EQ/Putnam Balanced Portfolio, which includes investment decisions made on behalf of the Portfolio. Mr. Bousa has been employed by Putnam Management as an investment professional since October, 1992. Prior to October, 1992, Mr. Bousa was Vice President and Portfolio Manager at Fidelity Investments. Mr. Taubes has been employed by Putnam Management as an investment professional since 1991. Mr. Paine has been employed by Putnam Management as an investment professional since 1987. Massachusetts Financial Services Company ("MFS") has been the Adviser to the MFS Research Portfolio and the MFS Emerging Growth Companies Portfolio since each Portfolio commenced operations. As compensation for services as the Adviser to each of those Portfolios, -37- the Manager pays MFS a monthly fee at an annual rate equal to: .40% of the respective Portfolio's average daily net assets up to and including $150 million; .375% of the respective Portfolio's average daily net assets over $150 million and up to and including $300 million; and .35% of the respective Portfolio's average daily net assets in excess of $300 million. MFS has agreed to waive its advisory fees for the first six months after the commencement of each Portfolio's investment operations. MFS is America's oldest mutual fund organization. MFS is located at 500 Boylston Street, Boston, MA 02116. 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 January 31, 1996, MFS managed more than $54.0 billion on behalf of over 2.3 million investors accounts. MFS is a subsidiary of Sun Life of Canada (United States), which, in turn, is a wholly-owned subsidiary of Sun Life Assurance Company of Canada. 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. The portfolio securities of the MFS Research Portfolio are selected by a committee of investment research analysts. This committee includes investment analysts employed not only by MFS but also by MFS International (U.K.) Limited, a wholly owned subsidiary of MFS. The assets of the MFS Research Portfolio are allocated among industries by the analysts acting together as a group. Individual analysts are then responsible for selecting what they view as the securities best suited to meet the investment objectives of the MFS Research Portfolio within their assigned industry responsibility. Since it commenced operations the MFS Emerging Growth Companies Portfolio has been managed by John W. Ballen, a Senior Vice President of MFS, who has been employed by the Adviser as a portfolio manager since 1984, and Toni K. Shimura, a Vice President of MFS, who has been employed as a portfolio manager by the Adviser since 1987. Morgan Stanley Asset Management Inc. ("MSAM") has been the Adviser to the Morgan Stanley Emerging Markets Equity Portfolio since each Portfolio commenced operations. MSAM is located at 1221 Avenue of the Americas, New York, NY 10020. As compensation for services as the Portfolio's Adviser, the Manager pays MSAM a monthly fee at an annual rate equal to: 1.15% of the Portfolio's average daily net assets up to and including $100 million; .90% of the Portfolio's average daily net assets over $100 million and up to and including $150 million; .80% of the Portfolio's average daily net assets over $150 million and up to and including $200 million; .60% of the Portfolio's average daily net assets over $200 million and up to and including $500 million; and .40% of the Portfolio's average daily net assets in excess of $500 million. -38- MSAM conducts a worldwide investment management business, providing a broad range of portfolio management services to customers in the United States and abroad. MSAM is a wholly owned subsidiary of Morgan Stanley Group Inc., which is a publicly owned financial services corporation listed on the New York, London and Pacific stock exchanges. MSAM serves an investment adviser to numerous open-end and closed-end investment companies. As of December 31, 1996, MSAM, together with its affiliated asset management companies, had approximately $172 billion in assets under management and fiduciary care. On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co. announced that they had entered into an Agreement and Plan of Merger to form Morgan Stanley, Dean Witter, Discover & Co. Morgan Stanley Group Inc. is the direct parent of MSAM. It is currently anticipated that the transaction will close in mid-1997. Thereafter, MSAM will be a subsidiary of Morgan Stanley, Dean Witter, Discover & Co. Dean Witter, Discover & Co. is a financial services company with three major businesses: full service brokerage, credit services and asset management. Madhav Dhar and Marianne L. Hay have been responsible for the day to day management of the Morgan Stanley Emerging Markets Equity Portfolio, which includes investment decisions made on behalf of the Portfolio, since the Portfolio commenced operations. Mr. Dhar is a Managing Director of MSAM and Morgan Stanley & Co. Incorporated ("Morgan Stanley") and a Director of the Morgan Stanley Emerging Markets Fund, Inc. He joined MSAM in 1984. Ms. Hay is a Managing Director of MSAM and Morgan Stanley. She joined MSAM in June 1993. Prior to joining MSAM, she was a director of Martin Currie Investment Management, Ltd., where her responsibilities included geographic asset allocation and portfolio management for global and emerging markets funds. Warburg, Pincus Counsellors, Inc. ("WPC") has been the Adviser to the Warburg Pincus Small Company Value Portfolio since the Portfolio commenced operations. WPC is located at 466 Lexington Avenue, New York, New York 10017-3147. As compensation for services as the Portfolio's Adviser, the Manager pays WPC a monthly fee at an annual rate of .50% of the Portfolio's average daily net assets. WPC is a professional investment counselling firm that provides investment services to investment companies, employee benefit plans, endowment funds, foundations and other institutions and individuals. As of January 31, 1997, WPC managed approximately $17.9 billion in assets. WPC, incorporated in 1970, is a wholly-owned subsidiary of Warburg, Pincus Counsellors G.P. ("Warburg G.P."), a New York general partnership, which itself is controlled by Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and WPC. Warburg G. P. has no business other than being a holding company of WPC and its subsidiaries. George U. Wyper has been responsible for the day to day management of the Warburg Pincus Small Company Value Portfolio, which includes investment decisions made on behalf of the Portfolio, since the Portfolio commenced operations. Mr. Wyper is a managing director of -39- WPC, which he joined in August, 1994. Before joining WPC, he was chief investment officer of White River Corporation and president of Hanover Advisors, Inc. from 1993 to August, 1994. Prior to that position, he was chief investment officer of Fund American Enterprises, Inc. from 1990 to 1993. Kyle F. Frey, a senior vice president of WPC, is associate portfolio manager and research analysts of the Portfolio. Mr. Frey has been with WPC since 1989. Merrill Lynch Asset Management, L.P. ("MLAM") has been the Adviser to the Merrill Lynch World Strategy Portfolio and the Merrill Lynch Basic Value Equity Portfolio since each Portfolio commenced operations. MLAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08543-9011. As compensation for services as the Merrill Lynch World Strategy Portfolio's Adviser, the Manager pays MLAM a monthly fee at an annual rate equal to: .50% of the Portfolio's average daily net assets up to and including $100 million; .45% of the Portfolio's average daily net assets over $100 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 Merrill Lynch Basic Value Equity Portfolio's Adviser, the Manager pays MLAM a monthly fee at an annual rate equal to: .40% of the Portfolio's average daily net assets up to and including $100 million; .375% of the Portfolio's average daily net assets over $100 million and up to and including $300 million; and .35% of the Portfolio's average daily net assets in excess of $300 million. MLAM is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc., a financial services holding company and the parent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The general partner of MLAM is Princeton Services, Inc., a wholly-owned subsidiary of Merrill Lynch & Co., Inc. MLAM and its affiliates act as the manager for more than 130 registered investment companies. MLAM also offers portfolio management and portfolio analysis services to individuals and institutions. As of December 31, 1996, the Adviser and its affiliates had a total of approximately $234 billion in investment company and other portfolio assets under management, including assets of certain affiliates of MLAM. Thomas R. Robinson is the portfolio manager of the Merrill Lynch World Strategy Portfolio. Mr. Robinson has served as a Senior Portfolio Manager of MLAM since 1995. Mr. Robinson has been primarily responsible for the day to day management of the Portfolio's securities portfolio since it commenced operations. Kevin Rendino is the portfolio manager of the Merrill Lynch Basic Value Equity Portfolio. Mr. Rendino has been a Vice President of MLAM since 1993 and was a Senior Research Analyst of MLAM from 1990 to 1992. Mr. Rendino has been primarily responsible for the day to day management of the Portfolio's securities portfolio since it commenced operations. -40- THE ADMINISTRATOR Pursuant to an agreement ("Mutual Funds Service Agreement"), Chase Global Funds Services Company (the "Administrator") assists the Manager in the performance of its administrative responsibilities to the Trust and provides the Trust with other necessary administrative, fund accounting and compliance services. In addition, the Administrator makes available the office space, equipment, personnel and facilities required to provide such services to the Trust. For these services, the Trust pays the Administrator a monthly fee at the annual rate of .0525 of 1% of the total Trust assets, plus $25,000 for each Portfolio, until the total Trust assets reach $2.0 billion, and when the total Trust assets exceed $2.0 billion: .0425 of 1% of the first $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets; .025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of the next $2.5 billion of the total Trust assets; .01 of 1% of the total Trust assets in excess of $6.0 billion; and except that the annual fee payable to Chase with respect to any Portfolio which commences operation after July 1, 1997 and whose assets do not exceed $200 million shall be computed at the annual rate of .0525% of the Portfolio's total assets plus $25,000. THE TRANSFER AGENT Equitable serves as the transfer agent and dividend disbursing agent of the Trust and receives no compensation for serving in such capacity. EXPENSE LIMITATION AGREEMENTS In the interest of limiting expenses of the Portfolios, the Manager has entered into an expense limitation agreement with the Trust, with respect to each Portfolio, ("Expense Limitation Agreements") pursuant to which the Manager has agreed to waive or limit its fees and to assume other expenses so that the total annual operating expenses of each Portfolio are limited to: .85% of the respective average daily net assets of the T. Rowe Price Equity Income, EQ/Putnam Growth & Income Value, EQ/Putnam Investors Growth, MFS Research, MFS Emerging Growth Companies and Merrill Lynch Basic Value Equity Portfolios; .90% of the EQ/Putnam Balanced Portfolio's average daily net assets; 1.00% of the Warburg Pincus Small Company Value Portfolio's average daily net assets; 1.20% of the respective average daily net assets of the T. Rowe Price International Stock, EQ/Putnam International Equity and Merrill Lynch World Strategy Portfolios; and 1.75% of the Morgan Stanley Emerging Markets Equity Portfolio's average daily net assets; Each Portfolio may at a later date reimburse to the Manager the management fees waived or limited and other expenses assumed and paid by the Manager pursuant to the Expense Limitation Agreement provided such Portfolio has reached a sufficient asset size to permit such reimbursement to be made without causing the total annual expense ratio of each Portfolio to exceed the percentage limits stated above. Consequently, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's assets exceed $100 -41- million; (ii) the Portfolio's total annual expense ratio is less than the respective percentages stated above; and (iii) the payment of such reimbursement has been approved by the Trust's Board of Trustees on a quarterly basis. BROKERAGE PRACTICES In selecting brokers and dealers, the Manager and each Adviser may consider research and brokerage services furnished to either company and their affiliates. Subject to seeking the most favorable net price and execution available, the Manager and each Adviser may also consider sales of shares of the Trust as a factor in the selection of brokers and dealers. TRANSACTIONS WITH AFFILIATES In December 1984, Equitable acquired Donaldson, Lufkin & Jenrette, Inc. ("DLJ"). A DLJ subsidiary, Donaldson, Lufkin & Jenrette Securities Corporation, is one of the nation's largest investment banking and securities firms. Another DLJ subsidiary, Autranet, Inc., is a securities broker that markets independently originated research to institutions. Through the Pershing Division of Donaldson, Lufkin & Jenrette Securities Corporation, DLJ supplies security execution and clearance services to financial intermediaries including broker-dealers and banks. To the extent permitted by law, the Trust may engage in securities and other transactions with 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, which are persons indirectly related to the Adviser, acting as an agent in accordance with procedures established by the Trust's Board of Trustees. The Adviser to the Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio may execute portfolio transactions through certain of the Adviser's affiliates. The Adviser to the Morgan Stanley Emerging Markets Equity Portfolio may execute portfolio transactions through certain affiliates. 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. -42- 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 May 1, 1997, Separate Account FP, a separate account of Equitable, owned 100% of the shares of the T. Rowe Price Equity Income Portfolio and through such ownership may be deemed a controlling person of each Portfolio. The Trust currently is divided into twelve 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 Amended and Restated 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 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 Distributors 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. -43- PURCHASE AND REDEMPTION OF SHARES EQ Financial, 1755 Broadway, New York, New York, 10019, formerly Equico Securities, Inc., a wholly-owned subsidiary of Equitable, serves as one of the Distributors for the Trust's Class IB shares pursuant to a distribution agreement with the Trust. EDI, 1290 Avenue of the Americas, New York, New York, 10104, also serves as one of the Distributors for the Trust's Class IB shares pursuant to a distribution agreement with the Trust. Class IB 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. 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 also has a distribution agreement for its Class IB shares with EQ Financial Consultants, Inc., the Manager, 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 Distributors from assets attributable to the Class IB shares for services rendered and expenses borne in connection with activities primarily intended to result in the sale of the Trust's Class IB shares. It is anticipated that a portion of the amounts received by the Distributors will be used to defray various costs incurred or paid by the Distributors in connection with the printing and mailing of Trust prospectuses, statements of additional information, any supplements thereto and shareholder reports and holding seminars and sales meetings with wholesale and retail sales personnel designed to promote the distribution of Class IB shares. The Distributors may also use a portion of the amounts received to provide compensation to financial intermediaries and third-party broker-dealers for their services in connection with the distribution of Class IB shares. The Distribution Plan provides that the Trust, on behalf of each Portfolio, may pay annually up to 0.50% of the average daily net assets of a Portfolio attributable to its Class IB shares in respect of activities primarily intended to result in the sale of Class IB shares. However, under the Distribution Agreements, payments to the Distributors for activities pursuant to the 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 Agreements, each Portfolio is authorized to make payments monthly to the Distributors which may be used to pay or reimburse entities providing distribution and -44- 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 Distributors. 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 Distributors have indicated that they expect their expenditures to include, without limitation: (a) the printing and mailing of Trust prospectuses, statements of additional information, any supplements thereto and shareholder reports for prospective Contract owners with respect to the Class IB shares of the Trust; (b) those relating to the development, preparation, printing and mailing of advertisements, sales literature and other promotional materials describing and/or relating to the Class IB shares of the Trust; (c) holding seminars and sales meetings designed to promote the distribution of Trust Class IB shares; (d) obtaining information and providing explanations to wholesale and retail distributors of Contracts regarding Trust investment objectives and policies and other information about the Trust and its Portfolios, including the performance of the Portfolios; (e) training sales personnel regarding the Class IB shares of the Trust; and (f) financing any other activity that the Distributors 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 Amended and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of the same class by the same shareholder on the same day will be netted for each Portfolio. All redemption requests will be processed and payment with respect thereto will 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. All shares are purchased and redeemed in accordance with the Trust's Amended and Restated Declaration of Trust and By-Laws. Sales and redemptions of shares of the same class by the same shareholder on the same day will be netted for each Portfolio. All redemption requests will be processed and payment with respect thereto 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. HOW ASSETS ARE VALUED -45- 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 United States are valued at representative quoted prices in the currency of the country of origin. Foreign currency amounts are translated into United States dollars at the bid price last quoted by a composite list of major United States banks. o Short-term debt securities in the Portfolios which mature in 60 days or less are valued at amortized cost, which approximates market value. o Other securities and assets for which market quotations are not readily available or for which valuation cannot be provided are valued in good faith by the Valuation Committee of the Board of Trustees of the Trust using its best judgment. 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 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 Code, each Portfolio will also comply with the investment diversification requirements of Subchapter L of the Code. Were any Portfolio to fail to comply with those requirements, owners of Contracts (other than "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 Administrator and the Manager. -46- 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 (or series) managed by each Adviser, that has investment objectives, 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 past performance of any of the Portfolios or the future performance -47- of any Portfolio or its Adviser. Consequently, potential investors should not consider this performance data as an indication of the future performance of any Portfolio of the Trust or of its Adviser. Each Adviser's performance data shown below 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. T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., T. Rowe Price International Stock Fund which is managed by the Rowe Price-Fleming International, Inc. However, T. Rowe Price International Stock Fund may be subject to different expenses than the T. Rowe Price International Stock Portfolio. The investment results of T. Rowe Price International Stock Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the T. Rowe Price International Stock Portfolio or an individual investor investing in the T. Rowe Price International Stock Portfolio. T. ROWE PRICE MSCI EAFE YEAR INTERNATIONAL STOCK FUND(1) INDEX(2) ---- --------------------------- -------- One Year(3) Three Years(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The Morgan Stanley Capital International Europe, Australia, and Far East Indes ("MSCI EAFE Index") is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia, the Far East and Canada. MSCI EAFE Index returns assume dividends reinvested net of withholding tax and do not reflect any fees or expenses. 3 Through December 31, 1996. -48- T. ROWE PRICE EQUITY INCOME PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., T. Rowe Price Equity Income Fund which is managed by the T. Rowe Price Associates, Inc. However, the T. Rowe Price Equity Income Fund may be subject to different expenses than the T. Rowe Price Equity Income Portfolio. The investment results of T. Rowe Price Equity Income Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the T. Rowe Price Equity Income Portfolio or an individual investor investing in the T. Rowe Price Equity Income Portfolio. S&P 500 YEAR T. ROWE PRICE EQUITY INCOME FUND(1) INDEX(2) ---- ----------------------------------- -------- One Year(3) Three Years(3) Five Years(3) Ten Years(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996. The investment advisory fee applicable to the T. Rowe Price Equity Income Fund was capped at 1.00% in 1986 and capped at the maximum state-allowed fee in 1987. -49- EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Putnam Growth & Income Fund II which is managed by the Putnam Investment Management, Inc. However, the Putnam Growth & Income Fund II may be subject to different expenses than the EQ/Putnam Growth & Income Value Portfolio. The investment results of Putnam Growth & Income Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam Growth & Income Value Portfolio or an individual investor investing in the EQ/Putnam Growth & Income Value Portfolio. S&P 500 YEAR PUTNAM GROWTH & INCOME FUND II(1) INDEX(2) ---- --------------------------------- ------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996 for the Class A shares of the Putnam Growth & Income Fund II. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -50- EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Putnam International Growth Fund which is managed by the Putnam Investment Management, Inc. However, the Putnam International Growth Fund may be subject to different expenses than the EQ/Putnam International Equity Portfolio. The investment results of Putnam International Growth Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam International Equity Portfolio or an individual investor investing in the EQ/Putnam International Equity Portfolio. MSCI EAFE YEAR PUTNAM INTERNATIONAL GROWTH FUND(1) INDEX(2) ---- ----------------------------------- -------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The MSCI EAFE ("Index") is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia, the Far East and Canada. MSCI EAFE Index returns assume dividends reinvested net of withholding tax and do not reflect any fees or expenses. 3 Through December 31, 1996 for the Class A shares of the Putnam International Growth Fund. The inception date of the Class A shares of the Putnam International Growth Fund was _______ __, 199__. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -51- EQ/PUTNAM INVESTORS GROWTH PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Putnam Investors Fund which is managed by the Putnam Investment Management, Inc. However, the Putnam Investors Fund may be subject to different expenses than the EQ/Putnam Investors Growth Portfolio. The investment results of Putnam Investors Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam Investors Growth Portfolio or an individual investor investing in the EQ/Putnam Investors Growth Portfolio. S&P 500 YEAR PUTNAM INVESTORS FUND(1) INDEX(2) ----- ------------------------ -------- One Year(3) Five Years(3) Ten Years(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996 for the Class A shares of the Putnam Investors Fund. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -52- EQ/PUTNAM BALANCED PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., The George Putnam Fund of Boston which is managed by the Putnam Investment Management, Inc. However, The George Putnam Fund of Boston may be subject to different expenses than the EQ/Putnam Balanced Portfolio. The investment results of The George Putnam Fund of Boston presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the EQ/Putnam Balanced Portfolio or an individual investor investing in the EQ/Putnam Balanced Portfolio. S&P LEHMAN BROS. 500 GOV'T/CORP. YEAR THE GEORGE PUTNAM FUND OF BOSTON(1) INDEX(2) BOND INDEX(3) ---- ----------------------------------- -------- ------------- One Year4 Five Years4 Ten Years4 - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 The Lehman Brothers Government/Corporate Bond Index is an unmanaged list of publicly issued U.S. Treasury obligations, debt obligations or U.S. government agencies (excluding mortgage-backed securities), and fixed-rate, nonconvertible investment-grade corporate debt securities. 4 Through December 31, 1996 for the Class A shares of The George Putnam Fund of Boston. The Class A shares are subject to a front-end sales charge of 5.75%. The Class B shares are subject to a maximum contingent deferred sales charge of 5.0%. The Class M shares are subject to a front-end sales charge of 3.5%. The Class A shares is subject to a Rule 12b-1 fee equal to .25% (which the Board of Trustees can raise to .35%) of the average net assets attributable to the Class A shares. The Class B and Class M shares are subject to a Rule 12b-1 fee equal to .60% of the average net assets attributable to each respective class. -53- MFS RESEARCH PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., MFS Research Fund which is managed by the Massachusetts Financial Services Company. However, MFS Research Fund may be subject to different expenses than the MFS Research Portfolio. The investment results of MFS Research Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the MFS Research Portfolio or an individual investor investing in the MFS Research Portfolio. S&P 500 YEAR MFS RESEARCH FUND(1) INDEX(2) ---- -------------------- -------- One Year(3) Five Years(3) Ten Years(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996 for the Class C shares of the MFS Research Fund. Class A shares are subject to a maximum sales charge of 5.75%. Class B shares are subject to a contingent deferred sales charge ("CDSC"). Class C share performance includes the performance of the fund's Class A shares for periods prior to the commencement offering of Class C shares on April 1, 1996. Sales charges and operating expenses for Class A, Class B, and Class C shares differ. Class C share performance has not been adjusted, however to reflect differences in operating expenses (e.g., Rule 12b-1 fees). -54- MFS EMERGING GROWTH COMPANIES PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., MFS Emerging Growth Fund which is managed by the Massachusetts Financial Services Company. However, MFS Emerging Growth Fund may be subject to different expenses than the MFS Emerging Growth Companies Portfolio. The investment results of MFS Emerging Growth Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the MFS Emerging Growth Companies Portfolio or an individual investor investing in the MFS Emerging Growth Companies Portfolio. RUSSELL 2000 YEAR MFS EMERGING GROWTH FUND(1) INDEX(2) ---- --------------------------- -------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The Russell 2000 Index is an unmanaged index (with no defined investment objective) of 2000 small-cap stocks and it includes reinvestments of dividends. It is compiled by the Frank Russell Company. 3 Through December 31, 1996 for the Class C shares of the MFS Emerging Growth Fund. Class A shares are subject to a maximum sales charge of 5.75%. Class B shares are subject to a contingent deferred sales charge ("CDSC"). Class C shares have no initial sales charge but, along with Class B shares, have higher annual fees and expenses than Class A shares. Class C shares redeemed within 12 months of purchase are subject to an CDSC. Class C share performance includes the performance of the fund's Class B shares for period prior to the commencement of offering of Class A on September 13, 1993 and Class C shares on April 1, 1996. The Class B share performance included within the Class C share SEC performance has been adjusted to reflect the lower CDSC generally applicable to Class C shares rather than the higher CDSC generally applicable to Class B shares. Class A and Class C share performance has not been adjusted, however, to reflect differences in operating expenses (e.g., Rule 12b-1 fees). -55- MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio which is managed by the Morgan Stanley Asset Management Inc. However, the Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio may be subject to different expenses than the Morgan Stanley Emerging Markets Equity Portfolio. The investment results of Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Morgan Stanley Emerging Markets Equity Portfolio or an individual investor investing in the Morgan Stanley Emerging Markets Equity Portfolio. IFC GLOBAL MORGAN STANLEY UNIVERSAL FUNDS, INC. - TOTAL RETURN YEAR EMERGING MARKETS EQUITY PORTFOLIO(1, 2) COMPOSITE INDEX(3) ---- --------------------------------------- ------------------ One Year(4) Three Years(4) Since inception(4) - ---------------------------------- 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 Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio was capped at ____% for the period __________ to __________ (reflecting annualized reimbursement of expenses of ____%). The expense ratio of the Morgan Stanley Universal Funds, Inc. - Emerging Markets Equity Portfolio is capped at 1.75% through December 31, 1996. 3 The IFC Global Total Return Composite Index includes the constituents of all IFCG market indices, with some delays between the introduction of a new IFC Index market and its inclusion in the composite and with some exception to coverage. 4 Through December 31, 1996 for the Class A shares of the Morgan Stanley Universal Funds, Inc. Emerging Markets Equity Portfolio. The Class A shares of the Emerging Markets Equity Portfolio are not subject to a Rule 12b-1 fee. The Class B shares of the Emerging Markets Equity Portfolio are subject to a Rule 12b-1 fee equal to 0.25% of the Portfolio's assets. The inception date for the Emerging Markets Equity Portfolio was September 25, 1992. -56- WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO In the table below, the only account which is included is another registered investment company, i.e., Warburg Pincus Small Company Value Fund which is managed by the Warburg, Pincus Counsellors, Inc. However, the Warburg Pincus Small Company Value Fund may be subject to different expenses than the Warburg Pincus Small Company Value Portfolio. The investment results of Warburg Pincus Small Company Value Portfolio presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Warburg Pincus Small Company Value Portfolio or an individual investor investing in such Portfolio and should not be considered a substitute for the Warburg Pincus Small Company Value Portfolio's own performance information. RUSSELL 2000 YEAR WARBURG PINCUS SMALL COMPANY VALUE FUND(1, 2) INDEX(3) ---- --------------------------------------------- -------- One Year(4) Since inception(4) - ---------------------------------- 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 Warburg Pincus Small Company Value Fund was capped at 1.75% for the period __________ to __________ (reflecting annualized reimbursement of expenses of ____%). Absent this reimbursement, the performance of Warburg Pincus Small Company Value Fund would have been lower. 3 The Russell 2000 Index is an unmanaged index (with no defined investment objective) of 2,000 small-cap stocks, and includes reinvestment of dividends. It is compiled by the Frank Russell Company. 4 December 29, 1995 through December 31, 1996. -57- MERRILL LYNCH WORLD STRATEGY PORTFOLIO In the table below, the only account which is a series of another registered investment company, i.e., Merrill Lynch Global Strategy Focus Fund, a series of Merrill Lynch Variable Series Funds, Inc., which is managed by Merrill Lynch Asset Management, L.P. However, the Merrill Lynch Global Strategy Focus Fund may be subject to different expenses than the Merrill Lynch World Strategy Portfolio. The investment results of Merrill Lynch Global Strategy Focus Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Merrill Lynch World Strategy Portfolio or an individual investor investing in the Merrill Lynch World Strategy Portfolio. MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - MERRILL LYNCH GLOBAL MSCI EAFE YEAR STRATEGY FOCUS FUND(1) INDEX(2) ---- ---------------------- -------- One Year(3) Five Years(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 The Morgan Stanley Capital International Europe, Australia, and Far East Index ("MSCI EAFE Index") is an unmanaged capitalization-weighted measure of stock markets in Europe, Australia, the Far East and Canada. MSCI EAFE Index returns assume dividends reinvested net of withholding tax and do not reflect any fees or expenses. 3 Through December 31, 1996. The inception date for the Merrill Lynch Global Strategy Focus Fund was February 28, 1992. -58- MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO In the table below, the only account which is another registered investment company, i.e., Merrill Lynch Basic Value Focus Fund, a series of Merrill Lynch Variable Series Funds, Inc., which is managed by Merrill Lynch Asset Management, L.P. However, the Merrill Lynch Basic Value Focus Fund may be subject to different expenses than the Merrill Lynch Basic Value Equity Portfolio. The investment results of Merrill Lynch Basic Value Focus Fund presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Merrill Lynch Basic Value Equity Portfolio or an individual investor investing in the Merrill Lynch Basic Value Equity Portfolio. MERRILL LYNCH VARIABLE SERIES FUNDS, INC. - S&P 500 YEAR MERRILL LYNCH BASIC VALUE FOCUS FUND (1) INDEX(2) ---- ---------------------------------------- -------- One Year(3) Since inception(3) - ---------------------------------- 1 Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. 2 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 United States 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. 3 Through December 31, 1996. The inception date for the Merrill Lynch Basic Value Focus Fund was July __, 1993. -59- EQ ADVISORS TRUST STATEMENT OF ADDITIONAL INFORMATION May 1, 1997 This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus for the EQ Advisors Trust ("Trust") dated May 1, 1997, which may be obtained without charge by writing to the Trust at 1290 Avenue of the Americas, New York, New York 10104 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 Strategy................................................... Purchase and Pricing of Securities.................................... Redemption of Shares ................................................. Certain Tax Considerations............................................ Portfolio Performance................................................. Other Services........................................................ 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, EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio, EQ/Putnam Balanced Portfolio, MFS Research Portfolio, MFS Emerging Growth Companies Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, Warburg Pincus Small Company Value Portfolio, Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity 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 March 31, 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, the "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 April 1, 1997, Separate Account FP, a separate account of 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 (the "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 the date of this Statement of Additional Information ("SAI"), no Contractowners owned Contracts entitling such persons to give voting instructions regarding more than 5% of the outstanding shares of any Portfolio. 2 The Trust may in the future offer its shares to separate accounts of insurance companies unaffiliated with Equitable, as well as to the tax-qualified retirement plans. 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 or to tax-qualified retirement plans. However, it is theoretically possible that, at some time, the interests of various Contractowners participating in the Trust through their separate accounts and tax-qualified retirement plans might conflict. In the case of a material irreconcilable conflict, one or more separate accounts or the tax-qualified retirement plans might withdraw their investments in the Trust, which would possibly force the Trust to sell portfolio securities at disadvantageous prices. The Trustees of the Trust intend to monitor events for the existence of any material irreconcilable conflicts between or among such separate accounts and tax-qualified retirement plans and will take whatever remedial action may be necessary. EQ Financial Consultants, Inc. (the "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"), Massachusetts Financial Services Company ("MFS"), Morgan Stanley Asset Management Inc. ("MSAM"), Warburg, Pincus Counsellors, Inc. ("Warburg"), and Merrill Lynch Asset Management, L.P. ("MLAM") (each an "Adviser," and together the "Advisers") serve as investment advisers to one or more of the Portfolios, as described more fully in the Prospectus. LEGAL CONSIDERATIONS Under Delaware law, annual election of Trustees is not required, and, in the normal course, the Trust does not expect to hold annual meetings of shareholders. There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Pursuant to the procedures set forth in Section 16(c) of the 1940 Act, shareholders of record of not less than two-thirds of the outstanding shares of the Trust may remove a Trustee by a vote cast in person or by proxy at a meeting called for that purpose. Except as set forth above, the Trustees will continue to hold office and may appoint successor Trustees. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of Trustees can, if they choose to do so, elect all the Trustees of the Trust, in which event the holders of the remaining shares will be unable to elect any person as a Trustee. The Amended and Restated Declaration of Trust of the Trust requires the affirmative vote of a majority of the outstanding shares of the Trust. The shares of each Portfolio, when issued, will be fully paid and non-assessable and will have no preference, preemptive, conversion, exchange or similar rights. 3 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 restrictions adopted by each of the Portfolios. Fundamental policies (5) and (6) below shall not apply to the Morgan Stanley Emerging Markets Portfolio and the Merrill Lynch World Strategy Portfolio. Certain non-fundamental operating policies are also described in this section because of their direct relevance to the fundamental restrictions adopted by the Portfolios. Each Portfolio, except as described directly above, may not as a matter of fundamental policy: (1) Borrow money, except that: a. each Portfolio may (i) borrow for non-leveraging, temporary or emergency purposes 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 33 1/3% of the value of the Portfolios' respective total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law (except that the Merrill Lynch World Strategy Portfolio and the Merrill Lynch Basic Value Equity Portfolio may purchase securities on margin to the extent permitted by applicable law). Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. Each Portfolio may borrow from banks or other persons to the extent permitted by applicable law; 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 EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio, and EQ/Putnam Balanced Portfolio each, as a matter of non-fundamental operating policy, may borrow only from banks (i) as a temporary measure to facilitate the 4 meeting of redemption requests (not for leverage) which might otherwise require the untimely disposition of portfolio investments or (ii) for extraordinary or emergency purposes, provided that the combination of (i) and (ii) shall not exceed 10% of the applicable Portfolio's net assets (taken at lower of cost or current value), not including the amount borrowed, at the time the borrowing is made. Each Portfolio will repay borrowings before any additional investments are purchased; d. the Merrill Lynch World Strategy Portfolio, as a matter of fundamental policy, and the Merrill Lynch Basic Value Equity Portfolio, as a matter of non-fundamental operating policy, may to the extent permitted by applicable law, borrow up to an additional 5% of their respective total assets for temporary purposes. (2) Purchase or sell physical commodities, except that it may (i) enter into futures contracts and options thereon in accordance with applicable law and (ii) purchase or sell physical commodities if acquired as a result of ownership of securities or other instruments. No Portfolio will consider currency contracts, hybrid investments, swaps or other similar instruments to be commodities; (3) Purchase the securities of any issuer if, as a result, more than 25% of the value of the Portfolio's total assets would be invested in the securities of issuers having their principal business activities in the same industry. 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 33 1/3% of the value of the Portfolio's total assets; (ii) purchase money market securities and enter into repurchase agreements; and (iii) acquire publicly-distributed or privately-placed debt securities and purchase debt securities. Each Portfolio will consider the acquisition of a debt security to include the execution of a note or other evidence of an extension of credit with a term of more than nine months; 5 b. the EQ/Putnam Growth & Income Value Portfolio and EQ/Putnam International Equity Portfolio, as a matter of non- fundamental operating policy, may purchase debt obligations consistent with the respective investment objectives and policies of each of those Portfolios: (i) by entering into repurchase agreements with respect to not more than 25% of the Portfolios' respective total assets (taken at current value) or (ii) through the lending of the Portfolios' portfolio securities with respect to not more than 25% of the Portfolios' respective total assets (taken at current value); c. the MFS Emerging Growth Companies Portfolio, as a matter or non-fundamental operating policy, may lend its portfolio securities provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 30% of its total assets (taken at market value). d. the Warburg Pincus Small Company Value Portfolio, the Merrill Lynch World Strategy Portfolio and the Merrill Lynch Basic Value Equity Portfolio, as a matter of non-fundamental policy, may lend its portfolio securities provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 20% of such Portfolio's total assets (taken at market value). (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).* (7) Purchase or sell real estate, except each 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 each Portfolio may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein; (8) Issue senior securities except in compliance with the 1940 Act; or - -------- * The Morgan Stanley Emerging Markets Equity Portfolio and Merrill Lynch World Strategy Portfolio are classified as non-diversified investment companies under the 1940 Act and therefore these restrictions are not applicable to these Portfolios. 6 (9) Underwrite securities issued by other persons, except to the extent that the Portfolio may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended (the "1933 Act"), in connection with the purchase and sale of its portfolio securities in the ordinary course of pursuing its investment objective, policies and program. NON-FUNDAMENTAL RESTRICTIONS The following investment restrictions apply to each Portfolio, but are not fundamental. They may be changed for any Portfolio without a vote of that Portfolio's shareholders. Each Portfolio may not: (1) Purchase a futures contract or an option thereon if, with respect to positions in futures or options on futures which do not represent bona fide hedging, the aggregate initial margin and premiums on such options would exceed 5% of the Portfolio's net asset value; (2) Purchase (a) illiquid securities, (b) securities restricted as to resale (excluding securities determined by the Board of Trustees to be readily marketable), and (c) repurchase agreements maturing in more than seven days if, as a result, more than 15% of each Portfolio's net assets would be invested in such securities. (Securities purchased in accordance with Rule 144A under the Securities Act and determined to be liquid by the Trust's Board are not subject to the limitations set forth in this investment restriction.) (3) Purchase securities on margin, except that each Portfolio may: (a) make use of any short-term credit necessary for clearance of purchases and sales of portfolio securities and (b) may make initial or variation margin deposits in connection with futures contracts, options, currencies, or other permissible investments; (4) Mortgage, pledge, hypothecate or, in any manner, transfer any security owned by the Portfolio as security for indebtedness, except as may be necessary in connection with permissible borrowings or investments; and then such mortgaging, pledging or hypothecating may not exceed 331/3% of the respective total assets of each Portfolio (except for the EQ/Putnam International Equity Portfolio), and may not exceed 15% of EQ/Putnam International Equity Portfolio's total assets and 10% of each the Merrill Lynch World Strategy Portfolio's and Merrill Lynch Basic Value Equity Portfolio's total assets (taken at the lower of cost or market value), each taken at the time of the permissible borrowing or investment. The deposit of underlying securities and other assets in escrow and collateral arrangements with respect to margin accounts for futures contracts, options, currencies or other permissible 7 investments are not deemed to be mortgages, pledges, or hypothecations for these purposes; (5) Purchase participations or other direct interests in or enter into leases with respect to, oil, gas, or other mineral exploration or development programs, except that the MFS Emerging Growth Companies Portfolio, Warburg Pincus Small Company Value Portfolio, Merrill Lynch World Strategy Portfolio, and Merrill Lynch Basic Value Equity Portfolio may invest in securities issued by companies that engage in oil, gas or other mineral exploration or development activities or hold mineral leases acquired as a result of its ownership of securities; (6) Invest in puts, calls, straddles, spreads, swaps or any combination thereof, except to the extent permitted by the Portfolio's Prospectus and Statement of Additional Information, as may be amended from time to time; 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 convertible into or exchangeable for securities of the same issue as, and at least equal in amount to, the securities sold short. Permissible futures contracts, options, or currency transactions will not be deemed to constitute selling securities short. 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, consequently, each Portfolio may have to subject any of its investments in other investment companies, including 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 ASSET-BACKED SECURITIES Asset-backed securities, issued by trusts and special purpose corporations, are backed by a pool of assets, such as credit card and automobile loan receivables, representing the obligations of a number of different parties. Asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which 8 give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. The underlying assets (e.g., loans) are also subject to prepayments which shorten the securities' weighted average life and may lower their return. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default ensures payment through insurance policies or letters of credit obtained by the issuer or sponsor from third parties. A Portfolio will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an investment in such a security. FOREIGN CURRENCY TRANSACTIONS Forward Foreign Currency Transactions. A forward foreign currency exchange contract ("forward contract") involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are principally traded in the interbank market conducted directly between currency traders (usually large, commercial banks) and their customers. A forward contract generally has no margin deposit requirement, and no commissions are charged at any stage for trades. A Portfolio may enter into forward contracts for a variety of purposes in connection with the management of the foreign securities portion of its portfolio. The Portfolio's use of such contracts will include, but not be limited to, the following situations. First, when the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may desire to "lock in" the 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 9 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, multinational currency units, or a proxy currency where such currency or currencies act as an effective proxy for other currencies. In such a case, the Portfolio may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Portfolio. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the diversification strategies. However, the Adviser to the Portfolio believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the Portfolio will be served. A Portfolio may enter into forward contracts for any other purpose consistent with the Portfolio's investment objective and program. However, the Portfolio will not enter into a forward contract, or maintain exposure to any such contract(s), if the amount of foreign currency required to be delivered thereunder would exceed the Portfolio's holdings of liquid, securities and currency available for cover of the forward contract(s). In determining the amount to be delivered under a contract, the Portfolio may net offsetting positions. At the maturity of a forward contract, a Portfolio may sell the portfolio security and make delivery of the foreign currency, or it may retain the security and either extend the maturity of the forward contract (by "rolling" that contract forward) or may initiate a new forward contract. If a Portfolio retains the portfolio security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Portfolio's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Portfolio will realize a gain to the extent the price of 10 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 and Merrill Lynch Basic Value Equity Portfolio) may purchase or sell exchange-traded foreign currency options, foreign currency futures contracts and related options on foreign currency futures contracts as a hedge against possible variations in foreign exchange rates. The Portfolios will write options on foreign currency or on foreign currency futures contracts only if they are "covered." A put on a foreign currency or on a foreign currency futures contract written by a Portfolio will be considered "covered" if, so long as the Portfolio is obligated as the writer of the put, it segregates with the Portfolio's custodian cash, United States Government securities or other liquid high-grade debt securities equal at all times to the aggregate exercise price of the put. A call on a foreign currency or on a foreign currency future contract written by the Portfolio will be considered "covered" only if the Portfolio owns short term debt securities with a value equal to the face amount of the option contract and denominated in the currency upon which the call is written. Option transactions may be effected to hedge the currency risk on non-United States dollar-denominated securities owned by a Portfolio, sold by a Portfolio but not yet delivered or anticipated to be purchased by a Portfolio. As an illustration, a Portfolio may use such techniques to hedge the stated value in United States dollars of an investment in a Japanese yen-denominated security. In these circumstances, a Portfolio may purchase a foreign currency put option enabling it to sell a specified amount of yen for dollars at a specified price by a future date. To the extent the hedge is successful, a loss in the value of the dollar relative to the yen will tend to be offset by an increase in the value of the put option. Certain differences exist between foreign currency hedging instruments. Foreign currency options provide the holder the right to buy or to sell a currency at a fixed price on or before a future date. Listed options are third-party contracts (performance is guaranteed by an exchange or clearing corporation) which are issued by a clearing corporation, traded on an exchange and have standardized prices and expiration dates. Over-the-counter options are two-party contracts and have negotiated prices and expiration dates. A futures contract on a foreign currency is an agreement between two parties to buy and sell a specified amount of the currency for a set price on a future date. Futures contracts and listed options on futures contracts are traded on boards of trade or futures exchanges. Options traded in the over-the-counter market may not be as 11 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. See "Options" -- "Over-the-Counter Options," below. 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 ___. 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 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. Depositary Receipts. For many foreign securities there are depositary receipts. Depositary receipts are securities representing ownership interests in securities of foreign companies (an "underlying issuer") and are deposited with a securities depositary. Depositary receipts include American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other types of Depositary Receipts (which, together with ADRs and GDRs, are hereinafter collectively referred to as "Depositary Receipts"). ADRs are dollar-denominated Depositary Receipts typically issued by a U.S. financial institution which evidence ownership interests in a security 12 of pool of securities issued by a foreign issuer. ADRs are listed and traded in the United States. GDRs and other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they also may be issued by U.S. financial institutions, and evidence ownership interests in a security or pool of securities issued by either a foreign or a U.S. corporation. Generally, Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. Depositary receipts may be "sponsored" or "unsponsored". Sponsored depositary receipts are established jointly by a depositary and the underlying issuer, whereas unsponsored depositary receipts may be established by a depositary without participation by the underlying issuer. Holders of an unsponsored depositary receipt generally bear all the costs associated with establishing the unsponsored depositary receipt. In addition, the issuers of the securities underlying unsponsored depositary receipts are not obligated to disclose material information in the U.S. and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the depositary receipts. For purposes of a Portfolio's investment policies, the Portfolio's investment in depositary receipts will be deemed to be investments in the underlying securities except as noted. Eastern European and Russian Securities. The economies of Eastern European countries are currently suffering both from the stagnation resulting from centralized economic planning and control and the higher prices and unemployment associated with the transition to market economics. Unstable economic and political conditions may adversely affect security values. Upon the accession to power of Communist regimes approximately 40 years ago, the governments of a number of Eastern European countries expropriated a large amount of property. The claims of many property owners against those governments were never finally settled. In the event of the return to power of the Communist Party, there can be no assurance that a Portfolio's investments in Eastern Europe would not be expropriated, nationalized or otherwise confiscated. The registration, clearing and settlement of securities transactions involving Russian issuers are subject to significant risks not normally associated with securities transactions in the United States and other more developed markets. Ownership of equity securities in Russian companies is evidenced by entries in a company's share register (except where shares are held through depositories that meet the requirements of the 1940 Act) and the issuance of extracts from the register or, in certain limited cases, by formal share certificates. However, Russian share registers are frequently unreliable and a Portfolio could possibly lose its registration through oversight, negligence or fraud. Moreover, Russia lacks a centralized registry to record shares and companies themselves maintain share registers. Registrars are under no obligation to provide extracts to potential purchasers in a timely manner or at all and are not necessarily subject to effective state supervision. In addition, while registrars are liable under law for losses resulting from their errors, it may be difficult for a Portfolio to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. 13 Although Russian companies with more than 1,000 shareholders are required by law to employ an independent company to maintain share registers, in practice, such companies have not always followed this law. Because of this lack of independence of registrars, management of a Russian company may be able to exert considerable influence over who can purchase and sell the company's shares by illegally instructing the registrar to refuse to record transactions on the share register. Furthermore, these practices could cause a delay in the sale of Russian securities by a Portfolio if the company deems a purchaser unsuitable, which may expose a Portfolio to potential loss on its investment. In light of the risks described above, the Board of Trustees of the Trust has approved certain procedures concerning a Portfolio's investments in Russian securities. Among these procedures is a requirement that a Portfolio will not invest in the securities of a Russian company unless that issuer's registrar has entered into a contract with a Portfolio's sub-custodian containing certain protective conditions, including, among other things, the sub-custodian's right to conduct regular share confirmations on behalf of a Portfolio. This requirement will likely have the effect of precluding investments in certain Russian companies that a Portfolio would otherwise make. Emerging Market Securities. Investments in emerging market country securities involve special risks. Certain emerging market countries have historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. The issuer or governmental authority that controls the repayment of an emerging market country's debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. As a result of the foregoing, a government obligor may default on its obligations. If such an event occurs, a Portfolio may have limited legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the courts of the defaulting party itself, and the ability of the holder of foreign government fixed income securities to obtain recourse may be subject to the political climate in the relevant country. In addition, no assurance can be given that the holders of commercial bank debt will not contest payments to the holders of other foreign government debt obligations in the event of default under their commercial bank loan agreements. The economies of individual emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been, and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been, and may continue to be, adversely affected by economic conditions in the countries with which they trade. 14 Investing in emerging market countries may entail purchasing securities issued by or on behalf of entities that are insolvent, bankrupt, in default or otherwise engaged in an attempt to reorganize or reschedule their obligations, and in entities that have little or no proven credit rating or credit history. In any such case, the issuer's poor or deteriorating financial condition may increase the likelihood that the investing Portfolio will experience losses or diminution in available gains due to bankruptcy, insolvency or fraud. Eurodollar and Yankee Dollar Obligations. Eurodollar bank obligations are U.S. dollar-denominated certificates of deposit and time deposits issued outside the U.S. capital markets by foreign branches of U.S. banks and by foreign banks. Yankee dollar bank obligations are U.S. dollar-denominated obligations issued in the U.S. capital markets by foreign banks. Eurodollar and Yankee dollar obligations are subject to the same risks that pertain to domestic issues, notably credit risk, market risk and liquidity risk. Additionally, Eurodollar (and to a limited extent, Yankee dollar) obligations are subject to certain sovereign risks. One such risk is the possibility that a sovereign country might prevent capital, in the form of dollars, from flowing across their borders. Other risks include adverse political and economic developments; the extent and quality of government regulation of financial markets and institutions; the imposition of foreign withholding taxes; and the expropriation or nationalization of foreign issuers. FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY SECURITIES Forward commitments, when-issued and delayed delivery transactions arise when securities are purchased by a Portfolio with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price or yield to the Portfolio at the time of entering into the transaction. However, the price of or yield on a comparable security available when delivery takes place may vary from the price of or yield on the security at the time that the forward commitment or when-issued or delayed delivery transaction was entered into. Agreements for such purchases might be entered into, for example, when a Portfolio anticipates a decline in interest rates and is able to obtain a more advantageous price or yield by committing currently to purchase securities to be issued later. When a Portfolio purchases securities on a forward commitment, when-issued or delayed delivery basis it does not pay for the securities until they are received, and the Portfolio is required to create a segregated account with the Trust's custodian and to maintain in that account cash or other liquid securities in an amount equal to or greater than, on a daily basis, the amount of the Portfolio's forward commitments, when-issued or delayed delivery commitments. 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 15 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 Securities and Exchange Commission ("SEC"), purchases of securities on such a basis may involve more risk than other types of purchases. For example, by committing to purchase securities in the future, a Portfolio subjects itself to a risk of loss on such commitments as well as on its portfolio securities. Also, a Portfolio may have to sell assets which have been set aside in order to meet redemptions. In addition, if a Portfolio determines it is advisable as a matter of investment strategy to sell the forward commitment or when-issued or delayed delivery securities before delivery, that Portfolio may incur a gain or loss because of market fluctuations since the time the commitment to purchase such securities was made. Any such gain or loss would be treated as a capital gain or loss and would be treated for tax purposes as such. When the time comes to pay for the securities to be purchased under a forward commitment or on a when-issued or delayed delivery basis, a Portfolio will meet its obligations from the then available cash flow or the sale of securities, or, although it would not normally expect to do so, from the sale of the forward commitment or when-issued or delayed delivery securities themselves (which may have a value greater or less than a Portfolio's payment obligation). FUTURES Futures Transactions. A futures contract is a bilateral agreement to buy or sell a security (or deliver a cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contracts) for a set price in the future. Futures contracts are designated by boards of trade which have been designated "contracts markets" by the Commodities Futures Trading Commission ("CFTC"). No purchase price is paid or received when the contract is entered into. Instead, a Portfolio upon entering into a futures contract (and to maintain the Portfolio's open positions in futures contracts) would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, United States government securities, suitable money market instruments, or liquid, high-grade debt securities, known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margin that may range upward from less than 5% of the value of the contract being traded. By using futures contracts as a risk management technique, given the greater liquidity in the futures market than in the cash market, it may be possible to accomplish certain results more quickly and with lower transaction costs. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in 16 the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Portfolio. These subsequent payments called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." The Portfolios expect to earn interest income on their initial and variation margin deposits. A Portfolio will incur brokerage fees when it purchases and sells futures contracts. Positions taken in the futures markets are not normally held until delivery or cash settlement is required, but are instead liquidated through offsetting transactions which may result in a gain or a loss. While futures positions taken by a Portfolio will usually be liquidated in this manner, the Portfolio may instead make or take delivery of underlying securities whenever it appears economically advantageous 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 in an attempt to protect a Portfolio's current or intended investments from broad fluctuations in securities prices. A securities index futures contract does not require the physical delivery of securities, but merely provides for profits and losses resulting from changes in the market value of the contract to be credited or debited at the close of each trading day to the respective accounts of the parties to the contract. On the contract's expiration date a final cash settlement occurs and the futures positions are simply closed out. Changes in the market value of a particular index futures contract reflect changes in the specified index of securities on which the future is based. By establishing an appropriate "short" position in index futures, a Portfolio may also seek to protect the value of its portfolio against an overall decline in the market for such securities. Alternatively, in anticipation of a generally rising market, a Portfolio can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in securities index futures and later liquidating that position as particular securities are in fact acquired. To the extent that these hedging strategies are successful, the Portfolio will be affected to a lesser degree by adverse overall market price movements than would otherwise be the case. Options on Futures Contracts. Each Portfolio, as specified in the Prospectus, 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 17 futures contract (assume a "short" position), for a specified exercise price, at any time before the option expires. The Portfolios will write only options on futures contracts which are "covered." A Portfolio will be considered "covered" with respect to a put option it has written if, so long as it is obligated as a writer of the put, the Portfolio segregates with its custodian cash, United States Government securities or liquid securities at all times equal to or greater than the aggregate exercise price of the puts it has written (less any related margin deposited with the futures broker). A Portfolio will be considered "covered" with respect to a call option it has written on a debt security future if, so long as it is obligated as a writer of the call, the Portfolio owns a security deliverable under the futures contract. A Portfolio will be considered "covered" with respect to a call option it has written on a securities index future if the Portfolio owns, so long as the Portfolio is obligated as the writer of the call, a portfolio of securities the price changes of which are, in the opinion of its Adviser, expected to replicate substantially the movement of the index upon which the futures contract is based. Upon the exercise of a call option, the writer of the option is obligated to sell the futures contract (to deliver a "long" position to the option holder) at the option exercise price, which will presumably be lower than the current market price of the contract in the futures market. Upon exercise of a put, the writer of the option is obligated to purchase the futures contract (deliver a "short" position to the option holder) at the option exercise price which will presumably be higher than the current market price of the contract in the futures market. When the holder of an option exercises it and assumes a long futures position, in the case of a call, or a short futures position, in the case of a put, its gain will be credited to its futures margin account, while the loss suffered by the writer of the option will be debited to its account and must be immediately paid by the writer. However, as with the trading of futures, most participants in the options markets do not seek to realize their gains or losses by exercise of their option rights. Instead, the holder of an option will usually realize a gain or loss by buying or selling an offsetting option at a market price that will reflect an increase or a decrease from the premium originally paid. If a Portfolio writes options on futures contracts, the Portfolio will receive a premium but will assume a risk of adverse movement in the price of the underlying futures contract comparable to that involved in holding a futures position. If the option is not exercised, the Portfolio will realize a gain in the amount of the premium, which may partially offset unfavorable changes in the value of securities held in or to be acquired for the Portfolio. If the option is exercised, the Portfolio will incur a loss in the option transaction, which will be reduced by the amount of the premium it has received, but which will offset any favorable changes in the value of its portfolio securities or, in the case of a put, lower prices of securities it intends to acquire. 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 18 present less risk in hedging than the purchase and sale of the underlying futures contracts since the potential loss is limited to the amount of the premium plus related transaction costs. The 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 ___. 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 19 maturity, redemption or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles or commodities (collectively "Underlying Assets") or by another objective index, economic factor or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity. 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 20 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 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 persons in the United States, the SEC, which regulates the offer and sale of securities by and to persons in the United States, or any other governmental regulatory authority. The various risks discussed above, particularly the market risk of such instruments, may in turn cause significant fluctuations in the net asset value of the Portfolio. INVESTMENT COMPANY SECURITIES. Investment company securities are securities of other open-end or closed-end investment companies. The 1940 Act generally prohibits a Portfolio from acquiring more than 3% of the outstanding voting shares of an unaffiliated investment company and limits such investments to no more than 5% of the Portfolio's total assets in any unaffiliated investment company and no more than 10% in any combination of unaffiliated investment companies. The 1940 Act also prohibits a Portfolio from acquiring in the aggregate more than 10% of the outstanding voting shares of any registered closed-end investment company. INVESTMENT GRADE AND LOWER QUALITY FIXED INCOME SECURITIES 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, 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., 21 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." Such lower quality fixed income securities or junk bonds 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. LOANS AND OTHER DIRECT INDEBTEDNESS In purchasing a loan, a Portfolio acquires some or all of the interest of a bank or other lending institution in a loan to a corporate borrower. Many such loans are secured, although some may be unsecured. Such loans may be in default at the time of purchase. Loans and other direct indebtedness that are fully secured offer a Portfolio more protection than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan or other direct indebtedness would satisfy the corporate borrower's obligation, or that the collateral can be liquidated. These loans and other direct indebtedness are made generally to finance internal growth, mergers, acquisitions, stock repurchases, leveraged buyouts and other corporate activities. Such loans and other direct indebtedness loans are typically made by a syndicate of lending institutions, represented by an agent lending institution which has negotiated and structured the loan and is responsible for collecting interest, principal and other amounts due on its own behalf 22 and on behalf of the others in the syndicate, and for enforcing its rights and the rights of other loan participants against the borrower. Alternatively, such loans and other direct indebtedness may be structured as a "novation" (i.e., a new loan) pursuant to which a Portfolio would assume all of the rights of the lending institution in a loan, or as an assignment, pursuant to which a Portfolio would purchase an assignment of a portion of a lender's interest in a loan or other direct indebtedness either directly from the lender or through an intermediary. A Portfolio may also purchase trade or other claims against companies, which generally represent money owed by the company to a supplier of goods or services. These claims may also be purchased at a time when the company is in default. Certain of the loans and other direct indebtedness acquired by a Portfolio may involve revolving credit facilities or other standby financing commitments that obligate a Portfolio to pay additional cash on a certain date or on demand. These commitments may have the effect of requiring a Portfolio to increase its investment in a company at a time when a Portfolio might not otherwise decide to do so (including at a time when the company's financial condition makes it unlikely that such amounts will be repaid). To the extent that a Portfolio is committed to advance additional funds, it will at all times hold and maintain in a segregated account cash or assets in an amount sufficient to meet such commitments. A Portfolio's ability to receive payment of principal, interest and other amounts due in connection with these investments will depend primarily on the financial condition of the borrower. In selecting the loans and other direct indebtedness that a Portfolio will purchase, the Adviser will rely upon its own credit analysis of the borrower. As a Portfolio may be required to rely upon another lending institution to collect and pass on to a Portfolio amounts payable with respect to the loan and to enforce a Portfolio's rights under the loan and other direct indebtedness, an insolvency, bankruptcy or reorganization of the lending institution may delay or prevent a Portfolio from receiving such amounts. In such cases, a Portfolio will also evaluate the creditworthiness of the lending institution and will treat both the borrower and the lending institutions as an "issuer" of the loan for purposes of certain investment restrictions pertaining to the diversification of a Portfolio's portfolio investments. The highly leveraged nature of many such loans and other direct indebtedness may make such loans and other direct indebtedness especially vulnerable to adverse changes in economic or market conditions. Investments in such loans and other direct indebtedness may involve additional risk to a Portfolio. For example, if a loan or other direct indebtedness is foreclosed, a Portfolio could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, a Portfolio could be held liable. It is unclear whether loans and other forms of direct indebtedness offer securities law protections against fraud and misrepresentation. In the absence of definitive regulatory guidance, a Portfolio relies on the Adviser's research in an attempt to avoid situations where fraud and misrepresentation could adversely affect a Portfolio. In addition, loans and other direct investments may not be in the form of securities or may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, a Portfolio may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value. To the extent that the Adviser 23 determines that any such investments are illiquid, a Portfolio will include them in the investment limitations described below. MORTGAGE RELATED SECURITIES Mortgage-backed securities have yield and maturity characteristics corresponding to the underlying assets. Unlike traditional debt securities, which may pay a fixed rate of interest until maturity, when the entire principal amount comes due, payments on certain mortgage-backed securities include both interest and a partial repayment of principal. Besides the scheduled repayment of principal, repayments of principal may result from the voluntary prepayment, refinancing, or foreclosure of the underlying mortgage loans. If property owners make unscheduled prepayments of their mortgage loans, these prepayments will result in early payment of the applicable mortgage-related securities. In that event, the Portfolios may be unable to invest the proceeds from the early payment of the mortgage-related securities in an investment that provides as high a yield as the mortgage-related securities. Consequently, early payment associated with mortgage-related securities may cause these securities to experience significantly greater price and yield volatility than that experienced by traditional fixed-income securities. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. During periods of falling interest rates, the rate of mortgage prepayments tends to increase, thereby tending to decrease the life of mortgage-related securities. During periods of rising interest rates, the rate of mortgage prepayments usually decreases, thereby tending to increase the life of mortgage-related securities. If the life of a mortgage-related security is inaccurately predicted, a Portfolio may not be liable to realize the rate of return it expected. Mortgage-backed securities are less effective than other types of securities as a means of "locking in" attractive long-term interest rates. One reason is the need to reinvest prepayments of principal; another is the possibility of significant unscheduled prepayments resulting from declines in interest rates. Prepayments may cause losses on securities purchased at a premium. At times, some of the mortgage-backed securities in which a Portfolio may invest will have higher than market interest rates and, therefore, will be purchased at a premium above their par value. Unscheduled prepayments, which are made at par, will cause a Portfolio to experience a loss equal to any unamortized premium. The Morgan Stanley Emerging Markets Equity Portfolio may invest in collateralized mortgage obligations ("CMOs") and stripped mortgage-backed securities that represent a participation in, or are secured by, mortgage loans. CMOs may be issued by a United States government agency or instrumentality or by a private issuer. Although payment of the principal of, and interest on, the underlying collateral securing privately issued CMOs may be guaranteed by the United States government or its agencies or 24 instrumentalities, these CMOs represent obligations solely of the private issuer and are not insured or guaranteed by the U.S. government, its agencies or instrumentalities or any other person or entity. Prepayments could cause early retirement of CMOs. CMOs are designed to reduce the risk of prepayment for investors by issuing multiple classes of securities (or "tranches"), each having different maturities, interest rates and payment schedules, and with the principal and interest on the underlying mortgages allocated among the several classes in various ways. Payment of interest or principal on some classes or series of CMOs may be subject to contingencies or some classes or series may bear some or all of the risk of default on the underlying mortgages. CMOs of different classes or series are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. If enough mortgages are repaid ahead of schedule, the classes or series of a CMO with the earliest maturities generally will be retired prior to their maturities. Thus, the early retirement of particular classes or series of a CMO held by a Portfolio would have the same effect as the prepayment of mortgages underlying other mortgage-backed securities. Conversely, slower than anticipated prepayments can extend the effective maturities of CMOs, subjecting them to a greater risk of decline in market value in response to rising interest rates than traditional debt securities, and, therefore, potentially increasing the volatility of a Portfolio that invests in CMOs. Prepayments may also result in losses on stripped mortgage-backed securities. Stripped mortgage-backed securities, may be issued by agencies or instrumentalities of the United States Government and private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose entities of the foregoing. Stripped mortgage-backed securities are usually structured with two classes that receive different portions of the interest and principal distributions on a pool of mortgage loans. The Portfolios may invest in both the interest-only or "IO" class and the principal-only or "PO" class. The yield to maturity on an IO class of stripped mortgage-backed securities is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the underlying assets. A rapid rate of principal prepayments may have a measurable adverse effect on a Portfolio's yield to maturity to the extent it invests in IOs. If the assets underlying the IO experience greater than anticipated prepayments of principal, a Portfolio may fail to recoup fully its initial investment in these securities. Conversely, POs tend to increase in value if prepayment are greater than anticipated and decline if prepayments are slower than anticipated. The secondary market for stripped mortgage-backed securities may be more volatile and less liquid than that for other mortgage-backed securities, potentially limiting the Portfolios' ability to buy or sell those securities at any particular time. NON-PUBLICLY TRADED AND ILLIQUID SECURITIES Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act, securities which are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities which have not been registered under the Securities Act are referred to as private placements or restricted securities and are purchased directly from the issuer or in the 25 secondary market. Mutual funds do not typically hold a significant amount of these restricted or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and a mutual fund might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A mutual fund might also have to register such restricted securities in order to dispose of them resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities. In recent years, however, a large institutional market has developed for certain securities that are not registered under the Securities Act including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of such investments. Rule 144A Securities will be considered illiquid and therefore subject to a Portfolio's limit on the purchase of illiquid securities unless the Board or its delegates determines that the Rule 144A Securities are liquid. In reaching liquidity decisions, the Board and its delegates may consider, inter alia, the following factors: (i) the unregistered nature of the security; (ii) the frequency of trades and quotes for the security; (iii) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (iv) dealer undertakings to make a market in the security and (v) the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer). OPTIONS Writing Call Options. A call option is a contract which gives the purchaser of the option (in return for a premium paid) the right to buy, and the writer of the option (in return for a premium received) the obligation to sell, the underlying security at the exercise price at any time prior to the expiration of the option, regardless of the market price of the security during the option period. A call option on a security is covered, for example, when the writer of the call option owns the security on which the option is written (or on a security convertible into such a security without additional consideration) throughout the option period. 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 26 in which the Portfolio owns securities not subject to a call option, the Portfolio, in writing call options, must assume that the call may be exercised at any time prior to the expiration of its obligation as a writer, and that in such circumstances the net proceeds realized from the sale of the underlying securities pursuant to the call may be substantially below the prevailing market price. A Portfolio may terminate its obligation under an option it has written by buying an identical option. Such a transaction is called a "closing purchase transaction." The Portfolio will realize a gain or loss from a closing purchase transaction if the amount paid to purchase a call option is less or more than the amount received from the sale of the corresponding call option. Also, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the exercise or closing out of a call option is likely to be offset in whole or part by unrealized appreciation of the underlying security owned by the Portfolio. When an underlying security is sold from the Portfolio's securities portfolio, the Portfolio will effect a closing purchase transaction so as to close out any existing covered call option on that underlying security. Writing Put Options. The writer of a put option becomes obligated to purchase the underlying security at a specified price during the option period if the buyer elects to exercise the option before its expiration date. A Portfolio which writes a put option will be required to "cover" it, for example, by depositing and maintaining in a segregated account with its custodian cash, United States Government securities or other liquid securities having a value equal to or greater than the exercise price of the option. The Portfolios may write put options either to earn additional income in the form of option premiums (anticipating that the price of the underlying security will remain stable or rise during the option period and the option will therefore not be exercised) or to acquire the underlying security at a net cost below the current value (e.g., the option is exercised because of a decline in the price of the underlying security, but the amount paid by the Portfolio, offset by the option premium, is less than the current price). The risk of either strategy is that the price of the underlying security may decline by an amount greater than the premium received. The premium which a Portfolio receives from writing a put option will reflect, among other things, the current market price of the underlying security, the relationship of the exercise price to that market price, the historical price volatility of the underlying security, the option period, supply and demand and interest rates. A Portfolio may effect a closing purchase transaction to realize a profit on an outstanding put option or to prevent an outstanding put option from being exercised. Purchasing Put and Call Options. A Portfolio may purchase put options on securities to protect their holdings against a substantial decline in market value. The purchase of put options on securities will enable a Portfolio to preserve, at least partially, unrealized gains in an appreciated security in its portfolio without actually selling the security. In addition, the Portfolio will continue to receive interest or dividend income on the security. The Portfolios may also 27 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. A Portfolio may write covered put and call options and purchase call and put options on securities indexes for the purpose of hedging against the risk of unfavorable price movements adversely affecting the value of a Portfolio's securities or securities it intends to purchase. Each Portfolio writes only "covered" options. A call option on a securities index is considered covered, for example, if, so long as the Portfolio is obligated as the writer of the call, it holds securities the price changes of which are, in the opinion of a Portfolio's Adviser, expected to replicate substantially the movement of the index or indexes upon which the options written by the Portfolio are based. A put on a securities index written by a Portfolio will be considered covered if, so long as it is obligated as the writer of the put, the Portfolio segregates with its custodian cash, United States Government securities or other liquid high-grade debt obligations having a value equal to or greater than the exercise price of the option. Unlike a stock option, which gives the holder the right to purchase or sell a specified stock at a specified price, an option on a securities index gives the holder the right to receive a cash "exercise settlement amount" equal to (i) the difference between the exercise price of the option and the value of the underlying stock index on the exercise date, multiplied by (ii) a fixed "index multiplier." A securities index fluctuates with changes in the market value of the securities so included. For example, some securities index options are based on a broad market index such as the S&P 500 or the NYSE Composite Index, or a narrower market index such as the S&P 100. Indexes may also be based on an industry or market segment such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Over-the-Counter Options. Certain Portfolios may enter into contracts (or amend existing contracts) with primary dealers with whom they write over-the-counter options. The contracts will provide that each Portfolio has the absolute right to repurchase an option it writes at any time at a repurchase price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula contained in the contract. Although the specific details of the formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by each Portfolio for writing the option, plus the amount, if any, of the option's intrinsic value (i.e., the amount the option is "in-the-money"). The formula will also include a factor to account for the difference between the price of the security and the strike price of the option if the option is written "out-of-the-money." Although the specific details of the formula may vary with different primary dealers, each contract will provide a formula to determine the maximum price at which each Portfolio can repurchase the option at any time. The Portfolios have established standards of creditworthiness for these 28 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 __. 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. 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. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS Reverse repurchase agreements involve the sale of securities held by the Portfolio pursuant to its agreement to repurchase them at a mutually agreed upon date, price and 29 rate of interest. At the time a Portfolio enters into a reverse repurchase agreement, it will establish and maintain a segregated account with an approved custodian containing cash or other liquid securities having a value not less than the repurchase price (including accrued interest). The assets contain in the segregated account will be marked-to-market daily and additional assets will be placed in such account on any day in which the assets fall below the repurchase price (plus accrued interest). A Portfolio's liquidity and ability to manage its assets might be affected when it sets aside cash or portfolio securities to cover such commitments. Reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale may decline below the price of the securities a Portfolio has sold but it obligated to repurchase. In the even the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce a Portfolio's obligation to repurchase the securities, and a Portfolio's use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. In "dollar rolls" transactions, a Portfolio sells fixed-income securities for delivery in the current month and simultaneously contracts to repurchase similar but not identical (same type, coupon and maturity) securities on a specified future date. During the roll period, a Portfolio would forego principal and interest paid on such securities. A Portfolio would be compensated by the difference between the current sales price and the forward price for the future purchase, as well as by the interest earned on the cash proceeds of the initial sale. At the time a Portfolio enters into a dollar roll transaction, it will place in a segregated account maintained with an approved custodian cash or other liquid securities having a value not less than the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that its value is maintained. Reverse repurchase agreements are considered to be borrowings under the 1940 Act. 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. 30 The effectiveness of hedging through the purchase of securities index options will depend upon the extent to which price movements in the portion of the securities portfolio being hedged correlate with price movements in the selected securities index. Perfect correlation is not possible because the securities held or to be acquired by a Portfolio will not exactly match the composition of the securities indexes on which options are written. In the purchase of securities index options the principal risk is that the premium and transaction costs paid by a Portfolio in purchasing an option will be lost if the changes (increase in the case of a call, decrease in the case of a put) in the level of the index do not exceed the cost of the option. Futures. The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. Because of the low margin deposits required, futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, market trends or interest rate trends. There are several risks in connection with the use by a Portfolio of futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of the underlying instruments which are the subject of the hedge. A Portfolio's Adviser will, however, attempt to reduce this risk by entering into futures contracts whose movements, in its judgment, will have a significant correlation with movements in the prices of the Portfolio's underlying instruments sought to be hedged. 31 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, 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 32 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. 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 generally not have the right to vote securities while they are being loaned, but its Manager or Adviser will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by a Portfolio's Adviser to be of good standing and will not be made unless, in the judgment of the Adviser, the consideration to be earned from such loans would justify the risk. STRUCTURED NOTES The Morgan Stanley Emerging Markets Equity Portfolio may enter into structured notes transactions. Structured notes are interests in entities organized and operated solely for the purpose of restructuring the investment characteristics of sovereign debt obligations. This type of restructuring involves the deposit with or purchase by an entity, such as a corporation or trust, of specified instruments (such as commercial bank loans) and the issuance by that entity of one or more classes of securities and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured notes to create securities with different investment characteristics such as varying maturities, payment priorities and interest rate provisions, and the extent of the payment made with respect to structured notes is dependent on the extent of the cash flow on the underlying instruments. Because structured notes of the type in which the Portfolio may invest typically involve no credit enhancement, their credit risk generally will be equivalent to that of the underlying instruments. The Portfolio may invest in a class of structured notes that is either subordinated or unsubordinated to the right of payment of another class. Subordinated structured notes typically have higher yields and present greater risks than unsubordinated structured notes. Certain issuers of structured notes may be deemed to be "investment companies" as defined in the 1940 Act. As a result, the Portfolio's investment in these structured notes may be limited by restrictions contained in the 1940 Act. Structured notes are typically sold in private placement transactions, and there currently is no active trading market for structured notes. SWAPS A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The payment 33 streams are calculated by reference to a specified index and agreed upon single or fixed amount (or premium). The term "specified index" includes currencies, fixed interest rates, prices, total return on interest rate indices, fixed income indices, stock indices and commodity indices (as well as amounts derived from arithmetic operations on these indices). For example, a Portfolio may agree to swap the return generated by a fixed income index for the return generated by a second fixed income index. The currency swaps in which a Portfolio may enter will generally involve an agreement to pay interest streams in one currency based on a specified index in exchange for receiving interest streams denominated in another currency. Such swaps may involve initial and final exchanges that correspond to the agreed upon notional amount. The swaps in which a Portfolio may engage may include instruments under which one party pays a single or periodic fixed amount(s) (or premium), and the other party pays periodic amounts based on the movement of a specified index. Swaps do not involve the delivery of securities, other underlying assets, or principal. Accordingly, the risk of loss with respect to swaps is limited to the net amount of payments the Portfolio is contractually obligated to make. If the other party to a swap defaults, Portfolio's risk of loss consists of the net amount of payments that the Portfolio contractually entitled to receive. Currency swaps usually involve the delivery of the entire principal value of one designated currency in exchange for the other designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. If there is a default by the counterparty, a Portfolio may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Certain swap transactions involve more recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are less liquid than traditional swap transactions. A Portfolio will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments. A Portfolio's obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the maintenance of a segregated account consisting of unencumbered liquid assets, to avoid any potential leveraging of a Portfolio. To the extent that these swaps are entered into for hedging purposes, the Advisers believe such obligations do not constitute "senior securities" under the 1940 Act and, accordingly, the Adviser will not treat them as being subject to a Portfolio's borrowing restrictions. The Portfolio may enter into OTC swap transactions with counterparties that are approved by the Advisers in accordance with guidelines established by the Board of Trustees. These guidelines provide for a minimum credit rating for each counterparty and various credit enhancement techniques (for example, collateralization of amounts due from counterparties) to limit exposure to counterparties that have a S&P rating below AA. 34 The use of swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If an Adviser is incorrect in its forecasts of market values, interest rates, and currency exchange rates, the investment performance of the Portfolio would be less favorable than it would have been if this investment technique were not used. WARRANTS Warrants give the holder, under certain circumstances, the right to purchase equity securities consisting of common and preferred stock. The equity security underlying a warrant is authorized at the time the warrant is issued or is issued together with the warrant. Investing in warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security, and, thus, can be a speculative investment. The value of a warrant may decline because of a decline in the value of the underlying security, the passage of time, changes in interest rates or in the dividend or other policies of the company whose equity underlies the warrant or a change in the perception as to the future priced of the underlying security, or any combination thereof. Warrants generally pay no dividends and confer no voting or other rights other than to purchase the underlying security. MANAGEMENT OF THE TRUST As of May 1, 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. 35 THE TRUSTEES
NAME, ADDRESS AND AGE Principal Occupation During Last Five Years - --------------------- ------------------------------------------- Peter D. Noris* (40) Executive Vice President and Chief Investment Equitable Officer of Equitable since May 1995; prior thereto, 787 Seventh Avenue Vice President of Salomon Brothers Inc., from New York, New York 10019 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. Jetti M. Edwards (49) Consultant, Syrus Associates since 1986. Trustee, Syrus Associates Provident Investment Counsel Trust (investment 76 Seaview Drive company) since 1992. Santa Barbara, CA 93108 William M. Kearns, Jr. (61) President, W.M. Kearns, & Co., Inc. since 1994. Village Road Advisory Director, Lehman Brothers from 1992 to P.O. Box 276 1994. New Vernon, NJ 07976 Christopher P.A. Komisarjevsky ( ) President and Chief Executive Officer, Burson- Marsteller USA since 1996. President and Chief Executive Officer, Burson-Marsteller New York from 1995 to 1996. President and Chief Executive Officer, Gavin Anderson & Company New York from 1994 to 1995. Prior thereto, he held various positions with Hill and Knowlton, Inc. for twenty years. Harvey Rosenthal ( ) Member, Board of Directors of CVS Corporation. President and Chief Operating Officer, CVS Corporation (formerly Melville Corporation) until 1996. Prior thereto, he held various positions with CVS Corporation for twenty-seven years. 36 William T. McCaffrey* ( ) Director, Senior Executive Vice President and EQ Advisors Seventh Avenue Chief Operating Officer of The Equitable Life New York, New York 10019 Assurance Society of the United States since 1996; Executive Vice President and Chief Administrative Officer of The Equitable Companies; Director of Equitable Foundation; Chairman of the Board of Xavier University of Louisiana. * 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 Peter D. Noris, Harvey Blitz, Mary Breen, Kevin Byrne, and such other officers of the Trust, the Manager, and Chase Global Funds Services Company, as well as such officers of any investment adviser to any Portfolio as are deemed necessary by Mr. Noris or Mr. Blitz from time to time, shall serve at the pleasure of the Board of Trustees as members of the Valuation Committee. This committee determines the value of any of the Trust's securities and assets for which market quotations are not readily available or for which valuation cannot otherwise be provided. The Trust has a compensation committee consisting of Jettie M. Edwards, William K. Kearns, Jr., Christopher P.A. Komisarjevsky, and Harvey Rosenthal. The compensation committee's function is to review the Trustees' compensation arrangements. The Trust has a conflicts committee consisting of Peter D. Noris and William T. McCaffrey. The conflicts committee's function is to take any action necessary to resolve conflicts among shareholders. 37
TRUSTEE COMPENSATION TABLE TRUSTEE AGGREGATE Pension or Estimated Total COMPENSATION* Retirement Annual Benefits Compensation FROM THE TRUST Benefits Upon from Fund Accrued As Retirement Complex Part of Trust Expenses Peter D. Noris $-0- $-0- $-0- $-0- Jettie M. Edwards $31,000 $31,000 William M. Kearns, Jr. $31,000 $31,000 Christopher P.A. Komisarjevsky $31,000 $31,000 Harvey Rosenthal $31,000 $31,000 William T. McCaffrey -0- -0- -0- -0-
* For the initial fiscal year. COMPENSATION OF THE TRUSTEES Each Trustee, other than those who are "interested persons" of the Trust (as defined in the 1940 Act), receives from the Trust an annual fee of $25,000 plus an additional fee of $1,000 per Board meeting and $500 per committee meeting attended in person or by telephone. 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. 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., Equitable Distributors, Inc. ("EDI") or Equitable. The Trust's principal officers are: 38
NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ----------------------- ------------------------------------------- Peter D. Noris (40) (see above) President Harvey Blitz (50) Senior Vice President of Equitable since Vice President and Chief September 1987. Deputy Chief Financial Officer of Financial Officer 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 Consultants, Inc. since September 1992 and November 1996, respectively. Mary Breen ( ) Vice President and Associate General Counsel of Equitable Vice President and Secretary since October 1996. Vice President and Counsel of Equitable from 1992 to 1996. Kevin R. Byrne ( ) Vice President and Treasurer of the Equitable Companies Vice President and Incorporated and Equitable. Treasurer of Equitable Treasurer Variable Life Insurance Company, Equitable of Colorado, Equitable of Colorado, Equitable Casualty of Vermont and Frontier Trust Company. Gordon Dinsmore ( ) Senior Vice President of Equitable. Chief Actuary of Vice President Equitable since 1996. Head of Equitable's Annuity Products and Services group from 1991 to 1996. Michael S. Martin ( ) Senior Vice President and Chief of The Marketing Group Vice President in Agency Operations of Equitable. Chairman and Chief Executive Officer of EQ Financial Consultants, Inc. Edna H. Russo ( ) Vice President of Equitable since 1986. First Vice President Vice President of EQ Financial Consultants, Inc. since 1997. Barry A. Schub ( ) Senior Vice President of the Income Management Group of Vice President Equitable since 1996. Prior thereto, he held various positions for eighteen years with Bankers Trust Company. 39 NAME, AGE AND POSITION WITH TRUST PRINCIPAL OCCUPATION DURING LAST FIVE YEARS - ----------------------- ------------------------------------------- Samuel B. Shlesinger ( ) Senior Vice President of Equitable. President Vice President of Equitable of Colorado. Marty Telles ( ) Executive Vice President and Chief Marketing Officer of Vice President Equico Securities since 1993. Director of Royal Alliance. Stanley B. Tulin ( ) Senior Vice President and Chief Financial Officer of Vice President Equitable since 1996. Co-Chairman of the Insurance Industry Practice group of Coopers & Lybrand. Allen T. Zabusky (45) Vice President and Deputy Controller of Equitable since Vice President and 1990. Controller of Equitable of Colorado Inc. since 1996. Controller Rose A. Osorio ( ) Vice President of EQ Financial Consultants, Inc. since 1997. Assistant Vice President Assistant Compliance Manager in the Law Department of Equitable from 1995 to 1997. Manager of Legal Administration at Bertelsmann, Inc. from 1991 to July 1995. James Rooney ( ) Vice President/Director of Fund Administration & Assistant Treasurer Compliance and Control of Chase Global Funds Services Company since 1994; and Assistant Vice President/Manager Fund Compliance from 1992 to 1994. Karl O. Hartman (41) Senior Vice President and General Counsel of Chase Assistant Secretary Global Funds Services Company. Lloyd Lipsett ( ) Vice President and Associate General Counsel of Chase Assistant Secretary Global Funds Services Company since 1997; Associate at Hale and Dorr from 1995 to 1997; Associate at Choate, Hall & Stewart from 1993 to 1995; and Associate at Rogers & Wells from 1990 to 1993.
INVESTMENT MANAGEMENT AND OTHER SERVICES THE MANAGER The Manager, EQ Financial Consultants, Inc., 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- 40 owned subsidiary of Equitable Holding Corporation, a wholly-owned subsidiary of Equitable. Equitable, which is a New York life insurance company and one of the largest life insurance companies in the United States, is a wholly-owned subsidiary of The Equitable Companies Incorporated ("The Equitable Companies"), a publicly-owned holding company. The principal offices of The Equitable Companies and Equitable are located at 1290 Avenue of the Americas, New York, New York 10104. AXA, a French insurance holding company, currently owns approximately 63.9% of the outstanding voting shares of common stock of The Equitable Companies. As majority shareholder of the Equitable Companies, AXA is able to exercise significant influence over the operations and capital structure of The Equitable Companies, Equitable and their subsidiaries. AXA is the holding company for an international group or insurance and related financial services companies. AXA is the second largest insurance group in the world based on worldwide revenues in 1996 and also the world's largest insurer-based investment manager with over $450 billion in assets under management. AXA is also engaged in asset management, investment banking, securities trading and other financial services activities principally in the United States, as well as in Western Europe and the Asia Pacific area. 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). 41 THE ADVISERS On behalf of the T. Rowe Price Equity Income Portfolio and the T. Rowe Price International Stock Portfolio, the Manager has entered into investment advisory agreements ("Advisory Agreements") with T. Rowe Price and Price-Fleming, respectively. The Manager has also entered into Advisory Agreements on behalf of EQ/Putnam Growth & Income Value Portfolio, EQ/Putnam International Equity Portfolio, EQ/Putnam Investors Growth Portfolio and EQ/Putnam Balanced Portfolio with Putnam Management. In addition, the Manager has entered into Advisory Agreements on behalf of MFS Research Portfolio and MFS Emerging Growth Companies Portfolio with MFS. Also, the Manager has entered into Advisory Agreements on behalf of Morgan Stanley Emerging Markets Equity Portfolio and Warburg Pincus Small Company Value Portfolio with MSAM and Warburg, respectively. Finally, the Manager has entered into Advisory Agreements on behalf of Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio with MLAM. The Advisory Agreements obligate T. Rowe Price, Price-Fleming, Putnam Management, MFS, Warburg, MSAM and MLAM to: (i) furnish continuously an investment program for their respective Portfolios; (ii) place all orders for the purchase and sale of investments for their respective Portfolios with brokers or dealers selected by the Manger or an Adviser; and (iii) perform certain limited related administrative functions in connection therewith. The Manager recommends Advisers for each Portfolio to the Trustees based upon its continuing quantitative and qualitative evaluation of each Adviser's skills in managing assets pursuant to specific investment styles and strategies. Unlike many other mutual funds, the Portfolios are not associated with any one portfolio manager, and benefit from independent specialists carefully selected from the investment management industry. Short-term investment performance, by itself, is not a significant factor in selecting or terminating an Adviser, and the Manager does not expect to recommend frequent changes of Advisers. The Trust has obtained from the SEC an order permitting the Manager, subject to certain conditions, to enter into Advisory Agreements with Advisers approved by the Trustees, but without the requirement of shareholder approval. Pursuant to the terms of the SEC order, the Manager is to be able, subject to the approval of the Trustees but without shareholder approval, to employ new Advisers for new or existing Portfolios, change the terms of particular Advisory Agreements or continue the employment of existing Advisers after events that under the 1940 Act and the Advisory Agreements would cause an automatic termination of the agreement. Although shareholder approval will not be required for the termination of Advisory Agreements, shareholders of a Portfolio will continue to have the right to terminate such agreements for the Portfolio at any time by a vote of a majority of outstanding voting securities of the Portfolio. When a Portfolio has more than one Adviser, the assets of each Portfolio are allocated by the Manager among the Advisers selected for the Portfolio. Each Adviser has discretion, subject to oversight by the Trustees, and the Manager, to purchase and sell portfolio assets, consistent with each Portfolio's investment objectives, policies and restrictions and specific investment strategies developed by the Manager. 42 Generally, no Adviser provides any services to any Portfolio except asset management and related recordkeeping services. However, a Portfolio or its affiliated broker-dealer may execute portfolio transactions for a Fund and receive brokerage commissions in connection therewith as permitted by Section 17(e) of the 1940 Act. THE ADMINISTRATOR Pursuant to an administrative agreement ("Mutual Funds Services Agreement"), Chase Global Funds Services Company ("Administrator") 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 Delaware corporation. Its principal place of business is at 73 Tremont Street, Boston, Massachusetts 02108. The Mutual Funds Services Agreement shall remain in effect until April __, 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 Consultants, Inc. and EDI (each also referred to as a "Distributor," and together "Distributors"), each an indirect wholly-owned subsidiary of Equitable. The address for EDI is 1290 Avenue of Americas, New York, New York 10104, and that for EQ Financial Consultants, Inc. is 1755 Broadway, Third Floor, New York, New York 10019. EQ Financial Consultants, Inc. is the distributor for the Trust's Class IA shares and Class IB shares and also serves as the Manager of the Trust. EDI also serves as the distributor for the Trust's Class IA shares Class IB shares. The Trust's distribution agreements with respect to the Class IA shares and Class IB shares, each dated April __, 1997 ("Distribution Agreements"), will remain in effect until April __, 1999, 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 Distributors or their 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 43 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 Distributors 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 Distributors shall accept orders for shares at net asset value without sales commission or load being charged. The Distributors have made no firm commitment to acquire shares of any Portfolio. A description of the 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 March 31, 1997, 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 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. 44 The Distribution Plan and any Rule 12b-1 related agreement that is entered into by the Trust or the Distributors of the Class IB shares in connection with the 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 STRATEGY 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 net 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 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 45 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 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. 46 The net asset value of the shares of each class of a Portfolio of the Trust will be determined once daily, immediately after the declaration of dividends, if any, at the close of business on each business day. The net asset value per share of each class of a Portfolio will be computed by dividing the sum of the investments held by that Portfolio applicable to that class, plus any cash or other assets, minus all liabilities, by the total number of outstanding shares of that class of the Portfolio at such time. All expenses borne by the Trust and each of its Classes, will be accrued daily. The net asset value per share of each Portfolio will be determined and computed as follows, in accordance with generally accepted accounting principles, and consistent with the 1940 Act: o The assets belonging to each Portfolio will include (i) all consideration received by the Trust for the issue or sale of shares of that particular Portfolio, together with all assets in which such consideration is invested or reinvested, (ii) all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, (iii) any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, and (iv) "General Items", if any, allocated to that Portfolio. "General Items" include any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular Portfolio. General Items will be allocated as the Trust's Board of Trustees considers fair and equitable. o The liabilities belonging to each Portfolio will include (i) the liabilities of the Trust in respect of that Portfolio, (ii) all expenses, costs, changes and reserves attributable to that Portfolio, and (iii) any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular Portfolio which have been allocated as the Trust's Board of Trustees considers fair and equitable. The value of each Portfolio will be determined at the close of business on each "business day," 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 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 47 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 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. 48 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. 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. 49 As a regulated investment company, each Portfolio will not be subject to federal income or excise tax on any of its net investment income or net realized capital gains which are timely distributed to shareholders under the Code. A number of technical rules are prescribed for computing net investment income and net capital gains. For example, dividends are generally treated as received on the ex-dividend date. Also, certain foreign currency losses and capital losses arising after October 31 of a given year may be treated as if they arise on the first day of the next taxable year. A Portfolio investing in foreign securities or currencies may be subject to foreign taxes which could reduce the investment performance of such Portfolio. However, if foreign securities comprise more than 50% of the year-end value of a Portfolio, the Portfolio may elect to pass through such foreign taxes as a deemed dividend to shareholders. In such a case the shareholder and not the Portfolio would be entitled to claim a federal tax deduction or credit for foreign taxes, as appropriate. The deduction or credit will not necessarily result in a direct or immediate benefit to Contractowners. 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. 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 50 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 United States Government agency or instrumentality is treated as a separate issuer. Compliance with the regulations is tested on the first day of each calendar year quarter. There is a thirty (30) day period after the end of each calendar year quarter in which to cure any non-compliance. FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND FORWARD FOREIGN EXCHANGE CONTRACTS Certain option, futures, and forward foreign exchange contracts, including options and futures on currencies, 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 generally 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 51 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. Future 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 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. Under Internal Revenue Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer's functional currency (i.e., unless certain special rules apply, currencies other than the U.S. dollar). In general, foreign currency gains or losses from forward contracts, from futures contracts that are not "regulated futures contracts", and from unlisted options will be treated as ordinary income or loss under Code Section 988. Also, certain foreign exchange gains or losses derived with respect to foreign fixed-income securities are also subject to Section 988 treatment. In general, therefore, Code Section 988 gains or losses will increase or decrease the amount of a Portfolio's investment company taxable income available to be distributed to shareholders as ordinary income, rather than increasing or decreasing the amount of a Portfolio's net capital gain. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, a Portfolio would not be able to make any ordinary dividend distributions. If a Portfolio invests in an entity which is classified as a "passive foreign investment company" ("PFIC") for United States tax purposes, the application of certain technical tax provisions applying to such companies could result in the imposition of federal income tax with respect to such investments at the Portfolio level which could not be eliminated by distributions to shareholders. It is not anticipated that any taxes on the Portfolio with respect to investments in PFIC's would be significant. 52 PORTFOLIO PERFORMANCE COMPUTATION OF TOTAL RETURN Each Portfolio may provide average annual total return information calculated according to a formula prescribed by the SEC. According to that formula, average annual total return figures represent the average annual compounded rate of return for the stated period. Average annual total return quotations reflect the percentage change between the beginning value of a static account in the Portfolio and the ending value of that account measured by the then current net asset value of that Portfolio assuming that all dividends and capital gains distributions during the stated period were invested in shares of the Portfolio when paid. Total return is calculated by finding the average annual compounded rates of return of a hypothetical investment that would equate the initial amount invested to the ending redeemable value of such investment, according to the following formula: T=(ERV/P)1/n -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. 53 OTHER SERVICES INDEPENDENT ACCOUNTANTS Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036, serves as the Trust's independent accountants. Price Waterhouse LLP is responsible for auditing the annual financial statements of the Trust. Price Waterhouse LLP provides a number of additional related services to the Trust, including, from time to time, the preparation of certain reports. CUSTODIAN Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York 10036 serve as custodian of the Trust's portfolio securities and other assets. Under the terms of the custody agreement between the Trust and Chase Manhattan Bank, Chase Manhattan Bank maintains and deposits in separate accounts cash, securities and other assets of the Portfolios. Chase Manhattan Bank is also required, upon the order of the Trust, to deliver securities held by Chase Manhattan Bank, and to make payments for securities purchased by the Trust. Chase Manhattan Bank has also entered into sub-custodian agreements with a number of foreign banks and clearing agencies, pursuant to which portfolio securities purchased outside the U.S. are maintained in the custody of these entities. TRANSFER AGENT Equitable serves as the transfer agent and dividend disbursing agent for the Trust. Equitable receives no compensation for providing such services for the Trust. COUNSEL Katten Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East Lobby, Suite 700, Washington, D.C. 20007, serves as counsel to the Trust. Sullivan & Worcester, LLP, One Post Office Square, Boston, Massachusetts 02109, serves as counsel to the independent Trustees of the Trust. FINANCIAL STATEMENTS Set forth below is the initial audited Statement of Assets and Liabilities at April 1, 1997 for the Trust. 54 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. 55 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 56 change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. o Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. o Bonds which are rated A possess many favorably investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. o Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. o Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. o Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. o Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. o Bonds which are rated Ca represent obligations which are speculative to a high degree. Such issues are often in default or have other marked shortcomings. o Bonds which are rated C are the lowest class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies modifiers to each rating classification from Aa through B to indicate relative ranking within its rating categories. The modifier "1" indicates that a security ranks in the 57 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. 58 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholder and Board of Trustees of EQ Advisors Trust In our opinion, the accompanying statement of assets and liabilities presents fairly, in all material respects, the financial position of each of the portfolios constituting EQ Advisors Trust (the "Fund") at April 1, 1997, in conformity with generally accepted accounting principles. This financial statement is the responsibility of the Fund's management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this financial statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 April 2, 1997 EQ Advisors Trust Statement of Assets and Liabilities April 1, 1997
T. ROWE PRICE EQ/PUTNAM T. ROWE PRICE INTERNATIONAL EQ/PUTNAM INTERNATIONAL EQUITY INCOME STOCK GROWTH & INCOME EQUITY PORTFOLIO PORTFOLIO VALUE PORTFOLIO PORTFOLIO ------------- ------------- --------------- -------------- Assets Cash $100,000 $ 0 $ 0 $ 0 Deferred organization costs (Note 3) 28,750 28,750 28,750 28,750 ======== ======= ======= ======= Total Assets 128,750 28,750 28,750 28,750 Liabilities Organization costs payable 28,750 28,750 28,750 28,750 Commitments and contingencies (Note 2) Net Assets Common Stock, $.01 par value, unlimited shares authorized, 10,000 shares of Class IA issued and outstanding (of the T. Rowe Price Equity Income Portfolio) 100,000 Total Net Assets $100,000 $ 0 $ 0 $ 0 ======== ======= ======= ======= Net Asset Value per Share $ 10.00 $ 0 $ 0 $ 0 ======== ======= ======= =======
The accompanying notes are an integral part of the financial statements.
EQ/PUTNAM EQ/PUTNAM MFS MFS MORGAN STANLEY WARBURG PINCUS MERRILL LYNCH MERRILL LYNCH INVESTORS GROWTH BALANCED RESEARCH EMERGING GROWTH EMERGING MARKETS SMALL COMPANY WORLD STRATEGY BASIC VALUE PORTFOLIO PORTFOLIO PORTFOLIO COMPANIES PORTFOLIO EQUITY PORTFOLIO VALUE PORTFOLIO PORTFOLIO EQUITY PORTFOLIO - ---------------- --------- --------- ------------------- ----------------- --------------- -------------- ---------------- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 ------ ------ ------ ------ ------ ------ ------ ------ 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 28,750 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ====== ====== ====== ====== ====== ====== ====== ======= $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ====== ====== ====== ====== ====== ====== ====== =======
NOTE 1 ORGANIZATION EQ Advisors Trust (the "Trust") was organized as a Delaware business trust on October 31, 1996 and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company with diversified and non-diversified series portfolios. Its shares are registered with the SEC under the Securities Act of 1933, as amended. It is anticipated that the Trust will offer twelve portfolios (the "Portfolios") each with two classes of shares: Class IA and Class IB. 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 issued by The Equitable Life Assurance Society of the United States ("Equitable"), a wholly-owned subsidiary of The Equitable Companies Incorporated. The Trust has had no operations other than the issuance of 10,000 shares of its Class IA common stock of the T. Rowe Price Equity Income Portfolio (the "Portfolio") to Equitable Separate Account FP on April 1, 1997. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. NOTE 2 AGREEMENTS The Trust intends to enter into an investment management agreement (the "Management Agreement") with EQ Financial Consultants, Inc. (the "Manager"), an indirect wholly-owned subsidiary of Equitable. The Management Agreement obligates the Manager to (i) provide investment, management and certain administrative services to the Trust; (ii) select Advisers for the Portfolios; (iii) monitor the Advisers' 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. For its services under the Management Agreement, the Manager will receive an annual fee for each of the Portfolios, calculated daily and payable quarterly. The fee is calculated based on an annual rate of .55% of average daily net assets of the T. Rowe Price Equity Income Portfolio, the EQ/Putnam Growth & Income Value Portfolio, the EQ/Putnam Investors Growth Portfolio, the EQ/Putnam Balanced Portfolio, the MFS Research Portfolio, the MFS Emerging Growth Companies Portfolio and the Merrill Lynch Basic Value Equity Portfolio; .65% of average daily net assets of the Warburg Pincus Small Company Value Portfolio; .70% of average daily net assets of the EQ/Putnam International Equity Portfolio and the Merrill Lynch World Strategy Portfolio; .75% of average daily net assets of the T. Rowe Price International Stock Portfolio, and 1.15% of average daily net assets of the Morgan Stanley Emerging Markets Equity Portfolio. The Trust intends to enter into distribution agreements with the Manager and Equitable Distributors, Inc. ("EDI"), an indirect wholly-owned subsidiary of Equitable (collectively, the "Distributors") pursuant to which the Distributors will serve as principal underwriters of the Class IA and Class IB shares of the Trust. Class IB shares are subject to distribution fees imposed pursuant to a distribution plan ("Distribution Plan") adopted pursuant to Rule 12b-1 under the 1940 Act. Under the Distribution Plan, the Distributors will be entitled to receive a distribution fee of .25% of the average net assets attributable to the Trust's Class IB shares. The Trust's Class IA shares will not be subject to such fees. On behalf of the Trust, the Manager intends to enter into investment advisory agreements ("Advisory Agreements") with unaffilated sub-advisers. Each of the Advisory Agreements obligates the sub-advisers for the respective Portfolios to: (i) continuously furnish investment programs for the Portfolios; (ii) place all orders for the purchase and sale of investments for the Portfolios with brokers or dealers selected by the Manager or the respective sub-advisers; and (iii) perform certain limited related administrative functions in connection therewith. The Manager pays the expenses of providing investment advisory services to the Portfolios, including the fees of the sub-advisers of each Portfolio. The Trust intends to enter into an Administrative Agreement, with Chase Global Funds Services Company ("Chase Global"), a subsidiary of The Chase Manhattan Bank, ("Chase"), pursuant to which Chase Global will provide certain transfer agent, fund accounting and administrative services to the Trust. For such services, Chase Global will receive compensation at the annual rate of .0525 of 1% of the total Trust assets, plus $25,000 for each Portfolio, until the total Trust assets reach $2.0 billion, and when the total Trust assets exceed $2.0 billion: .0425 of 1% of the first $500 million of the total Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets; .025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of the next $2.5 billion of the total Trust assets; and .010 of 1% of the total Trust assets in excess of $6.0 billion; except that the annual fee payable to Chase Global with respect to any Portfolio which commences operation after July 1, 1997 and whose assets do no exceed $200 million shall be computed at the rate of .0525 of 1% of the Portfolio's total assets plus $25,000. The Trust intends to enter into a Custody Agreement with Chase. The Custody Agreement will provide for an annual fee based on the amount of assets under custody plus transaction charges. In the interest of limiting expenses of each of the Portfolios, the Manager has entered into an expense limitation agreement with the Trust, with respect to each Portfolio, ("Expense Limitation Agreements") pursuant to which the Manager has agreed to waive or limit its fees and to assume other expenses so that the total annual operating expenses of each Portfolio are limited to .85% of the respective average daily net assets of the T. Rowe Price Equity Income, EQ/Putnam Growth & Income Value, EQ/Putnam Investors Growth, MFS Research, MFS Emerging Growth Companies and Merrill Lynch Basic Value Equity Portfolios; .90% of the EQ/Putnam Balanced Portfolio's average daily net assets; 1.00% of the Warburg Pincus Small Company Value Portfolio's average daily net assets; 1.20% of the respective average daily net assets of the T. Rowe Price International Stock, EQ/Putnam International Equity and Merrill Lynch World Strategy Portfolios; and 1.75% of the Morgan Stanley Emerging Markets Equity Portfolio's average daily net assets. Each Portfolio may at a later date reimburse to the Manager the management fees waived or limited and other expenses assumed and paid by the Manager pursuant to the Expense Limitation Agreement provided such Portfolio has reached a sufficient asset size to permit such reimbursement to be made without causing the total annual expense ratio of each Portfolio to exceed the percentage limit stated above. Consequently, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's average daily net assets exceed $100 million; (ii) the Portfolio's total annual expense ratio is less than the respective percentages stated above; and (iii) the payment of such reimbursement has been approved by the Trust's Board of Trustees on a quarterly basis. Certain employees of the Manager and Chase Global are officers of the Trust. NOTE 3 ORGANIZATION COSTS Trust organization costs estimated at $345,000 have been allocated equally to and capitalized by each of the Portfolios and will be deferred and amortized on a straight line basis over a 60-month period from the date the Portfolios commence operations. In the event that any of the shares representing initial capital of the Portfolios are redeemed by any holder thereof during the period that the Portfolios are amortizing their organization costs, the redemption proceeds payable to the holder thereof by the Portfolios will be reduced by the unamortized organization costs in the same ratio as the number of such shares being redeemed bears to the number of initial shares outstanding immediately prior to redemption. The Trust has entered into an Organization Expense Reimbursement Agreement with the Manager under which the Trust is obligated to reimburse and pay to the Manager, or affiliated companies of the Manager and its affiliates, organizational expenses incurred prior to the Portfolios commencing operations. PART C: OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements: Part B - Statement of Additional Information Statement of Assets and Liabilities at April 1, 1997 for EQ Advisors Trust. (b) Exhibits: 1(a). Agreement and Declaration of Trust.* 1(b). Amended and Restated Agreement and Declaration of Trust.** 1(c). Certificate of Trust.* 1(d). Certificate of Amendment.** 2. By-Laws of the Trust.* 3. Not applicable. 4. None other than Exhibit 1. 5(a). Form of Investment Management Agreement between EQ Advisors 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.* 5(f). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and Morgan Stanley Asset Management Inc. 5(g). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and Warburg, Pincus Counsellors, Inc. (to be filed by amendment) 5(h). Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and Merrill Lynch Asset Management, L.P. (to be filed by amendment) 6(a). Form of Distribution Agreement between EQ Advisors Trust and EQ Financial Consultants, Inc. with respect to the Class IA shares. C-1 6(b). Form of Distribution Agreement between EQ Advisors Trust and EQ Financial Consultants, Inc. with respect to the Class IB shares. 6(c). Form of Distribution Agreement between EQ Advisors Trust and Equitable Distributors, Inc. with respect to the Class IA shares. 6(d). Form of Distribution Agreement between EQ Advisors Trust and Equitable Distributors, Inc. with respect to the Class IB shares. 7. Form of Deferred Compensation Plan. 8. Form of Custody Agreement between EQ Advisors Trust and North American Insurance Securities Division of the Chase Manhattan Bank. 9(a). Form of Mutual Fund Services Agreement between EQ Advisors Trust and Chase Global Funds Services Company. 9(b). Form of Expense Limitation Agreement between EQ Advisors Trust, on behalf of each series of the Trust, and EQ Financial Consultants, Inc. 9(c). Form of Organizational Expense Reimbursement Agreement between EQ Advisors Trust, on behalf of each series of the Trust, and EQ Financial Consultants, Inc. 9(d). Form of Participation Agreement. 9(e). License Agreement Relating to Use of Name between Merrill Lynch & Co., Inc., and EQ Advisors Trust. (to be filed by amendment) 10. Opinion and Consent of Katten Muchin & Zavis regarding the legality of the securities being registered.* 11. Consent of Price Waterhouse LLP, Independent Public Accountants. 12. Not applicable. 13. Form of Stock Subscription Agreement between the Trust , on behalf of the T. Rowe Price Equity Income Portfolio, and Separate Account FP. 14. Not Applicable. 15. Form of Distribution Plan Pursuant to Rule 12b-1 for the Trust's Class IB Shares.* 16. Not Applicable. 18. Form of Plan Pursuant to Rule 18f-3 under the 1940 Act.* 19. Not Applicable. 20. Power of Attorney. 27. Financial Data Schedule - --------------- * Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on December 3, 1996 (File No. 33-17217). ** Incorporated herein by reference to Registrant's Registration Statement on Form N-1A filed on January 23, 1997 (File No. 33-17217). Item 25. Persons Controlled by or under Common Control with Registrant Upon commencement of the EQ Advisors Trust's operations, and Separate Account FP, a separate account of The Equitable Life Assurance Society of the United States ("Equitable"), will be the sole initial shareholder of the EQ Advisors Trust and will control the EQ C-2 Advisors Trust by virtue of its ownership of 100% of the EQ Advisors Trust's outstanding shares. All EQ Advisors Trust shareholders are required to solicit instructions from their respective contract owners as to certain matters. EQ Advisors Trust may in the future offer its shares to insurance companies unaffiliated with Equitable 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. AXA, a French insurance holding company, currently owns approximately 63.9% of the outstanding voting shares of common stock of The Equitable Companies. As majority shareholder of the Equitable Companies, AXA is able to exercise significant influence over the operations and capital structure of The Equitable Companies, Equitable and their subsidiaries. AXA is the holding company for an international group or insurance and related financial services companies. AXA is the second largest insurance group in the world based on worldwide revenues in 1996 and also the world's largest insurer-based investment manager with over 8450 billion in assets under management. AXA is also engaged in asset management, investment banking, securities trading and other financial services activities principally in the United States, as well as in Western Europe and the Asia Pacific area. Item 26. Number of Holders of Securities NUMBER OF RECORD HOLDERS TITLE OF CLASS AS OF APRIL 1, 1997 - ------------------------------ --------------------- Class IA Shares of beneficial interest 1 Class IB Shares of beneficial interest None Item 27. Indemnification Amended and Restated Agreement and Declaration of Trust ("Declaration of Trust") and By- Laws. Article VII, Section 2 of the Trust's Declaration of Trust of EQ Advisors Trust ("Trust") states, in relevant part, that a "Trustee, when acting in such capacity, shall not be personally liable to any Person, other than the Trust or a Shareholder to the extent provided in this Article VII, for any act, omission or obligation of the Trust, of such Trustee or of any other Trustee. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, Manager, or Principal Underwriter of the Trust. The Trust shall indemnify each Person who is serving or has served at the Trust's request as a director, officer, trustee, employee, or agent of another organization in which the Trust has any interest as a shareholder, creditor, or otherwise to the extent and in the manner provided in the By-Laws." Article VII, Section 4 of the Trust's Declaration of Trust further states, in relevant part, that the "Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Trust assets insurance for liability and for all expenses reasonably incurred or paid or expected to be paid by a Trustee, officer, employee, or agent of the Trust in connection with any claim, action, suit, or proceeding in which he or she may become involved by virtue of his or her capacity or former capacity as a Trustee of the Trust." Article VI, Section 2 of the Trust's By-Laws states, in relevant part, that "[s]ubject to the exceptions and limitations contained in Section 3 of this Article VI, every [Trustee, officer, employee or other agent of the Trust] shall be indemnified by the Trust to the fullest extent permitted by law against all liabilities and against all expenses reasonably incurred or paid by him or her in connection with any proceeding in which he or she becomes involved as a party or otherwise by virtue of his or her being or having been an agent." Article VI, Section 3 of the Trust's By-Laws further states, in C-3 relevant part, that "[n]o indemnification shall be provided hereunder to [a Trustee, officer, employee or other agent of the Trust]: (a) who shall have been adjudicated, by the court or other body before which the proceeding was brought, to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office (collectively, "disabling conduct"); or (b) with respect to any proceeding disposed of (whether by settlement, pursuant to a consent decree or otherwise) without an adjudication by the court or other body before which the proceeding was brought that such [Trustee, officer, employee or other agent of the Trust] was liable to the Trust or its Shareholders by reason of disabling conduct, unless there has been a determination that such [Trustee, officer, employee or other agent of the Trust] did not engage in disabling conduct: (i) by the court or other body before which the proceeding was brought; (ii) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the proceeding based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (iii) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry); provided, however, that indemnification shall be provided hereunder to [a Trustee, officer, employee or other agent of the Trust] with respect to any proceeding in the event of (1) a final decision on the merits by the court or other body before which the proceeding was brought that the [Trustee, officer, employee or other agent of the Trust] was not liable by reason of disabling conduct, or (2) the dismissal of the proceeding by the court or other body before which it was brought for insufficiency of evidence of any disabling conduct with which such [Trustee, officer, employee or other agent of the Trust] has been charged." Article VI, Section 4 of the Trust's By-Laws also states that the "rights of indemnification herein provided (i) may be insured against by policies maintained by the Trust on behalf of any [Trustee, officer, employee or other agent of the Trust], (ii) shall be severable, (iii) shall not be exclusive of or affect any other rights to which any [Trustee, officer, employee or other agent of the Trust] may now or hereafter be entitled and (iv) shall inure to the benefit of [such party's] heirs, executors and administrators." UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 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. C-4 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 forth in Putnam Investment Management, Inc.'s Form ADV filed with the Securities and Exchange Commission on April 2, 1996 (File No. 801-07974) and amended through the date hereof, is incorporated by reference. The information as to the directors and officers of Massachusetts Financial Services Company is set forth in Massachusetts Financial Services Company's Form ADV filed with the Securities and Exchange Commission on May 23, 1996 (File No. 801-17352) and amended through the date hereof, is incorporated by reference. The information as to the directors and officers of Morgan Stanley Asset Management Inc. is set forth in Morgan Stanley Asset Management Inc.'s Form ADV filed with the Securities and Exchange Commission on July 8, 1996 (File No. 801-15757) and amended through the date hereof, is incorporated by reference. The information as to the directors and officers of Warburg, Pincus Counsellors, Inc. is set forth in Warburg, Pincus Counsellors, Inc.'s Form ADV filed with the Securities and Exchange Commission on April 4, 1996 (File No. 801-07321) and amended through the date hereof, is incorporated by reference. The information as to the directors and officers of Merrill Lynch Asset Management, L.P. is set forth in Merrill Lynch Asset Management, L.P.'s Form ADV filed with the Securities and Exchange Commission on November 18, 1996 (File No. 801-11583) 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 Class IB shares, and Equitable Distributors, Inc. is also the principal underwriter of the Trust's Class IA shares and Class IB shares. EQ Financial Consultants Inc. also serves as the principal underwriter for the following entities: the Class IA shares 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., and of Equitable Distributors, Inc., the principal underwriters of the Trust's Class IA and Class IB shares. The business address of the persons whose names are preceded by a single asterisk is EQ Advisors 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. C-5
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH BUSINESS ADDRESS EQ FINANCIAL CONSULTANTS, REGISTRANT INC. DIRECTORS * Derry E. Bishop Director * Harvey Blitz Director Chief Financial Officer and Vice President Barbara J. Krumsiek Director * Michael S. Martin Director ** Michael F. McNelis Director Vice President * Richard V. Silver Director * Mark R. Wut Director OFFICERS * Michael S. Martin Chairman of the Board and Vice President Chief Executive Officer ** Michael F. McNelis President and Chief Operating Officer * Derry E. Bishop Executive Vice President * Harvey Blitz Executive Vice President Chief Financial Officer and Vice President * Gordon G. Dinsmore Executive Vice President Vice President * Donald D. Higgins Executive Vice President ** Martin J. Telles Executive Vice President and Vice President 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 President * Dennis D. Witte Executive Vice President ** Robert McKenna Senior Vice President and Chief Financial Officer ** Theresa A. Nurge-Alws Senior Vice President ** 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 Mary Breen Secretary and Vice President C-6 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH BUSINESS ADDRESS EQUITIABLE DISTRIBUTORS, REGISTRANT INC. DIRECTORS * James M. Benson Director Greg Brakovich Director * Jerome S. Golden Director * William T. McCaffrey Director Trustee James A. Shepherdson, III Director OFFICERS * Jerome S. Golden Chairman of the Board * Greg Brakovich Co-President and Co-Chief Executive Officer and Managing Director * James A. Shepherdson, III Co-President and Co-Chief Executive Officer and Managing Director * Dennis D. Witte Philip D. Meserve Senior Vice President * Thomas D. Bullen Managing Director ** Michael Brzozowski Chief Financial Officer * Ronald R. Quist Chief Compliance Officer * Janet Hannon Treasurer * Linda J. Galasso Secretary 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: 1211 Avenue of the Americas New York, New York 10036 (b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D); (4); (5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and records are currently maintained at the offices of the Registrant's Administrator: 73 Tremont Street Boston, Massachusetts 02108 (c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the required books and records are maintained at the principal offices of the Registrant's Manager or Advisers: EQ Financial Consultants, Inc. T. Rowe Price Associates, Inc. 1755 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 C-7 Massachusetts Financial Services Company Merrill Lynch Asset Management, L.P. 500 Boylston Street 800 Scudders Mill Road Boston, MA 02116 Plainsboro, New Jersey 08543-9011 Warburg, Pincus Counsellors, Inc. Morgan Stanley Asset Management Inc. 466 Lexington Avenue 1221 Avenue of the Americas New York, New York 10017-3147 New York, New York 10020 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,as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Pre-Effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and the State of New York on the 31st day of March, 1997. EQ ADVISORS TRUST By: /s/ Peter D. Noris ----------------------------- Peter D. Noris President Pursuant to the requirements of the Securities Act of 1933, as amended, this 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 March 31,1997 - -------------------------------- Peter D. Noris /s/ William McCaffrey Trustee March 31, 1997 - -------------------------------- William McCaffrey /s/ Jettie M. Edwards Trustee March 31, 1997 - -------------------------------- Jettie M. Edwards /s/ William M. Kearns, Jr. Trustee March 31, 1997 - -------------------------------- William M. Kearns, Jr. /s/ Christopher P.A. Komisarjevsky Trustee March 31, 1997 - ---------------------------------- Christopher P.A. Komisarjevsky /s/ Harvey Rosenthal Trustee March 31, 1997 - -------------------------------- Harvey Rosenthal /s/ Harvey Blitz Chief Financial Officer March 31, 1997 - -------------------------------- Harvey Blitz
C-9 EXHIBIT LIST EXHIBIT NUMBER DESCRIPTION 5(f) Form of Investment Advisory Agreement between EQ Financial Consultants, Inc. and Morgan Stanley Asset Management Inc. 6(a) Form of Distribution Agreement between EQ Advisors Trust and EQ Financial Consultants, Inc. with respect to the Class IA shares. 6(b) Form of Distribution Agreement between EQ Advisors Trust and EQ Financial Consultants, Inc. with respect to the Class IB shares. 6(c) Form of Distribution Agreement between EQ Advisors Trust and Equitable Distributors, Inc. with respect to the Class IA shares. 6(d) Form of Distribution Agreement between EQ Advisors Trust and Equitable Distributors, Inc., with respect to the Class IB shares. 7 Form of Deferred Compensation Plan. 8 Form of Custody Agreement between EQ Advisors Trust and North American Insurance Securities Division of the Chase Manhattan Bank. 9(a) Form of Mutual Fund Services Agreement between EQ Advisors Trust and Chase Global Funds Services Company. 9(b) Form of Expense Limitation Agreement between EQ Advisors Trust, on behalf of each series of the Trust, and EQ Financial Consultants, Inc. 9(c) Form of Organizational Expense Reimbursement Agreement between EQ Advisors Trust, on behalf of each series of the Trust, and EQ Financial Consultants, Inc. 9(d) Form of Participation Agreement. 11 Consent of Price Waterhouse LLP, Independent Public Accountants. 13 Form of Stock Subscription Agreement between the Trust, on behalf of the T. Rowe Price Equity Income Portfolio, and Separate Account FP. 20 Power of Attorney. 27 Financial Data Schedule. EX-5.(F) 2 FORM OF INVESTMENT ADVISORY AGREEMENT EXHIBIT 5(f) FORM OF INVESTMENT ADVISORY AGREEMENT AGREEMENT, dated as of [date], by and between EQ Financial Consultants, Inc., a Delaware corporation ("EQ Financial" or the "Manager"), and Morgan Stanley Asset Management, Inc., a Delaware corporation (the "Adviser"). WHEREAS, EQ Advisors Trust (the "Trust") is registered as an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"); WHEREAS, the Trust's shareholders are and will be separate accounts maintained by insurance companies for variable life insurance policies and variable annuity contracts (the "Policies") under which income, gains, and losses, whether or not realized, from assets allocated to such accounts are, in accordance with the Policies, credited to or charged against such accounts without regard to other income, gains, or losses of such insurance companies; WHEREAS, the Trust is and will continue to be a series fund having two or more investment portfolios, each with its own investment objectives, policies and restrictions; WHEREAS, EQ Financial is registered as an investment adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act") and is the investment manager to the Trust; WHEREAS, the Adviser is registered as an investment adviser under the Advisers Act; WHEREAS, the Investment Company Act prohibits any person from acting as an investment adviser to a registered investment company except pursuant to a written contract (the "Agreement"); and WHEREAS, the Board of Trustees of the Trust and EQ Financial desire to retain the Adviser to render investment advisory services to the portfolio specified in Schedule 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, and requirements applicable to registered investment companies under other applicable laws; (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; provided, however, Adviser shall not be required to provide the name or identity of any client (other than a registered investment company) with respect to such information, records and supporting documentation, nor shall Adviser be required to provide any information which is considered by it to be confidential; and (vii) establish appropriate interfaces with the Trust's administrator and Manager in order to provide such administrator and Manager with all necessary information reasonably 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 fully and in good faith 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. In accordance with Section 11(a) of the Securities Exchange Act of 1934, as amended ("1934 Act") and subject to any other applicable laws and regulations, including Section 17(e) of the Investment Company Act and Rule 17e-1 thereunder, the Adviser may engage affiliates and broker-dealers to effect portfolio transaction in securities for the Portfolio. 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 1934 Act, 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. 3 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 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 affiliates, directors, officers, or employees nor anyone who controls the Adviser (or any of its affiliates, directors, officers, or employees) within the meaning of Section 15 of the Securities Act of 1933, as amended ("1933 Act"), 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 affiliates, directors, officers or employees. The Adviser, its affiliates, directors, officers or employees and anyone who controls the Adviser (and any of its affiliates, directors, officers and employees) within the meaning of Section 15 of the 1933 Act 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. 4 5. NON-EXCLUSIVITY The services of the Adviser to the Portfolio and the Trust are not to be deemed to be exclusive, and the Adviser shall be free to render investment advisory or other services to others (including other investment companies) and to engage in other activities. It is understood and agreed that the directors, officers, and employees of the Adviser are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, directors, trustees, or employees of any other firm or corporation, including other investment companies. 6. SUPPLEMENTAL ARRANGEMENTS The Adviser may 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. 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 the Adviser is required by applicable law or regulatory authorities to retain as well as those records that the Adviser 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. In such event, the Adviser will be permitted to retain duplicates of such records as are required by the Adviser to be retained under applicable law or by regulatory authorities. 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 required or requested by applicable federal or state regulatory authorities or self regulatory organization of which the Adviser or its affiliates may be a member. 9. DURATION OF AGREEMENT This Agreement shall become effective with respect to the Portfolio on the later of the date of its execution or the date of the commencement of operations of the Portfolio. This 5 Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually by the Board of Trustees, provided that in such event such continuance shall also be approved by the vote of a majority of the Trustees who are not "interested persons" (as defined in the Investment Company Act) ("Independent Trustees") of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. 10. TERMINATION OF AGREEMENT This Agreement may be terminated at any time, without the payment of any penalty, by the Board of Trustees, including a majority of the Independent Trustees, by the vote of a majority of the outstanding voting securities of the Portfolio, on sixty (60) 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, including the name "Morgan Stanley") in Trust promotional or sales related materials prepared by or on behalf of the Manager of the Trust without prior review and approval by the Adviser, which may not be unreasonably withheld or delayed. The Manager and the Trust agree that if this Agreement is 6 terminated and the Adviser or an affiliate of the Adviser shall no longer be the adviser to the Portfolio, the Trust will change the name of the Portfolio to delete any reference to "Morgan Stanley." 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 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. 7 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. 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] MORGAN STANLEY ASSET MANAGEMENT INC. By:________________________________ [Name, Title] 8 APPENDIX A Portfolio Advisory Fee - --------- ------------ Morgan Stanley Emerging Markets Equity Portfolio 1.15% of the Portfolio's average daily net assets up to and including $100 million; .90% of the Portfolio's average daily net assets over $100 million and up to and including $150 million; .80% of the Portfolio's average daily net assets over $150 million and up to and including $200 million; .60% of the Portfolio's average daily net assets over $200 million and up to and including $500 million; and .40% of the Portfolio's average daily net assets in excess of $500 million. 9 EX-6.(A) 3 DISTRIBUTION AGREEMENT CLASS 1A SHARES EXHIBIT 6(a) DISTRIBUTION AGREEMENT CLASS IA SHARES EQ FINANCIAL CONSULTANTS, INC. AGREEMENT, dated as of ___________, 1997 by and between EQ Advisors Trust (the "Trust") and EQ Financial Consultants, Inc. ("EQ Financial"). W I T N E S S E T H: WHEREAS, the Trust is a Delaware business trust whose shareholders are and will be separate accounts in unit investment trust form ("Eligible Separate Accounts") of insurance companies ("Participating Insurance Companies"); and WHEREAS, such Participating Insurance Companies issue, among other products, variable insurance and annuity products ("Variable Products") whose net premiums, contributions or other considerations may be allocated to Eligible Separate Accounts for investment in the Trust; and WHEREAS, the Trust's Class IA shares will not be sold except in connection with such Variable Products or directly to tax-qualified pension and retirement plans ("Qualified Plans") outside the separate account context; and WHEREAS, the Trust desires that EQ Financial undertake marketing activities with respect to the Class IA Shares of the Trust's constituent series or investment portfolios ("Portfolios") Portfolios; and WHEREAS, the Trust is registered as an open-end investment company under the Investment Company Act of 1940 ("Investment Company Act"); and WHEREAS, the Investment Company Act prohibits any principal underwriter for a registered open-end management investment company from offering for sale, selling, or delivering after sale any security of which such company is the issuer, except pursuant to a written contract with such investment company, and EQ Financial will be a distributor for sale of the Class IA shares issued by the Trust; and WHEREAS, EQ Financial is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, ("Securities Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"). NOW THEREFORE, the Trust and EQ Financial agree as follows: Section 1. The Trust has adopted a form of Participation Agreement, which was approved by the Board of Trustees of the Trust. This Agreement shall be subject to the provisions of the form of Participation Agreement, the terms of which are incorporated herein by reference, made a part hereof and controlling. The form of Participation Agreement may be amended or superseded, without prior notice, and this Agreement shall be deemed amended to the extent the form of Participation Agreement is amended or superseded. EQ Financial represents and warrants that it will act in a manner consistent with such form of Participation Agreement as it is currently set forth and as it may be amended or superseded, so long as EQ Financial serves as the principal underwriter of the Class IA shares of the Trust. Section 2. EQ Financial is hereby authorized, from time to time, to enter into separate written agreements ("Sales Agreements" or, individually, a "Sales Agreement"), on terms and conditions not inconsistent with this Agreement, with Participating Insurance Companies which have Eligible Separate Accounts and which agree to participate in the distribution of the Trust's Class A shares, directly or through affiliated broker dealers by means of distribution of Variable Products and to use their best efforts to solicit applications for Variable Products. EQ Financial may not enter into any Sales Agreement with any Participating Insurance Company that is more favorable than that maintained with any other Participating Insurance Company and Eligible Separate Account, except that not all Portfolios of the Trust need be made available for investment by all Participating Insurance Companies, Eligible Separate Accounts or Variable Products. The Board of Trustees of the Trust may, in its sole discretion, determine that certain Portfolios and classes of shares of the Trust shall be available only to certain types of Variable Products or to a single Participating Insurance Company and its affiliates. Section 3. Such Participating Insurance Companies and their agents or representatives soliciting applications for Variable Products shall be duly and appropriately licensed, registered or otherwise qualified for the sale of Variable Products under any applicable insurance laws and any applicable securities laws of one or more states or other jurisdictions in which Variable Products may be lawfully sold. Each such Participating Insurance Company shall, when required by law, be both registered as a broker-dealer under the Securities Exchange Act and a member of the NASD. Each such Participating Insurance Company shall agree to comply with all laws and regulations, whether federal or state, and whether relating to insurance, securities or other general areas, including but not limited to the recordkeeping and sales supervision requirements of such laws and regulations. Section 4. The Trust's shares are divided into series or Portfolios, each representing a different portfolio of investments. Each Portfolio is further divided into Class IA and Class IB shares. The Trust's Portfolios and any restrictions on availability for Class IA shares relating thereto are set forth in Schedule A hereto, which may be amended from time to time. Purchases and redemptions of the Trust's Class IA shares of each Portfolio shall be at the net asset value therefor, computed as set forth in the most recent relevant Prospectus and Statement of Additional Information relating to the Trust's Class IA contained in its Registration Statement on Form N-1A, or any amendments thereto (respectively, "Trust Prospectus" and "SAI"), and any supplements thereto and shall be submitted by the Participating Insurance Company to the Trust's transfer agent pursuant to procedures and in accordance with payment provisions adopted by EQ Financial and the Trust from time to time. The Trust's Class IA shares may not be sold or transferred, except to an Eligible Separate Account or Qualified Plan, without the prior approval of the Trust's Board of Trustees. Section 5. The Trust shall not pay any compensation to EQ Financial for services as a distributor hereunder, nor shall the Trust reimburse EQ Financial for any expenses related to -2- such services. EQ Financial may, but need not, pay or charge Participating Insurance Companies pursuant to Sales Agreements, as described in Section 2 hereof. Section 6. The Trust represents to EQ Financial that the Trust Prospectus and SAI, as of their respective effective dates, contain all statements and information which are required to be stated therein by the Securities Act of 1933, as amended ("1933 Act"), and in all respects conform to the requirements thereof, and neither the Trust Prospectus nor the SAI include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing representations shall not apply to information contained in or omitted from the Trust Prospectus and SAI in reliance upon, and in conformity with, written information furnished by EQ Financial specifically for use in the preparation thereof. In this connection, EQ Financial acknowledges that the day-to-day operations of the Trust, including without limitation, investment management, securities brokerage allocation, cash control, accounting, recordkeeping and other administrative, marketing and regulatory compliance functions, are carried on and may in the future be carried on by The Equitable Life Assurance Society of the United States ("Equitable"), affiliates of Equitable, and other parties unaffiliated with Equitable on behalf of the Trust (collectively, the "Preparing Parties"), under various agreements and arrangements, and that such activities in large measure provide the basis upon which statements and information are included or omitted from the Trust Prospectus and SAI. EQ Financial further acknowledges that because of the foregoing arrangements, the preparation of the Trust Prospectus and SAI is substantially in the control of the Preparing Parties, subject to the broad supervisory authority and responsibility of the Trust's Board of Trustees, and that, essentially, the only Trust Prospectus or SAI information not independently known to, or prepared by, the Preparing Parties is personal information as to each Trustee's full name, age, background, business experience and other personal information that may require disclosures under securities laws and for which the Preparing Parties necessarily must rely on each such Trustee to produce. Section 7. The Trust will periodically prepare Prospectuses (and, if applicable, SAIs) and any supplements thereto, proxy materials and annual and semi-annual reports (collectively, the "Documents") and shall, in accordance with the form of Participation Agreement, provide sufficient copies of such Documents or shall make camera ready copy available to EQ Financial for reproduction by EQ Financial or the Participating Insurance Companies. With respect to Documents provided to existing owners of Variable Products, the cost of preparing, printing, mailing or otherwise distributing such Documents shall be borne by the Trust. With respect to the Trust's Class IA shares, the Trust shall not pay the cost of printing, mailing or otherwise distributing such Documents except as specified in this Section 7. The Trust will use its best efforts to provide notice to EQ Financial of anticipated filings or supplements. EQ Financial or the Participating Insurance Companies may alter the form of some or all of the Documents, with the prior approval of the Trust's officers and legal counsel. Any preparation costs associated with altering the form of the Documents will be borne by EQ Financial or the Participating Insurance Companies, not the Trust. Section 8. EQ Financial and officers of the Trust may, from time to time, authorize descriptions of the Trust for use in sales literature or advertising by the Participating Insurance -3- Companies (including brochures, letters, illustrations and other similar materials, whether transmitted directly to potential applicants or published in print or audio-visual media), which authorization will not be unreasonably withheld or delayed. Section 9. EQ Financial shall furnish to the Trust, at least quarterly, reports as to the sales of the Trust's Class IA shares made pursuant to this Agreement. These reports may be combined with any similar report prepared by EQ Financial or any of the Preparing Parties. Section 10. EQ Financial shall submit to all regulatory and administrative bodies having jurisdiction over the operations of EQ Financial, the Trust, or any Participating Insurance Company, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require as authorized by applicable laws or regulations. Section 11. This Agreement shall be subject to the provisions of the Investment Company Act, the Securities Exchange Act and the 1933 Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions and no-action positions as the Securities and Exchange Commission or its staff may grant, and the terms hereof shall be interpreted and construed in accordance therewith. Without limiting the generality of the foregoing, (a) the term "assigned" shall not include any transaction exempted from section 15(b)(2) of the Investment Company Act and (b) the vote of the persons having voting rights in respect of the Trust referred to in Section 12 shall be the affirmative votes of the lesser of (i) the holders of more than 50% of all votes in respect of Class IA shares entitled to be cast in respect of the Trust or (ii) the holders of at least 67% of the votes in respect of Class IA shares which are present at a meeting of such persons if the holders of more than 50% of all votes in respect of Class IA shares entitled to be cast in respect of the Trust are present or represented by proxy at such meeting, in either case voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees. Section 12. This Agreement shall continue in effect only so long as such continuance is specifically approved at least annually by a majority of the Trustees of the Trust who are not interested persons of the Trust or EQ Financial ("Independent Trustees") and by (a) persons having voting rights in respect of the Trust, by the vote stated in Section 11, voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees, or (b) the Board of Trustees of the Trust. This Agreement may be terminated at any time, without penalty, by a majority of the Independent Trustees or by persons having voting rights in respect of the Trust by the vote stated in Section 11. Section 13. This Agreement shall terminate automatically if it shall be assigned. Section 14. The Trust shall indemnify and hold harmless EQ Financial from any and all losses, claims, damages or liabilities (or actions in respect thereof) to which EQ Financial may be subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or result from negligent, improper, fraudulent or unauthorized acts or omissions by the Trust or its officers, trustees, agents or representatives, other than acts or omissions caused directly or indirectly by EQ Financial. -4- EQ Financial will indemnify and hold harmless the Trust, its officers, trustees, agents and representatives against any losses, claims, damages or liabilities, to which the Trust its officers, trustees, agents and representatives may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii) the omission or alleged omission to state any material fact required to be stated in the Trust Prospectus and/or SAI or any supplements thereto or necessary to make the statements therein not misleading; or (iii) other misconduct or negligence of EQ Financial in its capacity as a principal underwriter of the Trust's Class IA shares and will reimburse the Trust, its officers, trustees, agents and representatives for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that EQ Financial shall not be liable in any such instance to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Trust Prospectus and/or SAI or any supplement in good faith reliance upon and in conformity with written information furnished by the Preparing Parties specifically for use in the preparation of the Trust Prospectus and/or SAI. Section 15. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of Delaware and notice is given hereby that this Agreement is executed on behalf of the Trustees of the Trust as trustees and not individually, and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of each Portfolio. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. EQ ADVISORS TRUST By: __________________________________ EQ FINANCIAL CONSULTANTS, INC. By: ___________________________________ -5- SCHEDULE A Portfolios of EQ Advisors Trust T. Rowe Price International Stock Portfolio T. Rowe Price Equity Income Portfolio EQ/Putnam Growth & Income Value Portfolio EQ/Putnam International Equity Portfolio EQ/Putnam Investors Growth Portfolio EQ/Putnam Balanced Portfolio MFS Research Portfolio MFS Emerging Growth Companies Portfolio Morgan Stanley Emerging Markets Equity Portfolio Warburg Pincus Small Company Value Portfolio Merrill Lynch World Strategy Portfolio Merrill Lynch Basic Value Equity Portfolio -6- EX-6.(B) 4 DISTRIBUTION AGREEMENT - CLASS 1B SHARES EXHIBIT 6(b) DISTRIBUTION AGREEMENT CLASS IB SHARES EQ FINANCIAL CONSULTANTS, INC. AGREEMENT, dated as of ____________, 1997 by and between EQ Advisors Trust (the "Trust") and EQ Financial Consultants, Inc. ("EQ Financial"). W I T N E S S E T H: WHEREAS, the Trust is a Delaware business trust whose shareholders are and will be separate accounts in unit investment trust form ("Eligible Separate Accounts") of insurance companies ("Participating Insurance Companies"); and WHEREAS, such Participating Insurance Companies issue, among other products, variable insurance and annuity products ("Variable Products") whose net premiums, contributions or other consideration may be allocated to Eligible Separate Accounts for investment in the Trust; and WHEREAS, the Trust's Class IB shares will not be sold except in connection with such Variable Products or directly to tax-qualified pension and retirement plans ("Qualified Plans") outside the separate account context; and WHEREAS, the Trust has adopted a Distribution Plan with respect to its Class IB shares pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended ("Investment Company Act"); and WHEREAS, the Trust desires that EQ Financial undertake marketing activities with respect to the Class IB shares of the Trust's constituent series or investment portfolios ("Portfolios") and to compensate EQ Financial for services rendered and expenses borne in connection therewith; and WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act; and WHEREAS, the Investment Company Act prohibits any principal underwriter for a registered open-end management investment company from offering for sale, selling, or delivering after sale any security of which such investment company is the issuer, except pursuant to a written contract with such investment company, and EQ Financial will be a distributor for sale of the Class IB shares issued by the Trust; and WHEREAS, EQ Financial is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, ("Securities Exchange Act"), and is a member of the National Association of Securities Dealers, Inc. ("NASD"). NOW THEREFORE, the Trust and EQ Financial agree as follows: Section 1. The Trust has adopted a form of Participation Agreement, which was approved by the Board of Trustees of the Trust. This Agreement shall be subject to the provisions of the form of Participation Agreement, the terms of which are incorporated herein by reference, made a part hereof and controlling. The form of Participation Agreement may be amended or superseded, without prior notice, and this Agreement shall be deemed amended to the extent the form of Participation Agreement is amended or superseded. EQ Financial represents and warrants that it will act in a manner consistent with the form of Participation Agreement as it is currently set forth and as it may be amended or superseded, so long as EQ Financial serves as the principal underwriter of the Class IB shares of the Trust. Section 2. EQ Financial on behalf of the Trust is hereby authorized, from time to time, to enter into separate written agreements ("Sales Agreements" or, individually, a "Sales Agreement"), on terms and conditions not inconsistent with this Agreement, with Participating Insurance Companies that have Eligible Separate Accounts and that agree to participate in the distribution of the Trust's Class IB shares, directly or through their affiliated broker-dealers, by means of the distribution of Variable Products and to use their best efforts to solicit applications for Variable Products. EQ Financial may not enter into any Sales Agreement with any Participating Insurance Company that is more favorable than that maintained with any other Participating Insurance Company and Eligible Separate Account, except that not all Portfolios of the Trust need be made available for investment by all Participating Insurance Companies, Eligible Separate Accounts or Variable Products. The Board of Trustees of the Trust may, in its sole discretion, determine that certain Portfolios and classes of shares of the Trust shall be available only to certain types of Variable Products or to a single Participating Insurance Company and its affiliates. Section 3. Such Participating Insurance Companies and their agents or representatives soliciting applications for Variable Products shall be duly and appropriately licensed, registered or otherwise qualified for the sale of Variable Products under any applicable insurance laws and any applicable securities laws of one or more states or other jurisdictions in which Variable Products may be lawfully sold. Each such Participating Insurance Company shall, when required by law, be both registered as a broker-dealer under the Securities Exchange Act and a member of the NASD. Each such Participating Insurance Company shall agree to comply with all laws and regulations, whether federal or state, and whether relating to insurance, securities or other general areas, including but not limited to the recordkeeping and sales supervision requirements of such laws and regulations. Section 4. The Trust's shares are divided into series or Portfolios, each representing a different portfolio of investments. Each Portfolio is further divided into Class IA and Class IB shares. The Trust's Portfolios and any restrictions on availability for Class IB shares relating thereto are set forth in Schedule A hereto, which may be amended from time to time. Purchases and redemptions of the Trust's Class IB shares of each Portfolio shall be at the net asset value therefor, computed as set forth in the most recent relevant Prospectus and Statement of Additional Information relating to the Trust's Class IB shares contained in its Registration Statement on Form N-1A or any amendments thereto (respectively, "Trust Prospectus" and "SAI"), and any supplements thereto and shall be submitted by the Participating Insurance Company to the Trust's transfer agent pursuant to procedures and in accordance with payment provisions adopted by EQ Financial and the Trust from time to time. The Trust's Class -2- IB shares may not be sold or transferred, except to an Eligible Separate Account or Qualified Plan, without the prior approval of the Trust's Board of Trustees. Section 5. As compensation to EQ Financial for services rendered and expenses borne as a distributor hereunder, each Portfolio shall pay EQ Financial a monthly fee (payable on or before the fifth business day of the following month) at a rate equal to .25% per annum of the average daily net assets of the Portfolio attributable to Class IB shares with respect to which EQ Financial provides services and/or assumes expenses under the Class IB Distribution Plan. EQ Financial may, but need not, pay or charge Participating Insurance Companies pursuant to Sales Agreements, as described in Section 2 hereof. Section 6. The Trust represents to EQ Financial that the Trust Prospectus and SAI, as of their respective effective dates, contain (or will contain) all statements and information which are required to be stated therein by the Securities Act of 1933, as amended ("1933 Act"), and in all respects conform to the requirements thereof, and neither the Trust Prospectus nor the SAI include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing representations shall not apply to information contained in or omitted from the Trust Prospectus and SAI in reliance upon, and in conformity with, written information furnished by EQ Financial specifically for use in the preparation thereof. In this connection, EQ Financial acknowledges that the day-to-day operations of the Trust, including without limitation, investment management, securities brokerage allocation, cash control, accounting, recordkeeping and other administrative, marketing and regulatory compliance functions, are carried on and may in the future be carried on by The Equitable Life Assurance Society of the United States ("Equitable"), affiliates of Equitable, and other parties unaffiliated with Equitable on behalf of the Trust (collectively, the "Preparing Parties"), under various agreements and arrangements, and that such activities in large measure provide the basis upon which statements and information are included or omitted from the Trust Prospectus and SAI. EQ Financial further acknowledges that because of the foregoing arrangements, the preparation of the Trust Prospectus and SAI is substantially in the control of the Preparing Parties, subject to the broad supervisory authority and responsibility of the Trust's Board of Trustees, and that, essentially, the only Trust Prospectus or SAI information not independently known to, or prepared by, the Preparing Parties is personal information as to each Trustee's full name, age, background, business experience and other personal information that may require disclosures under securities laws and for which the Preparing Parties necessarily must rely on each such Trustee to produce. Section 7. The Trust will periodically prepare Prospectuses (and, if applicable, SAIs) and any supplements thereto, proxy materials and semi-annual reports (collectively, the "Documents") and shall, in accordance with the form of Participation Agreement, provide sufficient copies of such Documents or shall make camera ready copy available to EQ Financial for reproduction by EQ Financial or the Participating Insurance Companies. To the extent that the foregoing Documents are with respect to Class IB shares, the cost of preparing, printing, mailing and otherwise distributing such Documents will be at the expense of such Class IB shares with respect to prospective owners of Variable Products. In addition, with respect to Documents provided to existing owners of Variable Products, the cost of preparing, printing, -3- mailing and otherwise distributing such Documents shall be borne by the Trust. The Trust will use its best efforts to provide notice to EQ Financial of anticipated filings or supplements. EQ Financial or the Participating Insurance Companies may alter the form of some or all of the Documents, with the prior approval of the Trust's officers and legal counsel. Any preparation costs associated with altering the form of the Documents will be borne by EQ Financial or the Participating Insurance Companies, not the Trust. Section 8. EQ Financial and officers of the Trust may, from time to time, authorize descriptions of the Trust for use in sales literature or advertising by the Participating Insurance Companies (including brochures, letters, illustrations and other similar materials, whether transmitted directly to potential applicants or published in print or audio-visual media), which authorization will not be unreasonably withheld or delayed. Section 9. EQ Financial shall furnish to the Trust, at least quarterly, reports as to the sales of the Trust's Class IB shares made pursuant to this Agreement. These reports may be combined with any similar report prepared by EQ Financial or any of the Preparing Parties. Section 10. EQ Financial shall submit to all regulatory and administrative bodies having jurisdiction over the operations of EQ Financial, the Trust, or any Participating Insurance Company, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require as authorized by applicable laws or regulations. Section 11. This Agreement shall be subject to the provisions of the Investment Company Act, the Securities Exchange Act and the 1933 Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions and no-action positions as the Securities and Exchange Commission or its staff may grant, and the terms hereof shall be interpreted and construed in accordance therewith. Without limiting the generality of the foregoing, (a) the term "assigned" shall not include any transaction exempted from section 15(b)(2) of the Investment Company Act and (b) the vote of the persons having voting rights in respect of the Trust referred to in Section 12 shall be the affirmative votes of the lesser of (i) the holders of more than 50% of all votes in respect of Class IB shares entitled to be cast in respect of the Trust or (ii) the holders of at least 67% of the votes in respect of Class IB shares which are present at a meeting of such persons if the holders of more than 50% of all votes in respect of Class IB shares entitled to be cast in respect of the Trust are present or represented by proxy at such meeting, in either case voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees. Section 12. This Agreement shall continue in effect only so long as such continuance is specifically approved at least annually by a majority of the Trustees of the Trust who are not interested persons of the Trust or EQ Financial and who have no direct or indirect financial interest in the distribution plan pursuant to which this Agreement has been authorized (or any agreement thereunder) (the "Independent Trustees") by (a) persons having voting rights in respect of the Trust, by the vote stated in Section 11, voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees, or (b) the Board of Trustees of the Trust. This Agreement may be -4- terminated at any time, without penalty, by a majority of the Independent Trustees or by persons having voting rights in respect of the Trust by the vote stated in Section 11. Section 13. This Agreement shall terminate automatically if it shall be assigned. Section 14. The Trust shall indemnify and hold harmless EQ Financial from any and all losses, claims, damages or liabilities (or actions in respect thereof) to which EQ Financial may be subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or result from negligent, improper, fraudulent or unauthorized acts or omissions by the Trust or its officers, trustees, agents or representatives, other than acts or omissions caused directly or indirectly by EQ Financial. EQ Financial will indemnify and hold harmless the Trust, its officers, trustees, agents and representatives against any losses, claims, damages or liabilities, to which the Trust its officers, trustees, agents and representatives may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii) the omission or alleged omission to state any material fact required to be stated in the Trust Prospectus and/or SAI or any supplements thereto or necessary to make the statements therein not misleading; or (iii) other misconduct or negligence of EQ Financial in its capacity as a principal underwriter of the Trust's Class IB shares and will reimburse the Trust, its officers, trustees, agents and representatives for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that EQ Financial shall not be liable in any such instance to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Trust Prospectus and/or SAI or any supplement in good faith reliance upon and in conformity with written information furnished by the Preparing Parties specifically for use in the preparation of the Trust Prospectus and/or SAI. Section 15. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of Delaware and notice is given hereby that this Agreement is executed on behalf of the Trustees of the Trust as trustees and not individually, and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of each Portfolio. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. EQ ADVISORS TRUST By:____________________________________ EQ FINANCIAL CONSULTANTS, INC. By:____________________________________ -5- SCHEDULE A Portfolios of EQ Advisors Trust T. Rowe Price International Stock Portfolio T. Rowe Price Equity Income Portfolio EQ/Putnam Growth & Income Value Portfolio EQ/Putnam International Equity Portfolio EQ/Putnam Investors Growth Portfolio EQ/Putnam Balanced Portfolio MFS Research Portfolio MFS Emerging Growth Companies Portfolio Morgan Stanley Emerging Markets Equity Portfolio Warburg Pincus Small Company Value Portfolio Merrill Lynch World Strategy Portfolio Merrill Lynch Basic Value Equity Portfolio -6- EX-6.(C) 5 DISTRIBUTION AGR.-CLASS 1A SHARES EXHIBIT 6(c) DISTRIBUTION AGREEMENT CLASS IA SHARES EQUITABLE DISTRIBUTORS, INC. AGREEMENT, dated as of ____________, 1997 by and between EQ Advisors Trust (the "Trust") and Equitable Distributors, Inc. ("EDI"). W I T N E S S E T H: WHEREAS, the Trust is a Delaware business trust whose shareholders are and will be separate accounts in unit investment trust form ("Eligible Separate Accounts") of insurance companies ("Participating Insurance Companies"); and WHEREAS, such Participating Insurance Companies issue, among other products, variable insurance and annuity products ("Variable Products") whose net premiums, contributions or other considerations may be allocated to Eligible Separate Accounts for investment in the Trust; and WHEREAS, the Trust's Class IA shares will not be sold except in connection with such Variable Products or directly to tax-qualified pension and retirement plans ("Qualified Plans") outside the separate account context; and WHEREAS, the Trust desires that EDI undertake marketing activities with respect to the Class IA Shares of the Trust's constituent series or investment portfolios ("Portfolios") Portfolios; and WHEREAS, the Trust is registered as an open-end investment company under the Investment Company Act of 1940 ("Investment Company Act"); and WHEREAS, the Investment Company Act prohibits any principal underwriter for a registered open-end management investment company from offering for sale, selling, or delivering after sale any security of which such company is the issuer, except pursuant to a written contract with such investment company, and EDI will be a distributor for sale of the Class IA shares issued by the Trust; and WHEREAS, EDI is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, ("Securities Exchange Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"). NOW THEREFORE, the Trust and EDI agree as follows: Section 1. The Trust has adopted a form of Participation Agreement, which was approved by the Board of Trustees of the Trust. This Agreement shall be subject to the provisions of the form of Participation Agreement, the terms of which are incorporated herein by reference, made a part hereof and controlling. The form of Participation Agreement may be amended or superseded, without prior notice, and this Agreement shall be deemed amended to the extent the form of Participation Agreement is amended or superseded. EDI represents and warrants that it will act in a manner consistent with such form of Participation Agreement as it is currently set forth and as it may be amended or superseded, so long as EDI serves as the principal underwriter of the Class IA shares and Class IB shares of the Trust (collectively, "Shares"). Section 2. EDI is hereby authorized, from time to time, to enter into separate written agreements ("Sales Agreements" or, individually, a "Sales Agreement"), on terms and conditions not inconsistent with this Agreement, with Participating Insurance Companies which have Eligible Separate Accounts and which agree to participate in the distribution of the Trust's Class IA shares, directly or through affiliated broker dealers by means of distribution of Variable Products and to use their best efforts to solicit applications for Variable Products. EDI may not enter into any Sales Agreement with any Participating Insurance Company that is more favorable than that maintained with any other Participating Insurance Company and Eligible Separate Account, except that not all Portfolios of the Trust need be made available for investment by all Participating Insurance Companies, Eligible Separate Accounts or Variable Products. The Board of Trustees of the Trust may, in its sole discretion, determine that certain Portfolios and classes of shares of the Trust shall be available only to certain types of Variable Products or to a single Participating Insurance Company and its affiliates. Section 3. Such Participating Insurance Companies and their agents or representatives soliciting applications for Variable Products shall be duly and appropriately licensed, registered or otherwise qualified for the sale of Variable Products under any applicable insurance laws and any applicable securities laws of one or more states or other jurisdictions in which Variable Products may be lawfully sold. Each such Participating Insurance Company shall, when required by law, be both registered as a broker-dealer under the Securities Exchange Act and a member of the NASD. Each such Participating Insurance Company shall agree to comply with all laws and regulations, whether federal or state, and whether relating to insurance, securities or other general areas, including but not limited to the recordkeeping and sales supervision requirements of such laws and regulations. Section 4. The Trust's shares are divided into series or Portfolios, each representing a different portfolio of investments. Each Portfolio is further divided into Class IA and Class IB shares. The Trust's Portfolios and any restrictions on availability for Class IA shares relating thereto are set forth in Schedule A hereto, which may be amended from time to time. Purchases and redemptions of the Trust's Class IA shares of each Portfolio shall be at the net asset value therefor, computed as set forth in the most recent relevant Prospectus and Statement of Additional Information relating to the Trust's Class IA contained in its Registration Statement on Form N-1A, or any amendments thereto (respectively, "Trust Prospectus" and "SAI"), and any supplements thereto and shall be submitted by the Participating Insurance Company to the Trust's transfer agent pursuant to procedures and in accordance with payment provisions adopted by EDI and the Trust from time to time. The Trust's Class IA shares may not be sold or transferred, except to an Eligible Separate Account or Qualified Plan, without the prior approval of the Trust's Board of Trustees. Section 5. The Trust shall not pay any compensation to EDI for services as a distributor hereunder, nor shall the Trust reimburse EDI for any expenses related to such services. EDI -2- may, but need not, pay or charge Participating Insurance Companies pursuant to Sales Agreements, as described in Section 2 hereof. Section 6. The Trust represents to EDI that the Trust Prospectus and SAI, as of their respective effective dates, contain all statements and information which are required to be stated therein by the Securities Act of 1933, as amended ("1933 Act"), and in all respects conform to the requirements thereof, and neither the Trust Prospectus nor the SAI include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing representations shall not apply to information contained in or omitted from the Trust Prospectus and SAI in reliance upon, and in conformity with, written information furnished by EDI specifically for use in the preparation thereof. In this connection, EDI acknowledges that the day-to-day operations of the Trust, including without limitation, investment management, securities brokerage allocation, cash control, accounting, recordkeeping and other administrative, marketing and regulatory compliance functions, are carried on and may in the future be carried on by The Equitable Life Assurance Society of the United States ("Equitable"), affiliates of Equitable, and other parties unaffiliated with Equitable on behalf of the Trust (collectively, the "Preparing Parties"), under various agreements and arrangements, and that such activities in large measure provide the basis upon which statements and information are included or omitted from the Trust Prospectus and SAI. EDI further acknowledges that because of the foregoing arrangements, the preparation of the Trust Prospectus and SAI is substantially in the control of the Preparing Parties, subject to the broad supervisory authority and responsibility of the Trust's Board of Trustees, and that, essentially, the only Trust Prospectus or SAI information not independently known to, or prepared by, the Preparing Parties is personal information as to each Trustee's full name, age, background, business experience and other personal information that may require disclosures under securities laws and for which the Preparing Parties necessarily must rely on each such Trustee to produce. Section 7. The Trust will periodically prepare Prospectuses (and, if applicable, SAIs) and any supplements thereto, proxy materials and annual and semi-annual reports (collectively, the "Documents") and shall, in accordance with the form of Participation Agreement, provide sufficient copies of such Documents or shall make camera ready copy available to EDI for reproduction by EDI or the Participating Insurance Companies. With respect to Documents provided to existing owners of Variable Products, the cost of preparing, printing, mailing or otherwise distributing such Documents shall be borne by the Trust. With respect to the Trust's Class IA shares, the Trust shall not pay the cost of printing, mailing or otherwise distributing such Documents except as specified in this Section 7. The Trust will use its best efforts to provide notice to EDI of anticipated filings or supplements. EDI or the Participating Insurance Companies may alter the form of some or all of the Documents, with the prior approval of the Trust's officers and legal counsel. Any preparation costs associated with altering the form of the Documents will be borne by EDI or the Participating Insurance Companies, not the Trust. Section 8. EDI and officers of the Trust may, from time to time, authorize descriptions of the Trust for use in sales literature or advertising by the Participating Insurance Companies (including brochures, letters, illustrations and other similar materials, whether transmitted -3- directly to potential applicants or published in print or audio-visual media), which authorization will not be unreasonably withheld or delayed. Section 9. EDI shall furnish to the Trust, at least quarterly, reports as to the sales of Trust's Class IA shares made pursuant to this Agreement. These reports may be combined with any similar report prepared by EDI or any of the Preparing Parties. Section 10. EDI shall submit to all regulatory and administrative bodies having jurisdiction over the operations of EDI, the Trust, or any Participating Insurance Company, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require as authorized by applicable laws or regulations. Section 11. This Agreement shall be subject to the provisions of the Investment Company Act, the Securities Exchange Act and the 1933 Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions and no-action positions as the Securities and Exchange Commission or its staff may grant, and the terms hereof shall be interpreted and construed in accordance therewith. Without limiting the generality of the foregoing, (a) the term "assigned" shall not include any transaction exempted from section 15(b)(2) of the Investment Company Act and (b) the vote of the persons having voting rights in respect of the Trust referred to in Section 12 shall be the affirmative votes of the lesser of (i) the holders of more than 50% of all votes in respect of Class IA shares entitled to be cast in respect of the Trust or (ii) the holders of at least 67% of the votes in respect of Class IA shares which are present at a meeting of such persons if the holders of more than 50% of all votes in respect of Class IA shares entitled to be cast in respect of the Trust are present or represented by proxy at such meeting, in either case voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees. Section 12. This Agreement shall continue in effect only so long as such continuance is specifically approved at least annually by a majority of the Trustees of the Trust who are not interested persons of the Trust or EDI ("Independent Trustees") and by (a) persons having voting rights in respect of the Trust, by the vote stated in Section 11, voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees, or (b) the Board of Trustees of the Trust. This Agreement may be terminated at any time, without penalty, by a majority of the Independent Trustees or by persons having voting rights in respect of the Trust by the vote stated in Section 11. Section 13. This Agreement shall terminate automatically if it shall be assigned. Section 14. The Trust shall indemnify and hold harmless EDI from any and all losses, claims, damages or liabilities (or actions in respect thereof) to which EDI may be subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or result from negligent, improper, fraudulent or unauthorized acts or omissions by the Trust or its officers, trustees, agents or representatives, other than acts or omissions caused directly or indirectly by EDI. -4- EDI will indemnify and hold harmless the Trust, its officers, trustees, agents and representatives against any losses, claims, damages or liabilities, to which the Trust its officers, trustees, agents and representatives may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii) the omission or alleged omission to state any material fact required to be stated in the Trust Prospectus and/or SAI or any supplements thereto or necessary to make the statements therein not misleading; or (iii) other misconduct or negligence of EDI in its capacity as a principal underwriter of the Trust's Class IA shares and will reimburse the Trust, its officers, trustees, agents and representatives for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that EDI shall not be liable in any such instance to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Trust Prospectus and/or SAI or any supplement in good faith reliance upon and in conformity with written information furnished by the Preparing Parties specifically for use in the preparation of the Trust Prospectus and/or SAI. Section 15. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of Delaware and notice is given hereby that this Agreement is executed on behalf of the trustees of the Trust as trustees and not individually, and that the obligations of or arising out of this Agreement are not binding upon any of the trustees or shareholders individually but are binding only upon the assets and property of each Portfolio. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. EQ ADVISORS TRUST By: __________________________________ EQUITABLE DISTRIBUTORS, INC. By: ___________________________________ -5- SCHEDULE A Portfolios of EQ Advisors Trust T. Rowe Price International Stock Portfolio T. Rowe Price Equity Income Portfolio EQ/Putnam Growth & Income Value Portfolio EQ/Putnam International Equity Portfolio EQ/Putnam Investors Growth Portfolio EQ/Putnam Balanced Portfolio MFS Research Portfolio MFS Emerging Growth Companies Portfolio Morgan Stanley Emerging Markets Equity Portfolio Warburg Pincus Small Company Value Portfolio Merrill Lynch World Strategy Portfolio Merrill Lynch Basic Value Equity Portfolio -6- EX-6.(D) 6 DISTRIBUTION AGR. CLASS 1B SHARES EXHIBIT 6(d) DISTRIBUTION AGREEMENT CLASS IB SHARES EQUITABLE DISTRIBUTORS, INC. AGREEMENT, dated as of ____________, 1997 by and between EQ Advisors Trust (the "Trust") and Equitable Distributors, Inc. ("EDI"). W I T N E S S E T H: WHEREAS, the Trust is a Delaware business trust whose shareholders are and will be separate accounts in unit investment trust form ("Eligible Separate Accounts") of insurance companies ("Participating Insurance Companies"); and WHEREAS, such Participating Insurance Companies issue, among other products, variable insurance and annuity products ("Variable Products") whose net premiums, contributions or other consideration may be allocated to Eligible Separate Accounts for investment in the Trust; and WHEREAS, the Trust's Class IB shares will not be sold except in connection with such Variable Products or directly to tax-qualified pension and retirement plans ("Qualified Plans") outside the separate account context; and WHEREAS, the Trust has adopted a Distribution Plan with respect to its Class IB shares pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended ("Investment Company Act"); and WHEREAS, the Trust desires that EDI undertake marketing activities with respect to the Class IB shares of the Trust's constituent series or investment portfolios ("Portfolios") and to compensate EDI for services rendered and expenses borne in connection therewith; and WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act; and WHEREAS, the Investment Company Act prohibits any principal underwriter for a registered open-end management investment company from offering for sale, selling, or delivering after sale any security of which such investment company is the issuer, except pursuant to a written contract with such investment company, and EDI will be a distributor for sale of the Class IB shares issued by the Trust; and WHEREAS, EDI is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, ("Securities Exchange Act"), and is a member of the National Association of Securities Dealers., Inc. ("NASD"). NOW THEREFORE, the Trust and EDI agree as follows: Section 1. The Trust has adopted a form of Participation Agreement, which was approved by the Board of Trustees of the Trust. This Agreement shall be subject to the provisions of the form of Participation Agreement, the terms of which are incorporated herein by reference, made a part hereof and controlling. The form of Participation Agreement may be amended or superseded, without prior notice, and this Agreement shall be deemed amended to the extent the form of Participation Agreement is amended or superseded. EDI represents and warrants that it will act in a manner consistent with the form of Participation Agreement as it is currently set forth and as it may be amended or superseded, so long as EDI serves as the principal underwriter of the Class IA shares and Class IB shares of the Trust (collectively, the "Shares"). Section 2. EDI on behalf of the Trust is hereby authorized, from time to time, to enter into separate written agreements ("Sales Agreements" or, individually, a "Sales Agreement"), on terms and conditions not inconsistent with this Agreement, with Participating Insurance Companies that have Eligible Separate Accounts and that agree to participate in the distribution of the Trust's Class IB shares, directly or through their affiliated broker-dealers, by means of the distribution of Variable Products and to use their best efforts to solicit applications for Variable Products. EDI may not enter into any Sales Agreement with any Participating Insurance Company that is more favorable than that maintained with any other Participating Insurance Company and Eligible Separate Account, except that not all Portfolios of the Trust need be made available for investment by all Participating Insurance Companies, Eligible Separate Accounts or Variable Products. The Board of Trustees of the Trust may, in its sole discretion, determine that certain Portfolios and classes of shares of the Trust shall be available only to certain types of Variable Products or to a single Participating Insurance Company and its affiliates. Section 3. Such Participating Insurance Companies and their agents or representatives soliciting applications for Variable Products shall be duly and appropriately licensed, registered or otherwise qualified for the sale of Variable Products under any applicable insurance laws and any applicable securities laws of one or more states or other jurisdictions in which Variable Products may be lawfully sold. Each such Participating Insurance Company shall, when required by law, be both registered as a broker-dealer under the Securities Exchange Act and a member of the NASD. Each such Participating Insurance Company shall agree to comply with all laws and regulations, whether federal or state, and whether relating to insurance, securities or other general areas, including but not limited to the recordkeeping and sales supervision requirements of such laws and regulations. Section 4. The Trust's shares are divided into series or Portfolios, each representing a different portfolio of investments. Each Portfolio is further divided into Class IA and Class IB shares. The Trust's Portfolios and any restrictions on availability for Class IB shares relating thereto are set forth in Schedule A hereto, which may be amended from time to time. Purchases and redemptions of the Trust's Class IB shares of each Portfolio shall be at the net asset value therefor, computed as set forth in the most recent relevant Prospectus and Statement of Additional Information relating to the Trust's Class IB shares contained in its Registration Statement on Form N-1A or any amendments thereto (respectively, "Trust Prospectus" and "SAI"), and any supplements thereto and shall be submitted by the Participating Insurance Company to the Trust's transfer agent pursuant to procedures and in accordance with -2- payment provisions adopted by EDI and the Trust from time to time. The Trust's Class IB shares may not be sold or transferred, except to an Eligible Separate Account or Qualified Plan, without the prior approval of the Trust's Board of Trustees. Section 5. As compensation to EDI for services rendered and expenses borne as a distributor hereunder, each Portfolio shall pay EDI a monthly fee (payable on or before the fifth business day of the following month) at a rate equal to .25% per annum of the average daily net assets of the Portfolio attributable to Class IB shares with respect to which EDI provides services and/or assumes expenses under the Class IB Distribution Plan. EDI may, but need not, pay or charge Participating Insurance Companies pursuant to Sales Agreements, as described in Section 2 hereof. Section 6. The Trust represents to EDI that the Trust Prospectus and SAI, as of their respective effective dates, contain (or will contain) all statements and information which are required to be stated therein by the Securities Act of 1933, as amended ("1933 Act"), and in all respects conform to the requirements thereof, and neither the Trust Prospectus nor the SAI include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing representations shall not apply to information contained in or omitted from the Trust Prospectus and SAI in reliance upon, and in conformity with, written information furnished by EDI specifically for use in the preparation thereof. In this connection, EDI acknowledges that the day-to-day operations of the Trust, including without limitation, investment management, securities brokerage allocation, cash control, accounting, recordkeeping and other administrative, marketing and regulatory compliance functions, are carried on and may in the future be carried on by The Equitable Life Assurance Society of the United States ("Equitable"), affiliates of Equitable, and other parties unaffiliated with Equitable on behalf of the Trust (collectively, the "Preparing Parties"), under various agreements and arrangements, and that such activities in large measure provide the basis upon which statements and information are included or omitted from the Trust Prospectus and SAI. EDI further acknowledges that because of the foregoing arrangements, the preparation of the Trust Prospectus and SAI is substantially in the control of the Preparing Parties, subject to the broad supervisory authority and responsibility of the Trust's Board of Trustees, and that, essentially, the only Trust Prospectus or SAI information not independently known to, or prepared by, the Preparing Parties is personal information as to each Trustee's full name, age, background, business experience and other personal information that may require disclosures under securities laws and for which the Preparing Parties necessarily must rely on each such Trustee to produce. Section 7. The Trust will periodically prepare Prospectuses (and, if applicable, SAIs) and any supplements thereto, proxy materials and semi-annual reports (collectively, the "Documents") and shall, in accordance with the form of Participation Agreement, provide sufficient copies of such Documents or shall make camera ready copy available to EDI for reproduction by EDI or the Participating Insurance Companies. To the extent that the foregoing Documents are with respect to Class IB shares, the cost of preparing, printing, mailing and otherwise distributing such Documents will be at the expense of such Class IB shares with respect to prospective owners of Variable Products. In addition, with respect to Documents -3- provided to existing owners of Variable Products, the cost of preparing, printing, mailing and otherwise distributing such Documents shall be borne by the Trust. The Trust will use its best efforts to provide notice to EDI of anticipated filings or supplements. EDI or the Participating Insurance Companies may alter the form of some or all of the Documents, with the prior approval of the Trust's officers and legal counsel. Any preparation costs associated with altering the form of the Documents will be borne by EDI or the Participating Insurance Companies, not the Trust. Section 8. EDI and officers of the Trust may, from time to time, authorize descriptions of the Trust for use in sales literature or advertising by the Participating Insurance Companies (including brochures, letters, illustrations and other similar materials, whether transmitted directly to potential applicants or published in print or audio-visual media), which authorization will not be unreasonably withheld or delayed. Section 9. EDI shall furnish to the Trust, at least quarterly, reports as to the sales of the Trust's Class IB shares made pursuant to this Agreement. These reports may be combined with any similar report prepared by EDI or any of the Preparing Parties. Section 10. EDI shall submit to all regulatory and administrative bodies having jurisdiction over the operations of EDI, the Trust, or any Participating Insurance Company, present or future, any information, reports or other material which any such body by reason of this Agreement may request or require as authorized by applicable laws or regulations. Section 11. This Agreement shall be subject to the provisions of the Investment Company Act, the Securities Exchange Act and the 1933 Act and the rules, regulations, and rulings thereunder and of the NASD, from time to time in effect, including such exemptions and no-action positions as the Securities and Exchange Commission or its staff may grant, and the terms hereof shall be interpreted and construed in accordance therewith. Without limiting the generality of the foregoing, (a) the term "assigned" shall not include any transaction exempted from section 15(b)(2) of the Investment Company Act and (b) the vote of the persons having voting rights in respect of the Trust referred to in Section 12 shall be the affirmative votes of the lesser of (i) the holders of more than 50% of all votes in respect of Class IB shares entitled to be cast in respect of the Trust or (ii) the holders of at least 67% of the votes in respect of Class IB shares which are present at a meeting of such persons if the holders of more than 50% of all votes in respect of Class IB shares entitled to be cast in respect of the Trust are present or represented by proxy at such meeting, in either case voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees. Section 12. This Agreement shall continue in effect only so long as such continuance is specifically approved at least annually by a majority of the Trustees of the Trust who are not interested persons of the Trust or EDI and who have no direct or indirect financial interest in the distribution plan pursuant to which this Agreement has been authorized (or any agreement thereunder) (the "Independent Trustees") by (a) persons having voting rights in respect of the Trust, by the vote stated in Section 11, voted in accordance with the provisions contained in the form of Participation Agreement or any policies on conflicts adopted by the Board of Trustees, or (b) the Board of Trustees of the Trust. This Agreement may be terminated at any time, -4- without penalty, by a majority of the Independent Trustees or by persons having voting rights in respect of the Trust by the vote stated in Section 11. Section 13. This Agreement shall terminate automatically if it shall be assigned. Section 14. The Trust shall indemnify and hold harmless EDI from any and all losses, claims, damages or liabilities (or actions in respect thereof) to which EDI may be subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or result from negligent, improper, fraudulent or unauthorized acts or omissions by the Trust or its officers, trustees, agents or representatives, other than acts or omissions caused directly or indirectly by EDI. EDI will indemnify and hold harmless the Trust, its officers, trustees, agents and representatives against any losses, claims, damages or liabilities, to which the Trust its officers, trustees, agents and representatives may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the Trust Prospectus and/or SAI or any supplements thereto; (ii) the omission or alleged omission to state any material fact required to be stated in the Trust Prospectus and/or SAI or any supplements thereto or necessary to make the statements therein not misleading; or (iii) other misconduct or negligence of EDI in its capacity as a principal underwriter of the Trust's Class IB shares and will reimburse the Trust, its officers, trustees, agents and representatives for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that EDI shall not be liable in any such instance to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Trust Prospectus and/or SAI or any supplement in good faith reliance upon and in conformity with written information furnished by the Preparing Parties specifically for use in the preparation of the Trust Prospectus and/or SAI. Section 15. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of Delaware and notice is given hereby that this Agreement is executed on behalf of the Trustees of the Trust as trustees and not individually, and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of each Portfolio. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. EQ ADVISORS TRUST By:____________________________________ EQUITABLE DISTRIBUTORS, INC. By:____________________________________ -5- SCHEDULE A Portfolios of EQ Advisors Trust T. Rowe Price International Stock Portfolio T. Rowe Price Equity Income Portfolio EQ/Putnam Growth & Income Value Portfolio EQ/Putnam International Equity Portfolio EQ/Putnam Investors Growth Portfolio EQ/Putnam Balanced Portfolio MFS Research Portfolio MFS Emerging Growth Companies Portfolio Morgan Stanley Emerging Markets Equity Portfolio Warburg Pincus Small Company Value Portfolio Merrill Lynch World Strategy Portfolio Merrill Lynch Basic Value Equity Portfolio -6- EX-7 7 DEFERRED COMPENSATION PLAN - TRUSTEES EXHIBIT 7 DEFERRED COMPENSATION PLAN FOR TRUSTEES OF EQ ADVISORS TRUST The purpose of this Plan is to make available on a voluntary basis to any Trustee of EQ Advisors Trust (the "Trust") an Agreement with the Trust whereby payment of all or a portion of fees for services as a Trustee would be deferred, with the total amount so deferred to be disbursed in annual or semi-annual installments or in a single lump sum payment, as elected by the Trustee, upon a certain date specified by the Trustee, which date shall be no sooner than the earlier of five years following the date of the Agreement or the Trustee's retirement as a Trustee, or upon the occurrence of certain circumstances specified in the Agreement. The period for disbursement of installments shall not be less than five nor more than 20 years, and shall be elected by the Trustee upon execution of the Agreement or subsequently thereto as provided by the Agreement. The Agreement for deferral to be entered into with the Trust by any Trustee electing to participate under this Plan will be in the form approved at the meeting of the Board of Trustees at which this Plan is adopted or amended. Such deferral will commence under the Agreement on the first day of the month that is more than ten days after the execution of the Agreement. The Trust expects this Plan to remain in effect indefinitely but reserves the right to modify or terminate the Plan at any time. However, any modification will be applicable only to amounts credited to the Trustee's account after the effective date of the change, and any termination will not affect amounts credited to the account prior to the date of termination. THIS AGREEMENT made between EQ ADVISORS TRUST (hereinafter called the "Trust") and ________________________________________(name) (a member of the Trust's Board of Trustees, hereinafter called the "Trustee" pursuant to the Trust's Deferred Compensation Plan for Trustees (hereinafter called the "Plan") WITNESSETH, That 1. The Trustee elects to defer receipt of [all fees]* which, but for this Agreement, would be payable to the Trustee for his or her services as a Trustee of the Trust on and after the first of _____________, 19__** and prior to the Initial Disbursement Date provided for herein. Such election shall continue in effect with respect to such Trustee's fees which may otherwise become payable to Trustee unless, at least 60 days prior to January 1 in any calendar year, Trustee has delivered to the Secretary of the Trust a written revocation of such election with respect to all or a portion of Trustee's fees which may otherwise become payable to him or her for such year. Any such revocation will take effect on January 1 of such year. Deferred fees shall be credited to an Account (as defined hereinafter in paragraph 9). The Trust shall credit amounts of interest to the Account from time to time using the interest rate determined under The Equitable Investment Plan for Employees, Managers and Agents for the purpose of crediting interest for fixed income accounts of members under that plan. The rate for crediting interest to the Account balance is the "Account Percentage Rate". The Trust, however, reserves the right to change the rate of interest with respect to amounts to be credited after the date of the change. Payments under the terms of this Agreement of fees and amounts so credited shall not commence until the Initial Disbursement Date, as specified in paragraph 4 below. Such payments (to be charged to the Trustee's Account) shall be made in a single lump sum or in annual or semi-annual installments, as elected by the Trustee, for the number of years elected - -------- * If a Trustee so requests, the Agreement will set forth, instead of "all fees", a portion of the fees, to be deferred, as specified by the Trustee before the Agreement is executed (an alternate form of Agreement will be furnished for this purpose upon request). ** The date must be more than 10 days after the date of execution of the Agreement. by the Trustee, or until the amount credited to his or her Account is exhausted.(1) The amount of each installment shall be determined by dividing the undistributed balance of the Account prior to each installment by the number of remaining installments. The election specifying the period for disbursement of installments may be changed by a new election on the Trust's form filed with its Secretary. No election, however, may be made or filed within 60 days immediately preceding the Initial Disbursement Date. The election(s) on file immediately before said 60 days is (are) irrevocable. 2. If the Trustee elects to have amounts paid in installments, the number of years for which installments shall be paid shall be in accordance with such election by the Trustee. There shall be no right to change such election after the Initial Disbursement Date. The minimum number of years during which installments will be paid shall be five and the maximum number shall be 20. The first installment shall be payable on the Initial Disbursement Date and subsequent installments shall be payable annually or semiannually thereafter, as applicable, but no such installment shall be less than $50 or more than the amount in the Account at the time any installment is payable. If an election results in installments of less than $50, the period for installment payments will be changed so that each monthly installment will be at least $50. In the event of the Trustee's death prior to complete distribution of his or her Account hereunder, the balance of the Account shall be paid to the Trustee's executors or administrators in a lump sum, in accordance with his or her said elections. The Trust, in its sole discretion, reserves the right to accelerate payment of amounts in Trustee's Account at any time after termination of Trustee's service as a trustee of the Trust. 3. This Agreement may be amended to change the amount of fees to be deferred, or to discontinue any deferment, or to resume such deferment after a prior discontinuance, but at least three years must elapse between the execution of this Agreement and the first amendment or between any two amendments. Any such amendment will apply to fees payable on or after the first day of the calendar year that is more than sixty days after the date of execution thereof and will have no retroactive effect with respect to amounts previously credited to the Trustee's Account. In the event of a discontinuance of deferment, or retirement from the Board, the amounts previously deferred will remain to the credit of the Trustee in his or her Account and will be subject to payment, in a lump sum or in installments, in accordance with the provisions of this Agreement. No amounts credited to the Account may be assigned, commuted or encumbered by the Trustee, and to the extent permitted by law, no such amount shall in any way be subject to any legal process to subject the same to the payment of any claim against such Trustee. In no event will the Trustee have the right to recover any fees credited to the Account otherwise than in accordance with this Agreement. 4. The Initial Disbursement Date with respect to the Trustee shall be as soon as practicable following ______________, 19__, a date specified by the Trustee, which date shall not be sooner than the earlier of: - -------- 1 If the Trustee does not so specify the period of disbursement in his or her election, payments shall be made to the Trustee in such number of annual installments as shall be determined by the Trust in its sole discretion. (a) a date five (5) Years following the date of this Agreement, or (b) the date of the Trustee's anticipated retirement as a trustee of the Trust in accordance with the Trust's normal retirement policy for Trustees; provided, that if a Trustee does not specify an Initial Disbursement Date in this Agreement, the Trustee shall be deemed to have elected to begin receiving the deferred amounts and any credited amounts thereon upon ceasing to be a trustee of the Trust; and further provided, that in all events and notwithstanding any elections under this Agreement, the deferred amounts and any credited amounts thereon shall be distributed (i) in the event of the Trustee's death prior to complete distribution of his or her Account, in accordance with paragraph 2 above; or (ii) upon the dissolution, liquidation or winding up of the Trust, whether voluntary or involuntary; or the voluntary sale, conveyance or transfer of all or substantially all of the Trust's assets (unless, as part of any such sale, conveyance or transfer, the obligations of the Trust hereunder shall have been assumed by another Equitable-affiliated trust, corporation or its consolidation with one or more other trusts or corporations (unless the obligations of the Trust hereunder shall have been assumed by such surviving entity, and such surviving entity is an Equitable-affiliated entity, or unless, prior to the effective date of the merger or consolidation, the Trust's Trustees determine that deferrals under the Plan shall survive the merger or consolidation). In this case, any deferred amounts and any credited amounts thereon in the Account shall be paid to the Trustee in a single lump sum on the effective date. Prior to such Initial Disbursement Date, the Trustee shall have no right to receive any disbursements under this Agreement. After such date, the Trustee's right in respect to any deferred fees or interest accrued thereon, including the right to receive payment of such fees and interest and the method, manner, period, and frequency of such payment (after such date) shall be in accordance with the provisions of this Agreement as now constituted or as hereafter amended. 5. Upon application by the Trustee under this paragraph and a determination by the Administrator that the Trustee has suffered a severe and unanticipated financial hardship, the Administrator shall distribute to the Trustee, in a single lump sum, an amount equal to the lesser of (i) the amount needed by the Trustee to meet the unanticipated hardship, or (ii) the balance of the Trustee's Account. 6. The Trust's obligation to make payments of the Account shall be a general obligation of the Trust, and such payments shall be made from the Trust's general assets and property. Trustee's relationship to the Trust under this Agreement shall be only that of a general unsecured creditor, and neither this Agreement or any action taken pursuant hereto shall create or be construed to create a trust or fiduciary relationship of any kind between the Trust and Trustee, Trustee's estate, Trustee's designated beneficiary or any other person, or a security interest of any kind in any property of the Trust in favor of Trustee or any other person. The Trust shall provide an annual statement to Trustee showing such information as is appropriate, including the aggregate amount in the Account, as of a reasonably current date. 7. The Trust reserves the right to modify or terminate this Agreement in accordance with any modification or termination of the Plan; provided, however, that any modification will be applicable only to amounts credited to the Account after the effective date of the change and any termination will not affect amounts credited to the Account prior to the date of termination. 8. Payment of amounts credited to the Account shall be made in the form of a check. Such payment shall be made to Trustee except that: (a) in the event that Trustee shall be determined by a court of competent jurisdiction to be incapable of managing Trustee's financial affairs, and if the Trust has actual notice of such determination, payment shall be made to Trustee's personal representative(s); and (b) in the event of Trustee's death, payment shall be made to Trustee's executors or administrators. 9. "Retirement" from the board as used herein shall be deemed to occur on the date when the Trustee ceases to be a member of the Trust's Board of Trustees, for any reason, including death. "Account" as used herein shall mean a record maintained by the Administrator of the Trustee's deferred fees, increments credited thereon, and installments paid under this Agreement. The use of the word "Account" does not contemplate or imply any segregation by the Trust of any monies or other assets, nor shall it be deemed to mean that any amount credited to the Account is the property of the Trustee. IN WITNESS WHEREOF, the parties to this Agreement have subscribed their names. EXECUTED IN DUPLICATE THIS _________ DAY OF ________________, 199___. EQ ADVISORS TRUST By:___________________________ ______________________________ (Trustee) EX-8 8 FORM OF CUSTODY AGREEMENT EXHIBIT 8 FORM OF CUSTODY AGREEMENT [INST/FIN] DOMESTIC CUSTODY AGREEMENT To: The Chase Manhattan Bank Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004 Gentlemen: We hereby request you to open and to maintain a separate Custody Account in the name of EQ Advisors Trust (the "Trust") on behalf of each of the Trust's Portfolios designated in Appendix A. We further request that you hold therein as our custodian, upon the following terms and conditions (but only to the extent those terms and conditions are consistent with the investment objectives, policies and restrictions of each Portfolio, as well as with applicable law), all stocks, bonds, rights, warrants and other negotiable and non-negotiable paper issued in certificated or book-entry form and commonly treated or dealt with on securities exchanges or securities markets as shall be received by and acceptable to you and the Trust for the Custody Account (hereinafter referred to as "securities"). As used herein, the term Custody Account shall include all such Custody Accounts opened pursuant to this Domestic Custody Agreement (the "Agreement"). Securities held by you for the Custody Account shall be segregated at all times from your proprietary assets, and from the assets of any other account holder for which you serve as custodian or in any other capacity. 1. TRANSACTIONS. Unless you receive contrary written instructions from us, and subject to the provisions of this Agreement and applicable law, you are authorized and instructed: (a) to collect on a timely basis and/or receive all income, dividends and other payments payable on the securities to which the Portfolios are entitled either by law or pursuant to custom in the securities business, and (except as hereinafter set forth in the section entitled "Miscellaneous") to credit such payments to the demand deposit cash account of the appropriate Portfolio as designated by us to receive all sums collected in respect of transactions to the Custody Account (each such account a "Cash Account"); (b) to credit all proceeds received from sales and redemptions of securities to the Cash Account: (c) to debit the Cash Account for the cost of acquiring securities for the Custody Account. Cost is deemed to consist of the price of the security plus brokerage fees. You will be responsible for administrative expenses associated with the acquisition; (d) to present obligations (including coupons) for payment upon maturity, when called for redemption and when income payments are due; (e) to exchange securities for other securities where the exchange is purely ministerial as, for example, the exchange of securities in temporary form for securities in definitive form or the mandatory exchange of certificates; (f) to sell fractional interests resulting from a stock split or a stock dividend and to credit the Cash Account with the proceeds thereof; (g) to execute in our name, whenever you deem it appropriate, such ownership and other certificates as may be required to obtain payments with respect to, or to effect the sale, transfer or other disposition of, securities in the Custody Account and to guarantee as our signature the signature so affixed; (h) to receive and hold in the Custody Account securities which have transfer limitations imposed upon them by the Securities Act of 1933, as amended, but only to the extent those securities do not exceed the 10% or 15% limitation, or as otherwise permitted or restricted by law or undertaking; and (i) to convert moneys received with respect to securities of foreign issue into United States dollars whenever it is practical to do so through customary banking channels. In effecting such conversion you may use any method or agency available to you, including the facilities of your own divisions, subsidiaries or affiliates. To the extent you act in good faith in accordance with custom in the securities business, and consistent with the investment objectives, policies and restrictions of the Portfolios, you shall incur no liability on account of any loss suffered or expense incurred as a result of such conversion, including, without limitation, losses arising from fluctuations in exchange rates affecting any such conversion. 2. INSTRUCTIONS. You are authorized to rely and act upon all written instructions given or purported to be given by one or more officers, employees or agents of ours (i) authorized by or in accordance with a corporate resolution of ours delivered to you or (ii) described as authorized in a certificate delivered to you by our Secretary or an Assistant Secretary or similar officer of ours (each such officer, employee or agent or combination of officers, employees and agents authorized pursuant to clause (i) or described pursuant to clause (ii) of this paragraph is hereinafter referred to as an "Authorized Officer". (The term "instructions" includes, without limitation, instructions to sell, assign, transfer, deliver, purchase or receive for the Custody Account, any and all stocks, bonds and other securities or to transfer funds in the Cash Account. Instructions must set forth the specific transaction or type of transaction involved, including a statement of the purpose for which the action is requested, and may be a blanket instruction authorizing specific transactions of a routine nature or occurring repeatedly.) You may also rely and act upon instructions when bearing or purporting to bear the facsimile signature of any of the individuals designated by an Authorized Officer if such facsimile signature or signatures - 2 - resemble(s) the facsimile specimen or specimens from time to time furnished to you by any of such Authorized Officers, our Secretary or an Assistant Secretary or similar officer of ours in writing, addressed to you, indicating that the signatures are those belonging to persons authorized to give instructions with respect to the Portfolios. In addition, you may rely and act upon instructions received by telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic instruction or trade information system acceptable to both you and us which you believe in good faith to have been given by an Authorized Officer or which are transmitted with proper testing or authentication pursuant to terms and conditions agreed by both of us. You may also rely and act upon instructions transmitted electronically through your TITAN Data Entry System or any similar electronic instruction system acceptable to both of us, subject to the appropriate verification procedures as we, the parties, establish. You shall incur no liability to us or otherwise as a result of any act or omission by you in accordance with instructions on which you are authorized to rely pursuant to the provisions of this paragraph. Any instructions delivered to you by telephone shall promptly thereafter be confirmed in writing by an Authorized Officer, but you shall incur no liability for our failure to send such confirmation in writing, the failure of any such written confirmation to conform to the telephone instructions which you received, the failure of any such written confirmation to be signed or properly signed, or your failure to produce such confirmation at any subsequent time. You shall incur no liability for refraining from acting upon any instructions which for any reason you, in good faith, are unable to verify to your own satisfaction. Notwithstanding the foregoing, you are required immediately to notify us of any discrepancies between oral and written instructions, the lack of a valid signature, and with respect to instructions you choose not to follow, and you will incur liability for failure to so notify us. With respect to instructions received hereunder to transfer funds from the Cash Account to any other account or party, we agree to implement any callback or other authentication method or procedure or security device to which we together agree from time to time. Unless otherwise expressly provided, blanket instructions authorizing specific transactions of a routine nature or occurring repeatedly shall continue in full force and effect until canceled or superseded by subsequent authorizations or instructions received by your safekeeping account administrator with reasonable opportunity to act thereon. Your authorization to rely and act upon instructions pursuant to this paragraph shall be in addition to, and shall not limit, any other authorization which we may give you regarding our accounts with you. We agree that, if you require test arrangements, authentication methods or procedures or other security devices to be used with respect to instructions which we may give hereunder, thereafter instructions given by us shall be given and processed in accordance with terms and conditions for the use of such arrangements, methods or procedures or devices as you we together put into effect and modify from time to time. We shall take reasonable steps to safeguard any test keys, identification codes or other security devices which you make available to us and agree that we shall be responsible for any loss, liability or damage incurred by you or by us as a result of your acting in accordance with instructions from any unauthorized person using the proper security device; except that we will not be responsible for your actions where you had reason to know that the instructions were given by an unauthorized person and you failed to take any action. Both of us may electronically record any instructions given by - 3 - telephone, and any other telephone discussions with respect to the Custody Account or transactions pursuant to this Agreement. If you are instructed by us to purchase or sell securities for the Custody Account you may enter purchase and sale orders and confirmations, and perform any other acts incidental or necessary to the performance thereof with brokers or dealers or similar agents selected by you, including any broker or dealer or similar agent affiliated with you, for our account, and at the risk level consistent with accepted industry practices in the relevant market. Except as may be provided otherwise herein or prohibited by applicable law or regulatory interpretation, you are authorized to execute our instructions and take other actions pursuant to this Agreement in accordance with your customary processing practices for customers similar to us and, in accordance with such practices, you may retain agents qualified to act for our benefit under the Investment Company Act of 1940 ("1940 Act"), including subsidiaries or affiliates of yours, to perform certain of such functions. In acting upon instructions to deliver securities against payment, you are authorized, to the extent you deem the practice under the circumstances to be in accordance with customary securities processing practices, to deliver such securities to the purchaser thereof or dealer therefor (including to an agent for any such purchaser or dealer) against a receipt, with the expectation of collecting payment from the purchaser, dealer or agent to whom the securities were so delivered before the close of business on the same day. The decision to deliver securities against a receipt instead of payment having been made in your sole discretion, you shall be responsible to the Portfolios for payments not so collected and you will credit the affected Portfolio(s) from your own accounts at your own expense prior to the close of business on the same day. 3. REGISTRATION. Unless you receive contrary instructions from us, you are authorized to keep securities in your own vaults or in book entry form registered in the name of the Portfolio or in the name of one or more of your nominees assigned exclusively to the Portfolio, unless we have authorized in writing the appointment of a nominee to be used in common with other portfolios or registered investment companies having the same investment adviser as any of the Portfolios, or in the name of any agent or subcustodian appointed pursuant to the terms of this Agreement. Where securities are eligible for deposit in a Depository (hereinafter defined), such as The Depository Trust Company, the Federal Reserve Bank of New York or Participants Trust Company, you may use any such Depository and permit the registration of registered securities in the name of its nominee or nominees, and we agree to hold you and the nominees harmless from any liability as holders of record. We shall accept the return or delivery of securities of the same class and denomination as those deposited with you by us or otherwise received by you for the Custody Account, and you need not retain the particular certificates so deposited or received. If any of our securities registered in your name or the name of your nominee or held in a Depository and registered in the name of the Depository's nominee are called for partial - 4 - redemption by the issuer of such securities, you are authorized to allot the called portion to the respective beneficial holders of the securities in any manner deemed to be fair and equitable in your sole discretion, as is consistent with the requirements of all applicable laws. 4. SEGREGATED ACCOUNT. You will, upon receipt of instructions, establish and maintain a segregated account or accounts for and on behalf of each Portfolio, into which may be transferred cash and/or securities: (a) in accordance with the provisions of any agreement among the Trust, the Custodian and a broker-dealer (registered under the Securities Exchange Act of 1934 ("Exchange Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"), or any futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization, regarding escrow or other arrangements in connection with the transactions by a Portfolio; (b) for purposes of segregating cash or government securities in connection with options purchased or sold or written by a portfolio; (c) for the purpose of compliance by the Trust with the procedures required by 1940 Act Release No. 10,666, or any subsequent release, rule or policy of the Securities and Exchange Commission ("SEC") relating to the maintenance of segregated accounts by registered investment companies; and (d) for other proper corporate purposes, but only in the case of this clause upon receipt of, in addition to instructions as defined below, a certified copy of a resolution of the Board of Trustees setting forth the purpose of such segregated account and declaring such purposes to be proper corporate purposes. 5. STATEMENTS. You shall notify us of each securities transaction effected for the Custody Account and of income on and redemptions of the securities in the Custody Account, as well as furnish us a listing of such securities, at such times upon which you and we mutually agree. Periodic statements shall be rendered to us as we may reasonably require, but not less frequently than monthly. You shall at all times maintain proper books and records that shall identify the securities as belonging to the appropriate Portfolio. Your books and records relating to the Custody Account shall be available for inspection upon reasonable notice to you during your regular business hours by duly authorized officers, employees, or agents of ours, or by legally authorized regulatory officials who are then in the process of reviewing our financial affairs upon proof to you of such official status. You agree to use reasonable efforts to maintain - 5 - records sufficient to enable us to determine and verify information concerning the custodied securities. You agree to furnish, upon our request or the request of any regulatory authority of any jurisdiction in which we are authorized to do business, a verification certificate in sufficient detail to permit adequate identification of the securities belonging to each Portfolio and held by you under the terms of this Agreement. Such certificate shall be signed by a responsible official of yours and furnished to the requestor, with a copy to us if the requestor is a regulatory authority. Unless we shall send to you a written exception or objection to any statement of account within 60 days of our receipt of such statement from you, we shall be deemed to have approved such statement. In such event, or where we have otherwise approved such statement, you shall, to the extent permitted by law, be released, relieved and discharged with respect to all matters set forth in such statement or reasonably implied therefrom; provided, however, that any matter that could not reasonably have been known by us or our agents during the 60-day period shall survive past that time limit, and we shall have available to us all legal remedies with respect to any matter set forth in or reasonably implied from the statement. 6. CORPORATE ACTIONS. You shall send us such proxies (signed in blank, if issued in your name or the name of your nominee or a nominee of a Depository) and communications with respect to securities in the Custody Account as call for voting or relate to legal proceedings within a reasonable time after sufficient copies are received by you for forwarding to customers. In addition, you shall follow coupon payments, redemptions, exchanges or similar matters with respect to securities in the Custody Account and advise us of rights issued, tender offers or any other discretionary rights with respect to such securities, in each case, of which you receive notice at your central corporate actions department from the issuer or from the Depository in which such securities are held or notice published in publications and reported in reporting services routinely used by you for this purpose. If we desire to take action with respect to any tender offer, exchange offer or any other similar transaction, we will notify you at least three (3) business-days prior to the time such action must be taken under the terms of the transaction, and it will be your responsibility to transmit the notice to the appropriate parties on a timely basis. If we do not notify you of our desired action within the three (3) business-day period, you will use your best efforts to transmit on a timely basis our notice to the appropriate person, but you will not be liable for any failure to do so if such transmission was not practicable. 7. CUSTODIAN RESPONSIBILITY. Except as provided in the next following paragraph, you shall be obligated to indemnify us for any loss of securities credited to the Custody Account resulting from (i) the negligence or willful misconduct of you or your officers, employees or agents retained by you to hold such securities or (ii) the burglary, robbery, hold-up, theft or mysterious disappearance, including loss by damage or destruction. In the event of a loss of securities in the Custody Account for which you are required to indemnify us pursuant to the immediately preceding sentence, at your option, you shall promptly replace such securities (by among other means posting appropriate security or bond with the issuer(s) of such securities and obtaining their reissue) or the value thereof (determined based upon the market value of the securities which are the subject of such loss as of the date of the discovery of such loss) and the - 6 - value of any loss of rights or privileges resulting from the loss of such securities. The foregoing indemnity shall be your exclusive liability to us for your loss of securities from the Custody Account. You shall be responsible for exercising good faith and reasonable care in carrying out your duties and obligations under this Agreement. In respect of all your other duties and obligations pursuant to the terms of this Agreement, you shall be liable to us only to the extent of our general damages suffered or incurred as a result of any act or omission of you or your officers, employees or agents which constitutes negligence or willful misconduct. Such negligence or willful misconduct may be deemed to have occurred to the extent you fail to carry out your duties, including the supervisory oversight of your personnel having responsibilities relating to the Trust or the Portfolios, in good faith with the reasonable care constituting the standard in the industry as it relates to the handling of the property of investment companies registered under the 1940 Act. General damages shall mean only those damages as directly and necessarily result from such act or omission without reference to any special conditions or circumstances of ours or of any transaction, whether or not you have been advised of any such special conditions or circumstances. Anything in this Agreement to the contrary notwithstanding, in no event shall you be liable to us under this Agreement for special, indirect or consequential loss or damage of any kind whatsoever, whether or not you are advised as to the possibility of such loss or damage and regardless of the form of action in which any such loss or damage may be claimed. You shall at all times maintain a bond issued by a reputable fidelity insurance company authorized to do business in the place where the bond is issued. The bond will be issued against larceny and embezzlement, and will cover each of your officers and employees who may, singly or jointly with others, have access to our securities or funds, either directly or through authority to receive and carry out any certificate instruction, order request, note or other instrument required or permitted by this Agreement. You agree that you will not cancel, terminate or modify the bond so as to affect us adversely, except after written notice to us not less than ten (10) days prior to the effective date of such cancellation, termination or modification. You will furnish us with a copy of each such bond and each amendment thereto. You shall not be liable for the acts or omissions of (or the bankruptcy or insolvency of) any Depository. If, however, as a result of any act or omission of, or the bankruptcy or insolvency of, any Depository we suffer any loss or liability, you will take such steps with respect thereto in order to effect a recovery as you shall reasonably deem appropriate under the circumstances (including the bringing and settling of legal proceedings), provided that unless you shall be liable as set forth in the immediately preceding paragraph of this Agreement, for such loss or liability by virtue of the negligence or misconduct of you or your officers, employees or agents, the amount of any cost or expense in effecting, or attempting to effect, such recovery shall be for our account, and you shall have the right to charge such cost or expense to the Cash Account. We further agree to be bound by the Depository rules and procedures applicable to you as a participant in respect of any securities held by you in your account with such Depository. "Depository" shall mean a federal reserve bank and any "clearing corporation" as defined under Article 8 of the New York Uniform Commercial Code, as amended from time to time. - 7 - All collection and receipt of funds or securities and all payment and delivery of funds or securities under this Agreement shall be made by you as our agent, at our risk with respect to our actions or omissions and those of persons other than you, including, without limitation, the risk associated with the securities processing practice of delivering securities against a receipt and the risk that the counterparty in any transaction into which we enter will not transfer funds or securities or otherwise perform in accordance with our expectation of its obligations thereunder (including, without limitation, where, as a result of such nonperformance, a Depository reverses, or requires repayment of, any credit given in connection with the transfer of securities). You will perform all your duties in a timely manner. What constitutes timeliness in connection with a particular action will be determined by the standards of the industry as they apply to the specific type of transaction in question and taking into account relevant facts and circumstances. In no event shall you be responsible or liable for any loss due to forces beyond your control, including, but not limited to, acts of God, flood, fire, nuclear fusion, fission or radiation, war (declared or undeclared), terrorism, insurrection, revolution, riot, strikes or work stoppages for any reason, embargo, closure or disruption of any market, government action, including any laws, ordinances, regulations or the like which restrict or prohibit the providing of the services contemplated by this Agreement, inability to obtain equipment or communications facilities, or the error in transmission of information caused by any machines or systems or the failure of equipment or interruption of communications facilities, and other causes whether or not of the same class or kind as specifically named above. In the event that you are unable substantially to perform for any of the reasons described in the immediately preceding sentence, you shall so notify us as soon as reasonably practicable. You shall be responsible for only those duties expressly stated in this Agreement or expressly contained in instructions to perform the services described herein given to you pursuant to the provisions of this Agreement and accepted by you and. without limiting the foregoing, you shall have no duty or responsibility: (a) to supervise the investment of, or make recommendations with respect to the purchase, retention or sale of, securities relating to the Custody Account; (b) with regard to any security in the Custody Account as to which a default in the payment of principal or interest has occurred, to give notice of default, make demand for payment or take any other action with respect to such default; (c) except as otherwise specifically provided in this section under the heading "Custodian Responsibility", for any act or omission, or for the solvency or insolvency, or notice to us of the solvency or insolvency, of any broker or agent which is selected by you with reasonable care or by us or any other person to effect any transaction for the Custody Account or to perform any service under this Agreement; - 8 - (d) to evaluate, or report to us regarding, the financial condition of any person, firm or corporation to which you deliver securities or funds pursuant to this Agreement: (e) for any loss occasioned by delay in the actual receipt of notice by you of any payment, redemption or other transaction in respect to which you are authorized to take some action pursuant to this Agreement; or (f) for any errors or omissions made by any securities pricing service used by you to value securities credited to the Custody Account as part of any service subscribed to by us from you. 8. SETTLEMENTS. We agree with you that all credits of securities and proceeds by you to the Custody Account and the Cash Account, respectively, on the settlement or payable date shall be provisional when made and you shall be entitled to reverse any such credits subject to actual receipt or collection of immediately available funds. We shall have sufficient immediately available funds each day in the Cash Account to pay for the settlement of all securities delivered against payment to you and credited to the Custody Account. Should we fail to have sufficient immediately available funds in the Cash Account to settle these deliveries of securities pursuant to the preceding sentence (a "Deficit"), you, in your sole discretion, may elect (i) to reject the settlement of any or all of the securities delivered to you that day to the Custody Account, (ii) to settle the deliveries on our behalf and debit the Cash Account (A) for the amount of such Deficit and (B) for the amount of the funding or other cost or expense incurred or sustained by you for our failure to have sufficient immediately available funds in the Cash Account by the applicable settlement deadline for you, or (iii) to reverse the posting of the securities credited to the Custody Account. You shall have the right to reverse any erroneous or provisional credit entries to the Cash Account retroactively to the date upon which the correct entry, or no entry, should have been made. The foregoing rights are in addition to and not in limitation of any other rights or remedies available to you under this Agreement or otherwise. Any advances made by you to us in connection with the purchase, sale, redemption, transfer or other designation of securities or in connection with disbursements of funds to any party, which create or result in an overdraft in the Cash Account shall be deemed a loan by you to us, payable on demand, and bear interest on the amount of the loan each day that the loan remains unpaid at your prime rate in effect as announced by you from time to time, plus the cost to you of any required reserves; subject, however, to any limitations on borrowing in the Portfolios' registration statement filed with the Securities and Exchange Commission. We shall also bear the cost of any Federal Reserve Bank daylight overdraft charge incurred by you and allocated to transactions effected for the Custody Account or the Cash Account. - 9 - No prior action or course of dealing on your part with respect to the settlement of securities transactions on our behalf shall be used by or give rise to any claim or action by us against you for your refusal to pay or settle for a securities transaction we have not timely funded as required herein. 9. RESPONSIBLE AS PRINCIPAL. We agree that we shall be responsible to you as a principal for all of our obligations to you arising under or in connection with this Agreement, notwithstanding that we may be acting on behalf of other persons, and we warrant our authority to deposit in the Custody Account and Cash Account, respectively, any securities and funds which you or your agents receive therefor and to give instructions relative thereto. We further agree that you shall not be subject to, nor shall your rights and obligations with respect to this Agreement and the Custody Account or the Cash Account be affected by, any agreement between us and any such person. 10. CREDITING AND DEBITING PROCEDURES. With respect to all transactions for the Custody Account and the Cash Account, including, without limitation, dividend and interest payments and sales and redemptions of securities, availability of funds credited to the Custody Account and Cash Account shall be based on the type of funds used in the trade settlement or payment, including, but not limited to, same day availability for federal or same day funds and next business day availability for clearing house or next day funds. Furthermore, with respect to all purchases and sales of securities for the Custody Account, the proceeds from the sale of securities shall be credited to the Cash Account on the date proceeds are received by you and the cost of securities purchased shall be debited to the Cash Account on the date securities are received by you, unless we request your contractual settlement service for the Custody Account in which case the following provisions shall apply with respect to the delivery and receipt of securities for the Custody Account for those securities and transactions as to which you customarily offer this service. (a) When we instruct you to deliver or receive securities, on the contractual settlement date you shall credit the Cash Account with the expected proceeds of the transaction and debit the Custody Account for the securities which we have instructed you to deliver, in the case of deliveries, and debit the Cash Account for the cost of the securities which we have instructed you to receive and credit the Custody Account with such securities, in the case of receives. These credits and debits are provisional accounting entries which you shall reverse on our instructions and which you may reverse, even in the absence of instructions from us, if the transaction with respect to which they were made fails to settle within a reasonable period, determined by you in your discretion, after the contractual settlement date, but only upon prior or simultaneous notice to us. If you deliver securities which are returned by the recipient thereof, you may reverse such credits and debits at any time. You have no obligation to use this crediting and debiting procedure with respect to a delivery of securities if we do not have actually in our account sufficient securities to make the delivery. If we agree in writing, you may use a different crediting and debiting procedure as long as it is reasonably customary in the industry, and qualifies under the standard imposed on you to carry out your duties under this Agreement in good faith using reasonable care. - 10 - (b) As with other transactions processed by you, your responsibility with respect to transactions for which you use this crediting and debiting procedure shall be governed by the provisions of this Custody Agreement, including the section headed "Custodian Responsibility". We agree that your using this procedure is not an assurance by you that the transaction will actually settle on the contractual settlement date and does not impose any additional responsibility on you with respect to the transaction. Without limiting your right to reverse credits and debits described above, the account statements which you furnish to us shall reflect transactions as to which you use this procedure as if they had actually settled on the contractual settlement date, unless prior to the date to which the statement relates, you have reversed such credits and debits. (c) We agree that you may terminate this contractual settlement service to us at any time and for any reason. With respect to securities or transactions as to which you do not customarily offer this service, you shall (i) in the case of deliveries of securities, credit the proceeds of the transaction to the Cash Account on the date they are received by you and debit the securities from the Custody Account on the date they are delivered by you, and (ii) in the case of securities received, debit the Cash Account for the cost of such securities and credit the Custody Account with such securities on the date the securities are received by you. 11. SWEEP OF CASH BALANCES. You are authorized to arrange for the investment of cash in the Cash Account in mutual funds (including, without limitation, the VISTA Money Market Funds and any other mutual fund with respect to which you or an affiliate or subsidiary of yours serves as an investment adviser, administrator, shareholder servicing agent, and/or custodian or subcustodian) or money market accounts (including, without limitation, accounts of yours or an affiliate or subsidiary of yours) which you make available for such purposes and which we shall select through instructions to you, BUT ONLY IF: (i) you do not receive contrary instructions from us; (ii) our Board of Trustees approves the arrangement; (iii) the arrangement does not violate any federal or state laws, regulations or interpretations applicable to us and the Portfolios; and (iv) the arrangement does not violate any investment objectives, policies or restrictions applicable to us and the Portfolios. Further, in this regard and in the absence of prohibitions or contrary instructions, you are authorized to arrange for the redemption of such mutual fund shares or for the withdrawal of amounts from such money market accounts as may be necessary to avoid any potential overdraft hereunder that you perceive based upon the information available to you at the time of such redemption or withdrawal. 12. OTHER ACCOUNTS. From time to time we may instruct you to open and maintain more than one Custody Account for us. Unless we and you otherwise expressly agree, such accounts will be governed by the provisions of this Agreement. 13. FEES. We agree to pay you compensation for your services pursuant to this Agreement according to the attached Addendum. - 11 - 14. EXEMPTION FROM LIEN. Except as otherwise provided in this Agreement, the securities and other assets held by you for a Portfolio will be subject to no lien or charge of any kind in your favor or in the favor of any person claiming through you, but nothing in this Agreement will be deemed to deprive you of your right to invoke any and all remedies available at law or equity to called amounts due to you under this Agreement. Neither you nor your agents have any power or authority to assign, hypothecate, pledge or otherwise dispose of any securities held by you for a Portfolio, except at our direction duly given or provided in this Agreement, and only for the account of the Portfolio. 15. TERMINATION. Either party may terminate this Agreement at any time upon thirty days written notice. Our obligations pursuant to the paragraphs under the headings "Registration", "Settlements" and "Fees" shall survive the termination of this Agreement, to the extent the survival of those provisions does not violate any applicable law. 16. NOTICES. Notices with respect to termination, specification of Authorized Officers and terms and conditions for instructions required hereunder shall be in writing, and shall be deemed to have been duly given if delivered personally, by courier service or by mail, postage prepaid, to the following addresses (or to such other address as either party hereto may from time to time designate by notice duly given in accordance with this paragraph): To us at: To you, to the attention of the individual designated by you as the safekeeping account administrator for our account, at: The Chase Manhattan Bank Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004 17. CONFIDENTIALITY. You agree to treat as confidential all record and other information relating to us and the Portfolios and their prior, present or future shareholders. You agree to keep such information confidential except when requested to divulge such information by duly constituted authorities, or when so requested by us. If requested to divulge confidential information, you will not release the information until you notify us in writing and receive approval from us in writing. Approval by us will not be unreasonably withheld and may not be withheld where you may be exposed to civil or criminal contempt proceedings for failure to comply. - 12 - 18. GOVERNING LAW, SUCCESSORS AND ASSIGNS, HEADINGS. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to laws as to conflicts of laws, and shall be binding on our and your respective successors and assigns. We and you hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts in the State and County of New York for the purposes of any suit, action or other proceedings arising out of this Agreement. We and you hereby irrevocably waive any objection on the ground of venue, forum non conveniens, or any similar grounds, and irrevocably consent to service of process by mail or in any manner permitted by New York law. The headings of the paragraphs hereof are included for convenience of reference only and do not form a part of this Agreement. 19. INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, we may from time to time agree on such provisions interpretive of or in addition to the provision of this Agreement as may in our joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions will be in a writing signed by both of us and will be annexed to this Agreement. No interpretive or additional provisions will contravene any applicable federal or state regulations or any provision of the Governing Documents of the Trust, nor will they be deemed amendments to this Agreement. (The term "Governing Documents" refers to the Trust Instrument, Bylaws and Registration Statement filed under the Securities Act of 1933, as amended from time to time with regard to the Trust.) 20. DELAWARE BUSINESS TRUST. With respect to the Trust, which is a party to this Agreement and which is organized as a business trust under the Delaware Business Trust Act, the term Trust means and refers to the Trustees serving under the applicable Trust Instrument. It is expressly understood that the obligations of the Trust under this Agreement will not be binding on any of the Trustees, Portfolio shareholders, nominees, officers, agents or employees of the Trust personally, but bind only the property of the Trust's Portfolios. 21. PRIOR PROPOSALS. This Agreement (including any Riders relating to additional services in respect of the Custody Account we may request of you) shall contain the complete agreement of the parties hereto with respect to the Custody Account (except as may be expressly provided to the contrary herein) and supersedes and replaces any previously made proposals, representations, warranties or agreements with respect thereto by either or both of the parties hereto. This Agreement shall become effective upon execution hereof by us and acceptance by you or as of the effective date of the Trust or its commencement of operations, as we mutually agree. 22. SEPARABILITY. Any provisions of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. - 13 - 23. RESERVATION OF RIGHT. You shall have the right not to accept for deposit to the Custody Account any securities which are in a form or condition which you, in your sole discretion, determine not to be suitable for the services you provide under this Agreement. 24. ADDITIONAL DUTIES. If we shall ask you to perform duties or responsibilities not specifically set forth in this Agreement and you choose to perform such additional duties or responsibilities, you shall be held to the same standard of care and you shall be entitled to all the protective provisions (including but not limited to limitation of liability and indemnification) set forth herein. 25. COUNTERPARTS. This Agreement may be executed in several counterparts each of which shall be deemed to be an original and together shall constitute one and the same agreement. 26. MISCELLANEOUS. We understand that we may request to have a Custody Account established under this Agreement which is not linked to a Cash Account. We understand further that with respect to any such Custody Account so established any funds received by you in respect of transactions for such Custody Account will be credited to the Custody Account and, further, funds credited to the Custody Account must be transferred by us by means of instruction (a "payment order") to one of your account administrators assigned by you for the Custody Account, which you will identify to us. We agree that payment orders and communications seeking to cancel or amend payment orders which are issued by telephone, telecopier or in writing shall be subject to a mutually agreed security procedure and you may execute or pay payment orders issued in our name when verified by you in accordance with such procedure. In executing or paying a payment order you may rely upon the identifying number (e.g. Fedwire routing number or account) or any party as instructed in the payment order. With respect to any Custody Account established under this Agreement which is not linked to a Cash Account, all references to Cash Account shall be read to mean Custody Account. - 14 - IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and on its behalf by its duly authorized representative and its seal to be affixed as of ___________________________. EQ ADVISORS TRUST By: ____________________________ Title: _________________________ Date: __________________________ THE CHASE MANHATTAN BANK By: __________________________ Title: _______________________ Date: ________________________ - 15 - GLOBAL CUSTODY RIDER TO DOMESTIC CUSTODY AGREEMENT FOR MUTUAL FUNDS We hereby request you, The Chase Manhattan Bank, to provide to us and the Portfolios Global Custody Services subject to the terms of our Domestic Custody Agreement with you, and the terms herein. If there is any conflict between the terms in our Domestic Custody Agreement and the terms in this Rider with regard to your providing Global Custody Services to us, the terms of this Rider shall govern. The terms of this Rider shall be effective as of the date you commence to provide Global Custody Services to us. 1. Maintenance of Securities and Cash Outside the United States. Unless our instructions specifically require another location acceptable to you and permitted under applicable law: (a) securities shall be held in the country or other jurisdiction in which the principal trading market for such securities are located, where such securities are to be presented for payment or where such securities are acquired; and (b) cash shall be credited to an account in a country or other jurisdiction in which such cash may be legally deposited or is the legal currency for the payment of public or private debts. Cash may be held pursuant to instructions in either interest or non-interest bearing accounts as may be available for the particular currency. To the extent you can comply with our instructions to you, you are authorized to maintain cash balances on deposit for us with you or one of your "Affiliates" at such reasonable rates of interest as may from time to time be paid on such accounts, or in non-interest bearing accounts as we may direct, if acceptable to you. For purposes hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or under common control with, Bank. If we wish to have any of the securities held in the custody of an institution other than the established Subcustodians as defined in Section 2 hereof (or their securities depositories), such arrangement must be authorized by a written agreement, signed by you and us. 2. Subcustodians and Depositories. You may act under this Rider through the subcustodians listed in Schedule A hereto with which you have entered into subcustodial agreements ("Subcustodians"). We authorize you to hold securities recorded to the Custody Account in accounts which you have established with one or more of your branches or Subcustodians. You and Subcustodians are authorized to hold any of the securities in your accounts with any Depository in which you or they participate. You may add new, replace or remove Subcustodians. We shall be given reasonable notice by you of any amendment to Schedule A. Upon our request, you shall identify the name, address and principal place of business of any Subcustodian of our securities and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian. With respect to securities maintained outside the United States, the terms Subcustodian and securities depositories as used herein shall mean a branch of a qualified U.S. bank, an eligible foreign custodian or an eligible foreign securities depository as those terms are defined in Rule 17f-5 under the 1940 Act. We represent that our Board of Directors has approved each of the Subcustodians listed in Schedule A hereto and that our Board has determined that the use of each Subcustodian is consistent with the best interests of the Trust, the relevant Portfolios and their shareholders (to the extent such approvals are required under the 1940 Act). You shall supply us with any proposed amendment to Schedule A, but you shall not place Trust assets with proposed Subcustodians until you have received from us evidence of a certified resolution representing Board approval of such amendment, as required. We have supplied or shall supply you with certified copies of our Board of Trustees resolutions with respect to the foregoing prior to your placing securities with any Subcustodian so approved. 3. Use of Subcustodian. (a) You shall identify the securities on your books as belonging to us. (b) A Subcustodian shall hold the Portfolios' securities in accounts identified on such Subcustodian's books as for your exclusive benefit as our agent. (c) Any securities in the accounts held by a Subcustodian shall be subject only to the instruction of you or your agent. Any securities held in a Depository for the account of a Subcustodian shall be subject only to the directions of such Subcustodian. (d) Any agreement you enter into with a Subcustodian for holding your customers' assets shall provide that (i) such assets shall not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian except for safe custody or administration; (ii) the beneficial ownership of such assets shall be freely transferable without the payment of money or value other than for safe custody or administration; (iii) adequate records will be maintained identifying the assets as belonging to us; (iv) your officers or auditors employed by you, or other representative of yours, including, to the extent permitted under applicable law, our independent public accounts, will be given access to the books and records of the - 2 - Subcustodian relating to its actions under its agreements with you; and (v) our assets held by the Subcustodian will be subject only to your instructions or the instructions of your agent. Where securities are deposited by a Subcustodian with a securities depository, you shall cause the Subcustodian to identify on its books as belonging to you, as agent, the securities shown on the Subcustodian's account on the books of such securities depository. The foregoing shall not apply to the extent of any special agreement or arrangement made by us with any particular Subcustodian. 4. Global Securities Account Transactions. (a) Securities shall be transferred, exchanged or delivered by you or Subcustodian upon receipt by you of instructions which include all information required by you. Settlement and payment for securities received for, and delivery of securities out of, the Custody Account may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of securities to a purchaser, dealer or their agents against a receipt with the expectation of receiving later payment and free delivery. Delivery of securities out of the Custody Account may be made in any manner specifically required by our instructions acceptable to you. All collections of funds or other property paid or distributed in respect of securities in the Custody Account shall be made at our risk. You shall have no liability for any loss occasioned by delay in the actual receipt of notice by you or by Subcustodians of any payment, redemption or other transaction regarding securities in the Custody Account in respect of which you have agreed to take any action under the Agreement. 5. Corporate Actions; Proxies; Tax Reclaims. (a) Corporate Actions. Whenever you receive information concerning the securities which requires discretionary action by the beneficial owner of the securities (other than a proxy), such as subscription rights, bonus issues, stock repurchase plans and rights offerings, or legal notices or other material intended to be transmitted to securities holders ("Corporate Actions"), you shall give us notice of such Corporate Actions to the extent that your central corporate actions department has actual knowledge of a Corporate Action in time to notify your customers. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar Corporate Action is received which bears an expiration date, you shall endeavor to obtain instructions from us or an Authorized Officer, but if instructions are not received in time for you to take timely action, or actual notice of such Corporate Action was received too late to seek instructions, you are authorized to sell such rights entitlement or fractional interest and to credit the Cash Account with the proceeds or take any other action you deem, in good faith, to be appropriate in which case you shall be held harmless for any such action. - 3 - (b) Proxy Voting. You shall provide proxy voting services, if elected by us, in accordance with the terms of the Proxy Voting Services Rider hereto. Proxy voting services may be provided by you or, in whole or in part, by one or more third parties appointed by you (which may be your Affiliates); provided that you shall be liable for the performance of any such third party to the same extent as you would have been if you performed such services yourself. If you provide such services, it will be with the recognition of your assumption of any fiduciary duty we have to vote the shares of any stock owned consistent with the investment objectives, policies and restrictions of the Portfolios. (c) Tax Reclaims. (i) Subject to the provisions hereof, you shall apply for a reduction of withholding tax and any refund of any tax paid or tax credits which apply in each applicable market in respect of income payments on securities for our benefit which you believe may be available to us. (ii) The provision of tax reclaim services by you is conditional upon your receiving from us or to the extent beneficially owned by others, the beneficial owners, of securities (A) a declaration of its identity and place of residence and (B) certain other documentation (pro forma copies of which are available from you). We acknowledge that, if you do not receive such declarations, documentation and information, additional United Kingdom taxation shall be deducted from all income received in respect of securities issued outside the United Kingdom and that U.S. non-resident alien tax or U.S. backup withholding tax shall be deducted from U.S. source income. We shall provide to you such documentation and information as you may require in connection with taxation, and warrant that, when given, this information shall be true and correct in every respect, not misleading in any way, and contain all material information. We undertake to notify you immediately if any such information requires updating or amendment. (iii) You shall not be liable to us or any third party for any taxes, fines or penalties payable by you or us, and shall be indemnified accordingly, whether these result from the inaccurate completion of documents by us or any third party, or as a result of the provision to you or any third party or inaccurate or misleading information or the withholding of material information by us or any other third party, or as a result of any delay of any revenue authority or any other matter beyond your control. (iv) We confirm that you are authorized to deduct from any cash received or credited to the Cash Account any taxes or levies required by any revenue or governmental authority for whatever reason in respect of the Custody Account. - 4 - (v) You shall perform tax reclaim services only with respect to taxation levied by the revenue authorities of the countries notified to us from time to time and you may, by notification in writing, at your absolute discretion, supplement or amend the markets in which the tax reclaim services are offered. Other than as expressly provided in this sub-clause, you shall have no responsibility with regard to our tax position or status in any jurisdiction. (vi) We confirm that you are authorized to disclose any information requested by any revenue authority or any governmental body in relation to us or the securities and/or cash held for us. (vii) Tax reclaim services may be provided by you or, in whole or in part, by one or more third parties appointed by you (which may be your Affiliates); provided that you shall be liable for the performance of any such third party to the same extent as you would have been if you performed such services yourself. 6. Nominees. Securities which are ordinarily held in registered form may be registered in a nominee name of yours, Subcustodian or Depository, as the case may be. You may without notice to us cause any such securities to cease to be registered in the name of any such nominee and to be registered in our name. We agree to hold you, Subcustodian, Depository and your and their respective nominees harmless from any liability arising directly or indirectly from your or their status as a mere record holder of securities in the Custody Account. 7. Standard of Care. (a) Delete the second paragraph under "Custodian Responsibility" and insert, in lieu thereof, the following You shall be liable to us for any loss which shall occur as the result of the failure of a Subcustodian to exercise reasonable care with respect to the safekeeping of securities to the same extent that you would be liable to us if you were holding such securities in New York. In the event of any loss to us by reason of the failure of a Subcustodian to utilize reasonable care, you shall be liable to us only to the extent of our direct damages, to be determined based on the market value of the property which is the subject of the loss at the date of discovery of such loss and without reference to any special conditions or circumstances. You shall have no liability whatsoever for any consequential, special, indirect or speculative loss or damages (including, but not limited to, lost profits) suffered by us in connection with the transactions contemplated hereby and the relationship established hereby even if you have been advised as to the possibility of the same and regardless of the form of the action. You shall not be responsible for the insolvency of any Subcustodian which is not a branch of your Affiliate except that you will be held to a standard of reasonable care in not entering into any arrangement where, - 5 - through the due diligence you are required to undertake, you have reason to know that the Subcustodian is financially insecure or, with respect to an ongoing relationship, you have reason to know that the financial stability of the Subcustodian has deteriorated to the point where it has become imprudent to maintain the subcustodial relationship. (b) Add the following at the end of the "Custodian Responsibility" section: (i) You shall be entitled to rely, and may act, upon the advice of counsel (who may be counsel for us) on all matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice. (ii) Without limiting anything else contained in this Section, you shall not be liable for any loss which results from: 1) the general risk of investing, or 2) investing or holding securities in a particular country including, but not limited to, nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of securities. (iii) Consistent with and without limiting the remainder hereof, it is specifically acknowledged that you shall have no duty or responsibility to: (i) question instructions; (ii) supervise or make recommendations with respect to investments or the retention of securities; (iii) advise us or any Authorized Person regarding any default in the payment of principal or income of any security; (iv) review or reconcile trade confirmations received from brokers. We shall bear any responsibility to review such confirmations against instructions issued to and statements issued by you. (iv) We authorize you to act hereunder (but do not indemnify you or assume any liabilities you might incur in connection with actions you take which are deemed by any regulatory agency or court of law to be improper) notwithstanding that you or any of your divisions or Affiliates may have a material interest in a transaction, or circumstances are such that you may have a potential conflict of duty or interest including the fact that you or any of your Affiliates may provide brokerage services to other customers, act as financial advisor to the issuer of securities, act as a lender to the issuer of securities, act in the same transaction as agent for more than one customer, have a material interest in the issue of securities, or earn profits from any of the activities listed herein. (v) You hereby warrant to us that in your opinion, after due inquiry, the established procedures to be followed by each of your branches, each branch of a qualified U.S. Bank, each eligible foreign custodian and each eligible foreign securities depository holding our securities pursuant hereto afford protection for such securities at least equal to that afforded by your established procedures with respect to similar securities held by you and your securities depositories in New York. - 6 - (c) Each agreement pursuant to which you employ a Subcustodian will require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, both you and us from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the institution's performance of such obligations. At our election we will be entitled to be subrogated to your rights with respect to any claims against a Subcustodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that we have not been made whole for any such loss, damage, expense, liability or claim. 8. Fees and Expenses. We agree to pay you for Global Custody Services hereunder the fees set forth in Schedule B hereto or such other amounts as may be agreed upon in writing. 9. Purposes for instructions. Cash Account and Custody Account transactions made pursuant hereto may be made only for the purposes listed below. Instructions must specify the purpose for which any transaction is to be made and we shall be solely responsible to assure that instructions are in accord with any limitations or restrictions applicable to us by law or as may be set forth in our prospectus. (a) In connection with the purchase or sale of securities at prices as confirmed by instructions; (b) When securities are called, redeemed or retired, or otherwise become payable; (c) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or readjustment; (d) Upon conversion of securities pursuant to their terms into other securities; (e) Upon exercise of subscription, purchase or other similar rights represented by securities; (f) For the payment of interest, taxes, management or supervisory fees, distribution or operating expenses; (g) In connection with any borrowings by us requiring a pledge of securities, but only against receipt of amounts borrowed; - 7 - (h) In connection with any loans, but only against receipt of adequate collateral as specified in instructions which shall reflect any restrictions applicable to us; (i) For the purpose of redeeming shares of our capital stock and the delivery to, or the crediting to the account of yours, your Subcustodian or our transfer agent, such shares to be purchased or redeemed; (j) For the purpose of redeeming in kind shares of ours against delivery to you, your Subcustodian or our transfer agent of such shares to be so redeemed; (k) For delivery in accordance with the provisions of any agreement among you, us and a broker-dealer registered under the Securities Exchange Act of 1934 and a member of The National Association of Securities Dealers, Inc., relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by us; (l) For release of securities to designated brokers under covered call options, provided, however, that such securities shall be released only upon payment of you of monies for the premium due and a receipt for the securities which are to be held in escrow. Upon exercise of the option, or at expiration, you shall receive from brokers the securities previously deposited. You shall act strictly in accordance with instructions in the delivery of securities to be held in escrow and shall have no responsibility or liability for any such securities which are not returned promptly when due other than to make proper request for such return; (m) For spot or forward foreign exchange transactions to facilitate security trading, receipt of income from securities or related transactions; (n) For other proper purposes as may be specified in instructions issued by an officer of ours which shall include a statement of the purpose for which the delivery or payment is to be made, the amount of the payment or specific securities to be delivered, the name of the person or persons to whom delivery or payment is to be made, and a certification that the purpose is a proper purpose under the instructions governing us; and (o) Upon the termination hereof as set forth in Section [ ]. 10. Miscellaneous. (a) Foreign Exchange Transactions. To facilitate the administration of our trading and investment activity, you are authorized to enter into spot or forward foreign exchange contracts with us or an Authorized Officer for us and may also provide foreign exchange through your subsidiaries, Affiliates or Subcustodians. Instructions including standing instructions, may be issued with respect to such contracts but you may establish rules or limitations concerning - 8 - any foreign exchange facility made available. In all cases where you and your subsidiaries, Affiliates or Subcustodian and, to the extent not inconsistent, the Agreement shall apply to such transaction. (b) Access to Records. You shall allow our independent public accountants reasonable access to records relating to the Custody Account as is required in connection with their examination of books and records pertaining to our affairs. Subject to restrictions under applicable law, you shall also obtain an undertaking to permit our independent public accountants reasonable access to the records of any Subcustodian which has physical possession of any securities as may be required in connection with the examination of our books and records. Upon our reasonable request, you shall furnish us such reports (or portions thereof) of your system of internal accounting controls applicable to your duties hereunder. You shall endeavor to obtain and furnish us with such similar reports as it may reasonably request with respect to each Subcustodian and securities depository holding securities. (c) Representation. By accepting our securities for safekeeping, you acknowledge that the securities being placed in your custody are subject to the 1940 Act, as the same may be amended from time to time, and that your handling of the securities will at all times be consistent with applicable law. (d) Compliance with Rule 17f-5. With respect to all aspects of custodial services within your authority and control, and unless acting on specific instructions from us to the contrary, you shall be responsible for performing all actions with respect to our securities, and overseeing the actions of Subcustodians with which you do business, in compliance with Rule 17f-5 under the 1940 Act. - 9 - IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and on its behalf by its duly authorized representative and its seal to be affixed as of ___________________________. EQ ADVISORS TRUST By: ____________________________ Title: _________________________ Date: __________________________ THE CHASE MANHATTAN BANK By: __________________________ Title: _______________________ Date: ________________________ - 10 - APPENDIX A March ____, 1997 The following Portfolios are covered by the Custodian Agreement dated _________________________ between The Chase Manhattan Bank and EQ Advisors Trust: * T. Rowe Price International Stock Portfolio Class IA and Class IB * T. Rowe Price Equity Income Portfolio Class IA and Class IB * EQ/Putnam Growth & Income Value Portfolio Class IA and Class IB * EQ/Putnam International Equity Portfolio Class IA and Class IB * EQ/Putnam Investors Growth Portfolio Class IA and Class IB * EQ/Putnam Balanced Portfolio Class IA and Class IB * MFS Research Portfolio Class IA and Class IB * MFS Emerging Growth Companies Portfolio Class IA and Class IB * Morgan Stanley Emerging Markets Equity Portfolio Class IA and Class IB * Warburg Pincus Small Company Value Portfolio Class IA and Class IB * Merrill Lynch World Strategy Portfolio Class IA and Class IB * Merrill Lynch Basic Value Equity Portfolio Class IA and Class IB - 1 - SCHEDULE A The following foreign banking institutions and foreign securities depositories, referred to as Subcustodians in the Agreement, are hereby authorized to provide subcustodial services to those Portfolios of the Trust authorized to trade in foreign securities: - 2 - EX-9.(A) 9 FORM OF MUTUTAL FUNDS SERVICE AGREEMENT EXHIBIT 9(a) FORM OF MUTUAL FUNDS SERVICE AGREEMENT TRUST ADMINISTRATION AND COMPLIANCE SERVICES TRUST ACCOUNTING SERVICES CHASE GLOBAL FUNDS SERVICES COMPANY ______________, 1997 MUTUAL FUNDS SERVICE AGREEMENT TABLE OF CONTENTS ----------------- SECTION PAGE ------- ---- 1. Appointment 1 2. Representations and Warranties 1 3. Delivery of Documents 3 4. Services Provided 4 5. Fees and Expenses 5 5. Limitation of Liability and Indemnification 7 7. Term 10 8. Notices 10 9. Waiver 11 10. Force Majeure 11 11. Amendments 11 12. Severability 11 13. Governing Law 11 Signatures 12 14. Miscellaneous 15. Confidentiality 16. Signatures Schedule A - Fees and Expenses A-1 Schedule B - Trust Administration and Compliance Services Description B-1 Schedule C - Trust Accounting Services Description C-1 2 MUTUAL FUNDS SERVICE AGREEMENT AGREEMENT made as of ________ __, 1997 by and between the EQ ADVISORS TRUST (the "Trust"), a business trust organized under Delaware law, and CHASE GLOBAL FUNDS SERVICES COMPANY ("Chase"), a Delaware corporation. WITNESSETH: WHEREAS, the Trust is registered as an open-end management investment company of the series type under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Trust wishes to contract with Chase to provide certain administrative, accounting and compliance services with respect to the Trust, including its constituent portfolios (the "Portfolios" and, each, a "Portfolio"); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Trust hereby appoints Chase to provide administrative, accounting and compliance services for the Trust, as described hereinafter, subject to the supervision of the Board of Trustees of the Trust (the "Board")and EQ Financial Consultants, Inc., the Trust's manager ("Manager"), for the period and on the terms set forth in this Agreement. Chase accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Section 5 of and Schedule A to this Agreement. 2. REPRESENTATIONS AND WARRANTIES. (a) Chase represents and warrants to the Trust that: (i) Chase is a corporation, duly organized and existing under the laws of the State of Delaware; (ii) Chase is duly qualified to carry on its business in the State of New York and in the Commonwealth of Massachusetts in performance of its duties under this Agreement; (iii) Chase is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (iv) all requisite corporate proceedings have been taken to authorize Chase to enter into and perform this Agreement; (v) Chase has, and will continue to have, access to the facilities, personnel and equipment required to fully perform its duties and obligations hereunder; 3 (vi) no legal or administrative proceedings have been instituted or threatened which would impair Chase's ability to perform its duties and obligations under this Agreement; and (vii) Chase's entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of Chase or any law or regulation applicable to Chase; (b) The Trust represents and warrants to Chase that: (i) the Trust is a Delaware business trust, duly organized and existing and in good standing under the laws of the State of Delaware; (ii) the Trust is empowered under applicable laws and by its Charter Document and By-Laws to enter into and perform this Agreement; (iii) all requisite proceedings have been taken to authorize the Trust to enter into and perform this Agreement; (iv) the Trust is an investment company properly registered under the 1940 Act, (v) a registration statement under the Securities Act of 1933, as amended (" 1933 Act") and the 1940 Act on Form N-1A has been fled and will be effective and will remain effective during the term of this Agreement, and all necessary filings under the laws of the states will have been made and will be currant during the term of this Agreement; (vi) no legal or administrative proceedings have been instituted or threatened which would impair the Trust's ability to perform its duties and obligations under this Agreement; (vii) the Trust's registration statements comply in all material respects with the 1933 Act and the 1940 Act (including the rules and regulations thereunder) and none of the Trust's prospectuses and/or statements of additional information contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein not misleading; and (viii) the Trust's entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Trust or any law or regulation applicable to it. 3. DELIVERY OF DOCUMENTS. The Trust will promptly furnish to Chase such copies, properly certified or authenticated, of contracts, documents and other related information, other than confidential documents or information, that Chase may reasonably request or require to properly discharge its duties. In the event that the Trust does not furnish to Chase copies of any documents or information that Chase requires to properly discharge its duties, Chase shall not 4 be liable to the Trust for any losses resulting from the failure to deliver such documents or information. Such documents may include but are not limited to the following: (a) Resolutions of the Board authorizing the appointment of Chase to provide certain services to the Trust and approving this Agreement; (b) The Trust's Declaration of Trust; (c) The Trust's By-Laws; (d) The Trust's Notification of Registration on Form N-8A under the 1940 Act as filed with the Securities and Exchange Commission ("SEC"); (e) The Trust's registration statement including exhibits, as amended, on Form N-1A (the "Registration Statement") under the 1933 Act and the 1940 Act, as filed with the SEC; (f) Copies of the Investment Management Agreement between the Trust and the Manager (the "Management Agreement"); (g) Copies of each of the Investment Advisory Agreements between the Manager and the investment advisers; (h) The Trust's prospectus(es) and statement(s) of additional information relating to all Trusts, series, portfolios and classes, as applicable, and all amendments and supplements thereto (such Prospectus(es) and Statement(s) of Additional Information and supplements thereto, as presently in effect and as from time to time hereafter amended and supplemented, herein called the "Prospectuses"); and (i) Such other material agreements as the Trust may enter into from time to time including securities lending agreements, futures and commodities account agreements, brokerage agreements and options agreements. 4. SERVICES PROVIDED. (a) Chase will provide the following services subject to the control, direction and supervision of the Board and in compliance with the objectives, policies and limitations set forth in the Trust's Registration Statement, Declaration of Trust and By-Laws; applicable laws and regulations; and all resolutions and policies implemented by the Board: (i) Trust Administration, (ii) Trust Accounting, and 5 (iii) Compliance Services. A detailed description of each of the above services is contained in Schedules B and C, respectively, to this Agreement. (b) Chase will also: (i) provide, without additional cost to the Trust except for out-of-pocket expenses, office facilities in an appropriate location with respect to the provision of the services contemplated herein (which may be in the offices of Chase or a corporate affiliate of Chase); (ii) provide, without additional remuneration from or other cost to the Trust except for out-of-pocket expenses, the services of individuals to serve as officers of the Trust who will be designated by Chase and elected by the Board subject to reasonable Board approval; (iii) provide or otherwise obtain, without additional remuneration from or other cost to the Trust except for out-of-pocket expenses, personnel sufficient for provision of the services contemplated herein; (iv) furnish, at no additional cost to the Trust except for out-of-pocket expenses, equipment and other materials, which are necessary or desirable for provision of the services contemplated herein; and (v) keep records, at no additional cost to the Trust except for out-of-pocket expenses, relating to the services provided hereunder in such form and manner as Chase may deem appropriate or advisable. To the extent required by Section 31 of the 1940 Act and the rules thereunder, Chase agrees that all such records prepared or maintained by Chase relating to the services provided hereunder are the property of the Trust and will be preserved for the periods prescribed under Rule 3la-2 under the 1940 Act and made available in accordance with such Section and rules. 5. FEES AND EXPENSES. (a) As compensation for the services rendered to the Trust pursuant to this Agreement, as set forth in Section 4 and in Schedules B and C hereof, the Trust shall pay Chase monthly fees determined as set forth in Schedule A to this Agreement. Such fees are to be billed monthly and shall be due and payable upon receipt of the invoice. If this Agreement becomes effective or the provision of services under this Agreement terminates before the end of any month, the fee for the part of the month from the effective date to the end of the month or from the beginning of the month to the date of such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of such termination. 6 (b) For the purpose of determining fees calculated as a function of the Trust's assets, the value of the Trust's assets and net assets shall be computed as required by its currently effective Prospectus, generally accepted accounting principles, and resolutions of the . Board. (c) The Trust may request additional services, additional processing, or special reports, with such specifications and requirements as may be reasonably required by Chase. If Chase elects to provide such additional services or arrange for their provision, it shall be entitled to additional fees and expenses at its customary rates and charges. (d) Chase will bear its own expenses, in connection with the performance of the services under this Agreement, except as provided herein or as agreed to by the parties. The Trust agrees to bear all expenses that are incurred in its operation and not specifically assumed by Chase. Such other expenses to be incurred in the operation of the Trust and to be borne by the Trust, include, but are not limited to: taxes; interest; brokerage fees and commissions; salaries and fees of officers and trustees who are not officers, directors, shareholders or employees of Chase, or the Manager, the Trust's investment advisers, transfer agent, or distributor, SEC and state registration and qualification fees, levies, fines and other charges; EDGAR filing fees, processing services and related fees; postage and mailing costs; costs of share certificates; management, investment advisory, transfer agency, distribution, shareholder service and administration fees; charges and expenses of data services, independent public accountants and custodians; insurance premiums including fidelity bond premiums; legal expenses; consulting fees; customary bank charges and fees; costs of maintenance of trust existence; expenses of typesetting and printing of Trust prospectuses for regulatory purposes and for distribution to current shareholders of the Trust in the case of those classes of shares of any of the Portfolios that have adopted a Rule 12b-1 plan, such classes of shares may bear the expense of all other printing, production, and distribution of prospectuses, and marketing materials provided to potential investors); expenses of printing and production costs of shareholders' reports and proxy statements and materials; expenses of proxy solicitation, proxy tabulation and Trust shareholder meetings; costs and expenses of Trust stationery and forms; costs associated with Trust, shareholder and Board meetings; trade association dues and expenses; charges and expenses related to the CMO System licensed by Chase as such system is utilized by Chase in conjunction with its obligations under this Agreement; charges and expenses related to the Fund Works System licensed by Chase, provided, however, that the Trust will only be responsible for a pro rata share of such charges and expenses based upon the number of shareholder reports produced by Chase utilizing this system; and any extraordinary expenses and other customary Trust expenses. In addition, Chase may utilize one or more independent pricing services to obtain securities prices and to act as backup to the primary pricing services, in connection with determining the net asset values of the Trust. The Trust will reimburse Chase for the Trust's share of the cost of such pricing services based upon the actual usage, or a pro-rata estimate of the use, of the services for the benefit of the Trust. (e) All fees, approved out-of-pocket expenses, or additional charges of Chase shall be billed on a monthly basis and shall be due and payable upon receipt of the invoice. Out-of- 7 pocket expenses shall be considered and approved in accordance with Expense Approval Guidelines as mutually agreed upon by the parties hereto from time to time. (f) Chase will render, after the close of each month in which services have been furnished, a statement reflecting all of the charges for such month. (g) The Trust must notify Chase in writing of any contested amounts within sixty (60) days of receipt of a billing for such amounts. Disputed amounts are not due and payable while they are being investigated. 6. LIMITATION OF LIABILITY AND INDEMNIFICATION. (a) Chase shall not be liable for any error of judgment or mistake of law or for any loss or expense suffered by the Trust, in connection with the matters to which this Agreement relates, except for a loss or expense caused by or resulting from or attributable to willful misfeasance, bad faith or negligence on Chase's part in the performance of its duties or from reckless disregard by Chase of its obligations and duties under this Agreement or Chase's refusal or failure to comply with the material terms of this Agreement or its breach of any representation or warranty under this Agreement. In no event shall Chase be liable for any indirect, incidental special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits), even if Chase has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) Subject to Section 6(a) above, and as long as Chase acts in good faith, with due diligence and without negligence, Chase shall not be responsible for, and the Trust shall indemnify and hold Chase harmless from and against any and all losses, damages (excluding consequential, punitive, special or indirect damages), costs, reasonable attorneys' fees and expenses, payments, expenses and liabilities incurred by Chase, any of its agents, or the Trust's agents in the performance of its/their duties hereunder, including but not limited to those arising out of or attributable to: (i) any and all actions of Chase or its officers or agents required to be taken pursuant to this Agreement; (ii) the reliance on or use by Chase or its officers or agents of information, records, or documents which are received by Chase or its officers or agents and furnished to it or them by or on behalf of the Trust, and which have been prepared or maintained by the Trust or any third party on behalf of the Trust; (iii) the Trust's refusal or failure to comply with the terms of this Agreement or the Trust's lack of good faith, or its actions, or lack thereof, involving negligence or willful misfeasance; (iv) the breach of any representation or warranty of the Trust hereunder; 8 (v) the reliance on or the carrying out by Chase or its officers or agents of any proper instructions reasonably believed to be duly authorized, or requests of the Trust; (vi) any delays, inaccuracies, errors in or omissions from information or data provided to Chase by data services, including data services providing information in connection with the CMO System licensed by Chase, and by any corporate action services, pricing services or securities brokers and dealers; (vii) the offer or sale of shares by the Trust in violation of any requirement under the Federal securities laws or regulations or the securities laws or regulations of any state, or in violation of any stop order or other determination or ruling by any Federal agency or any state agency with respect to the offer or sale of such shares in such state (1) resulting from activities, actions, or omissions by the Trust or its other service providers and agents, or (2) existing or arising out of activities, actions or omissions by or on behalf of the Trust prior to the effective date of this Agreement; (viii) any failure of the Trust's registration statement to comply with the 1933 Act and the 1940 Act (including the rules and regulations thereunder) and any other applicable laws, or any untrue statement of a material fact or omission of a material fact necessary to make any statement therein not misleading in a Trust's prospectus; (ix) except as provided for in Schedule B.I., the actions taken by the Trust, its Manager, and its distributor in compliance with applicable securities, tax, commodities and other laws, rules and regulations, or the failure to so comply, and (x) all actions, inactions, omissions, or errors caused by third parties to whom Chase or the Trust has assigned any rights and/or delegated any duties under this Agreement at the specific request of or as required by the Trust, its Manager, investment advisers, distributor, administrator or sponsor. The Trust shall not be liable for any indirect, incidental, special or consequential losses or damages of any kind whatsoever (including but not limited to lost profits) even if the Trust has been advised of the likelihood of such loss or damage and regardless of the form of action. 7. TERM. This Agreement shall become effective on the date first hereinabove written and may be modified or amended from time to time in writing by mutual agreement between the parties hereto. The Agreement shall continue in effect unless terminated by either party on ninety (90) days' prior written notice. Upon termination of this Agreement, the Trust shall pay to Chase such compensation and any documented and agreed upon out-of-pocket or other reimbursable expenses which may become due or payable under the terms hereof as of the date of termination or after the date that the provision of services ceases, whichever is later. 8. NOTICES. Any notice required or permitted hereunder shall be in writing and shall be deemed effective on the date of personal delivery (by private messenger, courier service or 9 otherwise) or upon confirmed receipt of telex or facsimile, whichever occurs first, or upon receipt if by mail to the parties at the following address (or such other address as a party may specify by notice to the other): If to the Trust: Attention: Fax: If to Chase: Chase Global Funds Services Company 73 Tremont Street Boston, MA 02108 Attention: Fax: 9. WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party. 10. FORCE MAJEURE. In the event Chase is unable to perform its obligations or duties under the terms of this Agreement because of any act of God, strike, riot, act of war, equipment failure, power failure or damage or other causes reasonably beyond its control, Chase shall not be liable for any loss, damage, cost, charge, counsel fee, payment, expense or liability to any other party (whether or not a party to this Agreement) resulting from such failure to perform its obligations or duties under this Agreement or otherwise from such causes. This provision, however, shall in no way excuse Chase from liability to the Trust for any and all losses, damages, costs, charges, counsel fees, payments and expenses incurred by the Trust due to the non-performance or delay in performance by Chase of its duties and obligations under this Agreement if such non-performance or delay in performance could have been reasonably prevented by Chase through back-up systems and other procedures commonly employed by other administrators in the mutual fund industry, provided that Chase shall have the right, at all times, to mitigate or cure any losses. 11. AMENDMENTS. This Agreement may be modified or amended from time to time by mutual written agreement between the parties. No provision of this Agreement may be changed, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought. 12. SEVERABILITY. If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any 10 person or circumstance it shall nevertheless remain applicable to all other persons and circumstances. 13. GOVERNING LAW. This Agreement shall be governed by the substantive laws of the State of New York. 14. MISCELLANEOUS. In performing its services hereunder, Chase shall be entitled to rely on any oral or written instructions, notices or other communications, including electronic transmissions, from the Trust and its custodians, officers and trustees, investors, agents and other service providers which Chase reasonably believes to be genuine, valid and authorized. Chase shall also be entitled to consult with and rely on the advice and opinions of outside legal counsel retained by the Trust, as necessary or appropriate. 15. CONFIDENTIALITY. Chase agrees that, except as otherwise required by law or in connection with any required disclosure to a banking or other regulatory authority or for purposes of performing its obligation hereunder, it will keep confidential all records and information in its possession relating to the Trust or its shareholders and will not disclose any confidential information except at the request or with the written consent of the Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above. EQ ADVISORS TRUST By:_________________________________ Name: Title: CHASE GLOBAL FUNDS SERVICES COMPANY By:_________________________________ Name: Title: 11 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE A FEES AND EXPENSES TRUST ADMINISTRATION, ACCOUNTING AND COMPLIANCE FEES A. For the services rendered under this Agreement, the Trust shall pay to Chase an annual fee in accordance with the following schedule: i. Until the total Trust assets reach $2.0 billion: .055 of 1% of the total Trust assets, plus $25,000 for each Portfolio. ii When the total Trust assets exceed $2.0 billion: .045 of 1% of the first $0.5 billion of the total Trust assets; .035 of 1% of the next $2.0 billion of the total Trust assets; .025 of 1% of the next $1.0 billion of the total Trust assets; .015 of 1% of the next $2.5 billion of the total Trust assets; and .01 of 1% of the total Trust assets in excess of $6.0 billion; except that the annual fee payable to Chase hereunder with respect to any Portfolio which commences operations after July 1, 1997 and whose assets do not exceed $200 million shall be computed in accordance with paragraph A.i. of this Schedule A. B. The foregoing calculations are based on the average daily net assets of the Trust, as described. The fees will be computed, billed and payable monthly. C. Approved out-of-pocket expenses, as provided in Section 5, will be computed, billed and payable monthly. D. Notwithstanding the foregoing provisions of this Schedule A and Section 5 of this Agreement, no fees will be charged by Chase for its services under this Agreement until November 1, 1997. 12 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE B GENERAL DESCRIPTION OF TRUST ADMINISTRATION AND COMPLIANCE SERVICES I. FINANCIAL AND TAX REPORTING A. Prepare management reports and Board of Trustees materials, such as unaudited financial statements and summaries of dividends and distributions. B. Report Trust performance to outside services as directed by Trust management. C. Calculate dividend and capital gain distributions in accordance with distribution policies detailed in the Trust's prospectus(es) or Board resolutions. Assist Trust management in making final determinations of distribution amounts. D. Estimate and recommend year-end dividend and capital gain distributions necessary to establish Trust's status as a regulated investment company ("RIC") under Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"), regarding minimum distribution requirements. E. The Trust will advise Chase of the declaration of any dividend or distribution and the record and payable date thereof at least five (5) days prior to the record date; and Chase will make appropriate credits to each shareholder's account. F. Working with the Trust's independent public accountants and other appropriate persons, prepare and file Trust's Federal tax return on Form 1120-RIC along with all state and local tax returns where applicable. Prepare and file Federal Excise Tax Return (Form 8613). G. Prepare for review by appropriate persons and file Trust's Form N-SAR with the SEC. H. Prepare and coordinate printing of Trust's semi-annual and annual reports to shareholders and file such reports with the appropriate regulatory agencies. Notwithstanding the foregoing, Chase shall not be responsible for preparing the "President's Letters" or the "Management's discussion of each Portfolio's performance" but shall review the text of the "President's letters" and "Management's discussion of each Portfolio's performance" (which shall also be subject to review by the Trust's legal counsel. 13 I. Prepare for review and approval by the Trust's officers financial information for the Trust's semi-annual and annual reports, proxy statements and other communications required or otherwise sent to the Trust's shareholders (and their contractowners) and arrange, if requested, for the printing and dissemination of such reports and communications. J. Provide financial information for Trust proxies and prospectuses including expense table. K. File copies of financial reports to shareholders with the SEC under Rule 30b2-1. L. Notify the separate accounts as to what portion, if any, of the distributions made by the Trust' during the prior fiscal year were exempt-interest dividends under Section 852(b)(5)(A) of the Code. M. Provide Form 1099-MISC to persons other than corporations (i.e., Trustees) to whom the Trust paid more than $600 during the year. II. PORTFOLIO COMPLIANCE Chase shall provide the following compliance services in conjunction with each Adviser's obligations pursuant to its Investment Advisory Agreement with the Trust and all applicable laws. A. Monitor and periodically test each Portfolio's compliance with investment restrictions (e.g., issuer or industry diversification, etc.) listed in the current prospectus(es) and Statement(s) of Additional Information. B. Monitor and periodically test each Portfolio's compliance with the requirements of Section 851 of the Code for qualification as a RIC. C. Monitor and periodically test each Portfolio's compliance with the requirements of Section 817(h) of the Code. D. Monitor each investment adviser's compliance with Board directives such as "Approved Issuers Listings for Repurchase Agreements", Rule 17a-7, Rule 17e-1 and Rule 12d-3 procedures. E. Mail quarterly requests for "Securities Transaction Reports" to the Trust's Trustees and Officers and "access persons" under the terms of the Trust's Code of Ethics and SEC regulations. 14 F. Prepare, distribute, and utilize in compliance training sessions, comprehensive compliance materials, including compliance manuals and checklists, subject to review and comment by the Trust's legal counsel and develop or assist in developing guidelines and procedures to improve overall compliance by the Trust and its various agents. III. REGULATORY AFFAIRS AND CORPORATE GOVERNANCE A. Prepare and file post-effective amendments to the Trust's registration statement and supplements as needed with respect to the currently existing Portfolios only. B. Prepare and file proxy materials and administer shareholder meetings. C. Prepare agenda, collect background information and prepare all Board materials for Board meetings and distribute such materials to all necessary parties. D. Prepare minutes, and follow up on matters related to Chase's responsibilities under this Agreement that are raised at all Board meetings. E. In coordination with the Manager, make reports and recommendations to the Board concerning the performance of each of the investment advisers and other service providers for the Trust, as the Board may reasonably request. F. Prepare and file with the SEC Rule 24f-2 Notices (and all similar state filings, if required by the states). Chase shall not be responsible for preparing any legal opinions required in connection with Rule 24f-2 Motices. G. Assist with the review and monitoring of fidelity bond and errors and omissions insurance coverage and the submission of any related regulatory filings. H. Prepare and update documents, such as charter document, by-laws, and foreign qualification filings. I. Provide support and counsel with respect to routine regulatory examinations or investigations of the Trust and work closely with the Trust's legal counsel in response to any non-routing regulatory matters. Also, coordinate all communications and data collection with regard to any regulatory examinations and yearly audits by independent accountants. J. Maintain general corporate calendar. 15 K. Assist with preparations for attend and prepare minutes of shareholder meetings. L. When requested provide consultation on regulatory matters relating to portfolio management, Trust operations and any potential changes in each Portfolio's investment policies, operations or structure. M. Maintain continuing awareness of significant emerging regulatory and legislative developments which may affect each Portfolio; update the Board and the Manager on those developments and provide related planning assistance where reasonably requested or appropriate. IV. GENERAL ADMINISTRATION A. Furnish appropriate officers for the Trust, subject to Board approval. B. Prepare Trust, portfolio or class expense projections, establish accruals and review on a periodic basis, including expenses based on a percentage of average daily net assets (e.g., management, advisory and administrative fees) and expenses based on actual charges annualized and accrued daily (audit fees, registration fees, directors' fees, etc.). C. For new Portfolios and classes, obtain Employer or Taxpayer Identification Number and CUSIP numbers, as necessary. Estimate organizational costs and expenses and monitor against actual disbursements. D. Arrange if directed by the appropriate Trust officers, for the payment of the Trust's and each Portfolio's or class' expenses. 16 MUTUAL FUNDS SERVICE AGREEMENT SCHEDULE C DESCRIPTION OF FUND ACCOUNTING SERVICES I. GENERAL DESCRIPTION Chase shall provide the following accounting services to the Trust: A. Maintenance of the. books and records for the Trust's assets, including records of all securities transactions. B. Calculation of each Portfolio's or class' net asset value in accordance with the Trust's prospectus, and after the Portfolio or class meets eligibility requirements, transmission to NASDAQ and to such other entities as directed by the Trust. C. Accounting for dividends and interest received and distributions made by the Trust. D. Coordinate with the Trust's independent auditors with respect to the annual audit, and as otherwise requested by the Trust. E. Consult with the Trust's officers, independent public accountants and other appropriate persons in establishing the accounting policies of the Trust. F. As mutually agreed upon, Chase will provide domestic and/or international reports. 17 EX-9.(B) 10 FORM OF EXPENSE LIMITATION AGREEMENT EXHIBIT 9(b) FORM OF EXPENSE LIMITATION AGREEMENT EQ ADVISORS TRUST EXPENSE LIMITATION AGREEMENT, effective as of ________ __, 1997, by and between EQ Financial Consultants, Inc. (the "Manager") and EQ Advisors Trust (the "Trust"), on behalf of each series of the Trust set forth in Schedule A (each a "Portfolio," and collectively, the "Portfolios"). WHEREAS, the Trust is a Delaware business trust organized under the Amended and Restated Agreement and Declaration of Trust ("Declaration of Trust"), and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management company of the series type, and each Portfolio is a series of the Trust; and WHEREAS, the Trust and the Manager have entered into an Investment Management Agreement (the "Management Agreement"), pursuant to which the Manager will render investment management services to each Portfolio for compensation based on the value of the average daily net assets of each such Portfolio; and WHEREAS, the Trust and the Manager have determined that it is appropriate and in the best interests of each Portfolio and its shareholders to maintain the expenses of each Portfolio at a level below the level to which each such Portfolio would normally be subject during its start-up period. 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 a Portfolio in any fiscal year, including but not limited to investment management fees of the Manager (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 such 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 Manager. 1.2 Operating Expense Limit. The maximum Operating Expense Limit in any year with respect to each Portfolio shall be the amount specified in Schedule A based on a percentage of the average daily net assets of each Portfolio. 1.3 Method of Computation. To determine the Manager's liability with respect to the Excess Amount, each month the Portfolio Operating Expenses for each Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses for any month of a Portfolio exceed the Operating Expense Limit of such Portfolio, the Manager shall first waive or reduce its investment management fee for such month by an amount sufficient to reduce the annualized Portfolio Operating Expenses to an amount no higher than the Operating Expense Limit. If the amount of the waived or reduced investment management fee for any such month is insufficient to pay the Excess Amount, the Manager may also remit to the appropriate Portfolio or Portfolios an amount that, together with the waived or reduced investment management fee, is sufficient to pay such Excess Amount. 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 investment management fees waived or reduced and other payments remitted by the Manager to the Portfolio or Portfolios with respect to the previous fiscal year shall equal the Excess Amount. 2. Reimbursement of Fee Waivers and Expense Reimbursements. 2.1 Reimbursement. If in any year during which the total assets of a Portfolio are greater than $100 million and in which the Management Agreement is still in effect, the estimated aggregate Portfolio Operating Expenses of such Portfolio for the fiscal year are less than the Operating Expense Limit for that year, subject to quarterly approval by the Trust's Board of Trustees as provided in Section 2.2 below, the Manager shall be entitled to reimbursement by such Portfolio, in whole or in part as provided below, of the investment management fees waived or reduced and other payments remitted by the Manager to such Portfolio pursuant to Section 1 hereof. The total amount of reimbursement to which the Manager may be entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all investment management fees previously waived or reduced by the Manager and all other payments remitted by the Manager to the Portfolio, pursuant to Section 1 hereof, during any of the previous two (2) fiscal years, less any reimbursement previously paid by such Portfolio to the Manager, pursuant to Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and payments. The Reimbursement Amount shall not include any additional charges or fees whatsoever, including, e.g., interest accruable on the Reimbursement Amount. 2.2 Board Approval. No reimbursement shall be paid to the Manager with respect to any Portfolio pursuant to this provision in any fiscal quarter, unless the Trust's Board of Trustees has determined that the payment of such reimbursement is in the best interests of such Portfolio and its shareholders. The Trust's Board of Trustees shall determine quarterly in advance whether any reimbursement may be paid to the Manager with respect to any Portfolio in such quarter. 2.3 Method of Computation. To determine each Portfolio's payments, if any, to reimburse the Manager for the Reimbursement Amount, each month the Portfolio Operating Expenses of each Portfolio shall be annualized as of the last day of the month. If the annualized Portfolio Operating Expenses of a Portfolio for any month are less than the Operating Expense 2 Limit of such Portfolio, such Portfolio, only with the prior approval of the Board, shall pay to the Manager an amount sufficient to increase the annualized Portfolio Operating Expenses of that Portfolio to an amount no greater than the Operating Expense Limit of that Portfolio, provided that such amount paid to the Manager will in no event exceed the total Reimbursement Amount. 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 of a Portfolio for the prior fiscal year (including any reimbursement payments hereunder with respect to such fiscal year) do not exceed the Operating Expense Limit. 3. Term and 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 (i) are not "interested persons" of the Trust or any other party to this Agreement, as defined in the 1940 Act, and (ii) have no direct or indirect financial interest in the operation of this Agreement ("Non-Interested Trustees"). Nevertheless, this Agreement may be terminated by either party hereto, without payment of any penalty, upon 90 days' prior written notice to the other party at its principal place of business; provided that, in the case of termination by the Trust, such action shall be authorized by resolution of a majority of the Non-Interested Trustees of the Trust or by a vote of a majority of the outstanding voting securities of the Trust. 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 Trust or the Portfolios to take any action contrary to the Trust's Declaration of Trust or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Trust's Board of Trustees of its responsibility for and control of the conduct of the affairs of the Trust or the Portfolios. 4.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the investment management fee, the computations of net asset values, and the allocation of expenses, having a counterpart in or otherwise derived from the terms and provisions of the Management Agreement or the 1940 Act, shall have the same meaning as and be resolved by reference to such Management Agreement or the 1940 Act. 3 IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written. ATTEST: EQ ADVISORS TRUST ON BEHALF OF EACH OF ITS SERIES __________________________ By:__________________________ Secretary ATTEST: EQ FINANCIAL CONSULTANTS, INC. __________________________ By:__________________________ Secretary 4 SCHEDULE A EXPENSE LIMITATION AMOUNTS This Agreement relates to the following Portfolios of the Trust: Maximum Expense Name of Portfolio Limitation Amount - ----------------- ----------------- T. Rowe Price International Stock Portfolio 1.20% T. Rowe Price Equity Income Portfolio 0.85% EQ/Putnam Growth & Income Value Portfolio 0.85% EQ/Putnam International Equity Portfolio 1.20% EQ/Putnam Investors Growth Portfolio 0.85% EQ/Putnam Balanced Portfolio 0.90% MFS Research Portfolio 0.85% MFS Emerging Growth Companies Portfolio 0.85% Morgan Stanley Emerging Markets Equity Portfolio 1.75% Warburg Pincus Small Company Value Portfolio 1.00% Merrill Lynch World Strategy Portfolio 1.20% Merrill Lynch Basic Value Equity Portfolio 0.85% 5 EX-9.(C) 11 FORM OF ORGANIZATIONAL EXPENSE REIMBURSEMENT AGR. EXHIBIT 9(c) EQ ADVISORS TRUST FORM OF ORGANIZATIONAL EXPENSE REIMBURSEMENT AGREEMENT This Agreement is made this ___ day of __________ 1997, by and between EQ Financial Consultants, Inc. (the "Manager") and EQ Advisors Trust (the "Trust"), on behalf of each series of the Trust set forth in Schedule A (each a "Portfolio," and collectively, the "Portfolios"). WHEREAS, the Trust is registered as an open-end diversified management investment company under the Investment Company Act of 1940, as amended; and WHEREAS, there have been certain necessary organizational expenses incurred as a part of such process, which are proper expenses of the Portfolios, that have been and will in the future be paid by the Manager and affiliated companies of the Manager, by reason of the fact that each Portfolio was not capitalized when such expenses were incurred (such expenses hereinafter referred to as "Organizational Expenses"); NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows: 1. Effective as of the initial public offering of shares of each Portfolio, the Trust shall be obligated to reimburse and pay to the Manager, or such affiliated companies of the Manager as the Manager may designate, the amounts expended and to be expended by the Manager and its affiliates for Organizational Expenses. 2. Such reimbursements shall be paid by the Trust promptly upon the demand of the Manager. Upon demand for payment, the Manager shall present copies of invoices of receipts, copies of canceled checks or other evidence of payment of the Organizational Expenses for which it is demanding reimbursement from the Trust. ATTEST: EQ ADVISORS TRUST ON BEHALF OF EACH OF ITS SERIES ______________________ By:______________________ Secretary ATTEST: EQ FINANCIAL CONSULTANTS, INC. ______________________ By:______________________ Secretary SCHEDULE A This Agreement relates to the following Portfolios of the Trust: T. Rowe Price International Stock Portfolio T. Rowe Price Equity Income Portfolio EQ/Putnam Growth & Income Value Portfolio EQ/Putnam International Equity Portfolio EQ/Putnam Investors Growth Portfolio EQ/Putnam Balanced Portfolio MFS Research Portfolio MFS Emerging Growth Companies Portfolio Morgan Stanley Emerging Markets Equity Portfolio Warburg Pincus Small Company Value Portfolio Merrill Lynch World Strategy Portfolio Merrill Lynch Basic Value Equity Portfolio EX-9.(D) 12 FORM OF PARTICIPATION AGREEMENT EXHIBIT 9(d) Form of PARTICIPATION AGREEMENT Among EQ ADVISORS TRUST, THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES EQUITABLE DISTRIBUTORS, INC., and EQ FINANCIAL CONSULTANTS, INC. THIS AGREEMENT, made and entered into as of the _____ day of __________, 1997 by and among THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York stock life insurance company ("Equitable"), on its own behalf and on behalf of each of its separate accounts set forth on Schedule A hereto, as amended from time to time (each referred to as the "Account"), EQ Advisors Trust, a business trust organized under the laws of the State of Delaware (the "Trust"), and EQUITABLE DISTRIBUTORS, INC., a Delaware corporation, and EQ FINANCIAL CONSULTANTS, INC., a Delaware corporation (collectively, the "Distributors"). WHEREAS, the Trust engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts of insurance companies that issue variable life insurance policies, variable annuity contracts and certificates relating to such policies or contracts (collectively, the "Variable Contracts") and which have entered into participation agreements with the Trust and its Distributors (the "Participating Insurance Companies"); and WHEREAS, the beneficial interests in the Trust are divided into several series of shares, (each a "Portfolio"), each representing the interest in a particular managed portfolio of securities and other assets, and each Portfolio is divided or may be divided into one or more classes of shares, i.e., currently the Class IA shares and the Class IB shares, or such other classes of shares as may be created in the future (the "Classes"); and WHEREAS, one or more Portfolios or Classes thereof may be made available by the Trust to serve as funding vehicles for Participating Insurance Companies and their separate accounts funding Variable Contracts; and WHEREAS, the Trust intends to file an application to obtain an order from the Securities and Exchange Commission (the "Commission" or the "SEC") granting Participating Insurance -1- Companies and their separate accounts funding Variable Contracts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust and each of its Portfolios or Classes to be sold to and held by insurance company separate accounts funding Variable Contracts of both affiliated and unaffiliated life insurance companies (the "Shared Funding Exemptive Order"); and WHEREAS, the Trust is registered as an open-end management investment company under the 1940 Act, and shares of its Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, EQ Financial Consultants, Inc., in addition to being one of the Distributors, is also the investment manager to the Trust (the "Manager") and is duly registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended, and is registered or exempt from registration under all applicable state securities laws; and WHEREAS, Equitable has registered or will register each of its Accounts as a unit investment trust under the 1940 Act and has registered or will register interests in each Account under the 1933 Act, other than those exempt from such registration under applicable statutory provisions or regulations; WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of Equitable or through properly delegated authority, and divided into subaccounts, to set aside and invest assets attributable to the Variable Contracts; and WHEREAS, each of the Distributors is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, Equitable intends to purchase shares in the Portfolios and one or more Classes thereof, listed on Schedule B hereto as amended from time to time (the "Designated Portfolios and Classes") on behalf of each Account, in order to fund certain of the Variable Contracts, and each of the Distributors is authorized to sell such shares to each Account at the net asset value applicable to such Portfolios and the Classes thereof. NOW, THEREFORE, in consideration of their mutual promises, Equitable, the Trust and each of the Distributors agree as follows: ARTICLE I. Sale of Trust Shares 1.1. Each of the Distributors agrees to sell to each Account those shares of the Designated Portfolios and Classes for which it serves as the Trust's principal underwriter and which each Account orders, executing such orders on a daily basis at the net asset value per share next computed after receipt by the Trust or its designee of the order for the shares of the Designated Portfolios and Classes. For purposes of this Section 1.1, neither Equitable nor any -2- Account shall be considered the designee of the Trust for receipt of such purchase orders and receipt by Equitable or any Account shall not constitute receipt by the Trust for purposes of calculating each Portfolio's net asset value per share. 1.2. The Trust agrees to make its shares of the Designated Portfolios and Classes available for purchase by each Account at the applicable net asset value per share on those days on which the Trust calculates the net asset value per share of the Designated Portfolios and Classes pursuant to rules of the SEC. The Trust shall use reasonable efforts to calculate the net asset value per share of the Designated Portfolios and Classes on each day on which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Trust (the "Board") may refuse to sell shares of any Designated Portfolio or Class to any person, or suspend or terminate the offering of shares of any Portfolio or Class thereof, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio or Class thereof. 1.3. The Trust and each of the Distributors agree that shares of the Designated Portfolios and Classes will be sold only to Participating Insurance Companies and/or their separate accounts funding Variable Contracts or to other persons or entities permitted under Section 817 of the Internal Revenue Code of 1986, as amended (the "Code") or regulations promulgated thereunder. No shares of any Portfolio will be sold to the general public, except to the extent permitted under the Code. 1.4. The Trust and each of the Distributors will not sell Trust shares to any Participating Insurance Company or separate account funding Variable Contracts unless an agreement containing provisions substantially the same as Articles I, III, V, VII and Section 2.5 of Article II of this Agreement is in effect to govern such sales. 1.5. The Trust agrees to redeem for cash or in-kind, at the request of any Account or Equitable, any full or fractional shares of the Trust held by the Account or Equitable. The Trust will execute such requests on a daily basis at the net asset value per share of the Designated Portfolios and Classes next computed after receipt by the Trust or its designee of the request for redemption. For purposes of this Section 1.5, neither Equitable nor any Account shall be considered the designee of the Trust for receipt of requests for redemption, and receipt by Equitable or any Account shall not constitute receipt by the Trust for purposes of calculating each Portfolio's net asset value per share. 1.6. Equitable agrees that purchases and redemptions of shares of the Designated Portfolios and Classes offered by a then-current prospectus of the Trust shall be made in accordance with the provisions of such prospectus. Equitable agrees that all net amounts available under the Variable Contracts listed on Schedule A attached hereto and incorporated herein by this reference, as such Schedule A may be amended from time to time hereafter by mutual written agreement of all the parties hereto (the "Equitable Contracts"), shall be invested in the Trust and in such other investment companies or other investment vehicles advised by the Manager as may be mutually agreed to in writing by the parties hereto, or in Equitable's general account. In addition, amounts also may be invested in investment companies other than the -3- Trust if: (a) any such other investment company, or series thereof, has investment objectives or policies that are, in the opinion of the Manager, substantially different from the investment objectives and policies of the Portfolios of the Trust in which the Accounts invest; or (b) Equitable gives the Trust and the Distributors forty-five (45) days written notice of its intention to make such other investment companies available as a funding vehicle for the Equitable Contracts, and no written objection is received by Equitable; or (c) any such other investment companies were available as a funding vehicle for the Equitable Contracts prior to the date of this Agreement and Equitable so informs the Trust and Distributors prior to their signing this Agreement (a list of such other investment companies appears on Schedule C to this Agreement); or (d) the Trust and the Distributors consent to the use of any such other investment company. 1.7. Equitable shall pay for shares of Designated Portfolios and Classes thereof purchased for the Accounts or its general account on the business day on which an order to purchase Trust shares is made in accordance with the provisions of Section 1.1 hereof. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the SEC. Payment shall be in federal funds transmitted by wire. For purposes of Section 2.9 and 2.10, upon receipt by the Trust of the federal funds so wired, such funds shall cease to be the responsibility of Equitable and shall become the responsibility of the Trust. 1.8. Issuance and transfer of the shares of the Designated Portfolios and Classes thereof will be by book entry only. Stock certificates will not be issued to Equitable or any Account. Shares ordered from the Trust will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.9. The Trust shall furnish same day notice (by wire or telephone, followed by written confirmation) of any income dividends or capital gain distributions payable on the shares of the Designated Portfolios and Classes thereof. Equitable and each Account hereby elect to receive all such income dividends and capital gain distributions as are payable on the shares of the Designated Portfolios and Classes thereof in additional shares of the relevant Designated Portfolios and Classes. (Equitable and each Account reserve the right to revoke this election and to receive all such income dividends and capital gain distributions in cash.) The Trust shall provide notification by the end of the next Business Day of the number of shares so issued as payment of such dividends and distributions. The Trust shall provide advance notice to Equitable and each Account of any date on which the Trust reasonably expects to make a dividend distribution; normally this notice will be given at least ten (10) days in advance of the ex-dividend date. 1.10. The Trust shall make the net asset value per share for each Designated Portfolio and Class thereof available to Equitable and each Account or their designee on a daily basis as soon as reasonably practical after the net asset value per share is calculated (normally by 6:30 p.m. New York time) and shall use its best efforts to make such net asset value per share available by 7 p.m. New York time. ARTICLE II. Representations and Warranties -4- 2.1. Equitable represents and warrants that: (a) the Equitable Contracts will be issued and sold in compliance, in all material respects, with all applicable federal and state laws; and (b) it requires each Distributor to comply, in all material respects, with state insurance suitability requirements. Equitable further represents and warrants that: (a) it is an insurance company duly organized and in good standing under applicable law; and (b) it has legally and validly established each Account, prior to any issuance or sale of interests therein, as a segregated asset account under applicable insurance laws; and (c) it has registered or, prior to any issuance or sale of the Equitable Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Equitable Contracts, unless such Accounts are exempt from such registration under applicable statutory provisions or regulations; and (d) it has registered or, prior to the issuance or sale of the Equitable Contracts, will register interests in the Accounts under the 1933 Act, unless interests in such Accounts are exempt from such registration under applicable statutory provisions or regulations. 2.2. The Trust, to the best of its knowledge, represents and warrants that Trust shares sold pursuant to this Agreement shall be: (a) registered under the 1933 Act; and (b) duly authorized for issuance; and (c) sold in compliance with and all applicable federal securities laws. The Trust further represents and warrants that it is and shall remain registered under the 1940 Act. The Trust shall amend the registration statement for its shares (the "Registration Statement") under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of shares of the Designated Portfolios and Classes. This requirement shall not, however, in any manner limit the Trust's ability to cease offering shares in one or more of the Designated Portfolios or Classes, provided such action complies with applicable laws and regulations. 2.3. Equitable represents that the Equitable Contracts are currently treated as annuity, endowment or life insurance contracts under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Trust and the Distributors immediately upon having a reasonable basis for believing that the Equitable Contracts have ceased to be so treated or that they might not be so treated in the future. 2.4. The Trust currently intends for one or more Classes, particularly Class IB, to make payments to finance its distribution expenses pursuant to a Plan adopted under Rule 12b-1 under the 1940 Act, although it may determine to discontinue such practice in the future. To the extent that any Class of the Trust finances its distribution expenses pursuant to a Plan adopted under Rule 12b-1, the Trust undertakes to have a Board, a majority of whose members are not interested persons of the Trust or its Distributors or Manager, and to otherwise comply with any then current SEC and SEC staff interpretations concerning Rule 12b-1 or any successor provision. 2.5. The Trust makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states, except that the Trust represents that the investment objectives, policies, fees and expenses of each of the Designated Portfolios and Classes thereof are and shall at all times remain in compliance with the insurance laws of the State of New York, and the Trust and the Distributors severally represent that their respective -5- operations are and shall at all times remain in compliance, in all material respects, with the insurance laws of the State of New York to the extent required to perform their respective obligations under this Agreement. 2.6. Each of the Distributors represents and warrants that: (a) it is a member in good standing of the NASD; and (b) it is registered as a broker-dealer with the SEC and all necessary states. Each Distributor further represents that it will sell and distribute the Trust's shares in accordance with the laws of the State of New York and all applicable federal and state securities laws, including without limitation the 1933 Act, the 1934 Act, the 1940 Act, and all applicable Rules of the NASD. 2.7. The Trust represents that it is lawfully organized and validly existing under the laws of the State of Delaware and that it does and will comply, in all material respects, with the 1940 Act. 2.8. EQ Financial Consultants, Inc. represents and warrants that it, in its capacity as the Manager, is and shall remain duly registered under all applicable federal and state securities laws and that it, in its capacity as the Manager shall perform its obligations for the Trust in compliance, in all material respects, with any and all applicable federal and state securities laws. 2.9. The Trust and each of the Distributors severally represent and warrant that all of their trustees, directors, officers, employees, investment managers and investment advisers, and other individuals/entities dealing with the money and/or securities of the Trust are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Trust in an amount not less than the minimal coverage required by Rule 17g-(1) of the 1940 Act or such related provisions as may be promulgated from time to time. The aforesaid fidelity bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.10. Equitable represents and warrants that all of its directors, officers, employees, and other individuals/entities dealing with the money and/or securities of the Trust are covered by a blanket fidelity bond or similar coverage for the benefit of the Trust. Equitable further represents and warrants that said fidelity bond is issued by a reputable bonding company, includes coverage for larceny and embezzlement, and is in an amount not less than $5 million. Equitable agrees to make all reasonable efforts to see that this fidelity bond or another bond containing these provisions is continuously in effect and agrees to notify the Trust and the Distributors in the event that such coverage no longer applies. ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. The Trust or its Distributors shall provide Equitable with as many printed copies of the Trust's current prospectus and Statement of Additional Information and any supplements thereto for the Designated Portfolios and Classes thereof as Equitable may reasonably request. If requested by Equitable in lieu thereof, the Trust or its Distributors shall provide camera-ready film containing the Trust's prospectus and Statement of Additional Information and any supplements thereto for the Designated Portfolios and Classes thereof, and such other assistance as is reasonably necessary in order for Equitable once each year (or more frequently if the -6- prospectus and/or Statement of Additional Information for the Designated Portfolios and Classes thereof is amended during the year) to have the prospectus for the Account, with respect to the Equitable Contracts, and the Trust's prospectus printed together in one document, and to have the Statement of Additional Information for the Trust and the Statement of Additional Information for the Account, with respect to the Equitable Contracts, printed together in one document. Alternatively, Equitable may print the prospectus and/or Statement of Additional Information for the Designated Portfolios and Classes thereof in combination within the prospectuses and Statements of Additional Information for other investment companies. To the extent that the foregoing Trust prospectuses, Statements of Additional Information and any supplements thereto are with respect to Class IB shares, or other Classes of shares subject to a Plan adopted under Rule 12b-1 under the 1940 Act, the cost of preparing, printing, and distributing such documents will be at the expense of such Class or Classes of shares, with respect to prospective owners of Equitable Contracts. In addition, with respect to prospectuses and Statements of Additional Information for the Designated Portfolios and Classes thereof provided by Equitable to its existing owners of Equitable Contracts ("Contractowners") in order to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of preparing, printing, mailing and otherwise distributing such prospectuses and Statements of Additional Information and any supplements thereto shall be borne by the Trust. Furthermore, if in such case Equitable or the Distributors are provided with camera-ready film of such documents in lieu of printed documents, Equitable or the Distributors shall request reimbursement from the Trust for their printing, mailing and other costs associated with such distribution. Equitable and the Distributors each agree to provide the Trust or its designee with such information as may be reasonably requested by the Trust to assure that the Trust's expenses or the expenses of any Class do not include the cost of printing, mailing and otherwise distributing any prospectuses, Statements of Additional Information or supplements thereto for the Designated Portfolios and Classes thereof other than those actually distributed (a) to existing Contractowners; or (b) under a Rule 12b-1 Plan for a particular Class of shares to prospective Contractowners. 3.2 Equitable may alter the form of the Trust's prospectus, Statement of Additional Information, Annual and Semi-Annual Reports to shareholders, proxy statements, and other Trust documents with the prior approval of the Trust. Equitable shall bear all costs associated with such alteration of form. 3.3. The Trust's prospectus for the Designated Portfolios and Classes thereof shall state that the Statement of Additional Information for the Designated Portfolios and Classes thereof is available from the Distributors or Equitable (or in the Trust's discretion, the prospectus shall state that such Statement of Additional Information is available from the Trust). 3.4. The Trust, at its expense, shall provide Equitable with copies of its proxy statements, Annual and Semi-Annual Reports to shareholders, and other communications to shareholders in such quantities as Equitable shall reasonably require for mailing or otherwise distributing such materials to Contractowners and shall assume all expenses associated with mailing or otherwise distributing those materials. In the alternative, the Trust shall reimburse Equitable for its costs in printing, mailing and distributing such materials to Contractowners. -7- 3.5. If and to the extent required by law, Equitable shall: (a) solicit voting instructions from Contractowners; and (b) vote the Trust shares for the Designated Portfolios and Classes in accordance with instructions received from Contractowners; and (c) vote Trust shares for the Designated Portfolios and Classes for which no instructions have been received in a particular Account in the same proportion as Trust shares for the Designated Portfolios and Classes for which instructions have been received so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for Contractowners. Equitable reserves the right to vote Trust shares held in any Account in its own right, to the extent permitted by law. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in the Trust calculates voting privileges in a manner consistent with the standards adopted by the Board, which standards will be provided to all other Participating Insurance Companies. 3.6. The Trust will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Trust will comply with Section 16(c) of the 1940 Act as well as with Sections 16(a) and, if and when applicable, Section 16(b). Further, the Trust will act in accordance with the SEC or SEC staff's written interpretation concerning the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the SEC may promulgate with respect thereto. ARTICLE IV. Sales Material and Information 4.1. The Distributors shall furnish, or shall cause to be furnished, to the Trust or its designee, the form of each piece of sales literature or other promotional material in which the Trust, the Manager or the Distributors are named prior to its first use. No such material shall be used if the Trust or its designee reasonably objects to its use after the Trust's receipt of such material. 4.2. Equitable shall not give any information or make any representations or statements on behalf of the Trust or concerning the Trust in connection with the sale of the Equitable Contracts other than the information or representations contained in or accurately derived from the Registration Statements, prospectus or Statement of Additional Information for the Trust, as such Registration Statements, prospectus or Statement of Additional Information may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved by the Trust or its designee, except with the permission of the Trust or its designees. 4.3. The Trust or the Distributors, or their respective designees, shall furnish, or shall cause to be furnished, to Equitable or its designees, the form of each piece of sales literature or other promotional material in which Equitable is named prior to its use. No such material shall be used if Equitable or its designees reasonably object to its use after receipt of such material. -8- 4.4. The Trust and the Distributors shall not give any information or make any representations on behalf of Equitable or concerning Equitable, each Account, or the Equitable Contracts other than the information or representations contained in or accurately derived from a registration statement, prospectus or Statement of Additional Information for the Accounts with respect to the Equitable Contracts, as such registration statement, prospectus or Statement of Additional Information may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by Equitable for distribution to Contractowners, or in sales literature or other promotional material approved by Equitable or its designees, except with the permission of Equitable. 4.5. The Trust shall provide to Equitable at least one complete copy of all Registration Statements, prospectuses, Statements of Additional Information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Trust or its shares, contemporaneously with the filing of such document with the SEC, the NASD, or other regulatory authorities. 4.6. Equitable shall provide to the Trust at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Equitable Contracts or any Account if such document also relates to the Trust, contemporaneously with the filing of such document with the SEC, the NASD, or other regulatory authorities. 4.7. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, any of the following that refer to the Trust or any affiliate of the Trust: advertisements (including materials published or designed for use in a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, electronic messages or communications or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, Statements of Additional Information, shareholder reports, and proxy materials. However, it is anticipated that materials provided solely: (a) internally to Equitable or the Distributors' own employees or counsel; or (b) to certain designated third parties and that are not designed to be provided or communicated in any manner to the general public (e.g., training materials provided to distributors or agents) will not be filed with the SEC, the NASD, or any state securities or insurance regulatory authorities, although such materials will be prepared in accordance with applicable laws. ARTICLE V. Fees and Expenses 5.1. The Trust and the Distributors shall pay no fee or other compensation to Equitable under this Agreement except for: (a) items covered in Article III; or (b) pursuant to a Plan -9- adopted by the Trust in accordance with Rule 12b-1 under the 1940 Act to finance the distribution expenses of any Class. Nevertheless, the Distributors may make payments to Equitable or to any distributor for the Equitable Contracts in amounts agreed to by the Distributors in any writing, and such payments by the Distributors (other than pursuant to a Rule 12b-1 Plan) may be made out of existing fees otherwise payable to the Distributors, past profits of the Distributors, or other resources available to the Distributors. 5.2. All expenses incident to performance by the Trust under this Agreement shall be paid by the Trust. Without limiting the foregoing, the Trust shall see to it that all shares are registered and authorized for issuance prior to their sale in accordance with applicable federal law, and shall bear all expenses with respect to: registration and qualification of the Trust's shares; preparation and filing of the Trust's Registration Statement, prospectus, Statement of Additional Information, proxy materials, and reports; setting the prospectus and Statement of Additional Information in type; setting in type, printing, mailing or otherwise distributing proxy materials and Semi-Annual and Annual Reports sent to Contractowners (including the costs of setting in type, printing, mailing or otherwise distributing a prospectus that constitutes an Annual Report) and if certain Classes of the Trust so elect and the Rule 12b-1 Plan so provides, the preparation, printing, mailing or otherwise distributing of such materials to prospective owners of Equitable Contracts; the preparation of all statements and notices required by any federal or state law; and all taxes on the issuance or transfer of the Trust's shares. ARTICLE VI. Diversification 6.1. The Trust represents that: (a) it currently has elected to qualify as a regulated investment company under Subchapter M of the Code; and (b) it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision); (c) it will notify Equitable immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future; and (d) it will seek to minimize any damages and to rectify its failure to so qualify promptly. The Trust acknowledges that any failure to qualify as a regulated investment company will eliminate the ability of the Accounts to avail themselves of the "look through" provisions of Section 817(h) of the Code and that, as a result, the Equitable Contracts will almost certainly fail to qualify as life insurance and annuity contracts under Section 817(h) of the Code. 6.2. The Trust further represents that it will at all times invest money from the Accounts in such a manner as to assure that the Equitable Contracts will be treated as variable annuity or variable life insurance contracts under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Trust represents that it will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, and any amendments or other modifications to such Section or Regulations. In the event of a breach of this Article VI by the Trust, the Trust warrants that it will take all reasonable steps: (a) to immediately notify Equitable of such breach; and (b) to adequately diversify the Trust's assets so as to achieve compliance within the grace period afforded by Regulation 1.817-5. -10- ARTICLE VII. Potential Conflicts 7.1. The Board will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the contractowners of all variable annuity and variable life insurance separate accounts investing in the Trust. A material irreconcilable conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; or (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; or (c) an administrative or judicial decision in any relevant proceeding; or (d) the manner in which the investments of any Designated Portfolio are being managed; or (e) a difference in voting instructions given by owners of Variable Contracts; or (f) a decision by an insurer to disregard the voting instructions of owners of Variable Contracts. The Board shall promptly inform Equitable if it determines that a material irreconcilable conflict exists and the implications thereof. 7.2. Equitable will report any potential or existing conflicts, of which it is aware, to the Board. Equitable will assist the Board in carrying out its responsibilities under any Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by Equitable to inform the Board whenever the voting instructions of owners of Variable Contracts are disregarded. Equitable's responsibilities under this Section 7.2 will be carried out with a view only to the interests of its Contractowners. 7.3. If it is determined by a majority of the Board, or a majority of its disinterested Trustees, that a material irreconcilable conflict exists, Equitable and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested Trustees), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, up to and including: (a) withdrawing the assets allocable to some or all of the variable annuity and variable life insurance separate accounts from the Trust or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting the question of whether such withdrawal should be implemented to a vote of all affected owners of Variable Contracts and, as appropriate, withdrawing the assets of any appropriate group (i.e., owners of variable annuity contracts or owners of variable life insurance contracts of one or more Participating Insurance Companies) that votes in favor of such withdrawal, or offering to the affected owners of Variable Contracts the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. Equitable's responsibilities under this Section 7.3 will be carried out with a view only to the interests of Contractowners. 7.4. If a material irreconcilable conflict were ever to arise because of a decision by Equitable to disregard Contractowner voting instructions and that decision represents a minority position or would preclude a majority vote, Equitable may be required, at the Trust's election, to withdraw the affected Account's (or subaccount's) investment in the Trust and terminate this Agreement with respect to such Account (or subaccount); provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. -11- No charge or penalty shall be imposed as a result of such withdrawal. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented and, until the end of that six (6) month period, the Distributors and Trust shall continue to accept and implement orders by Equitable for the purchase (and redemption) of shares of the Trust. 7.5. If a material irreconcilable conflict were ever to arise because a particular state insurance regulator's decision applicable to Equitable conflicts with the majority of other state regulators, then Equitable shall withdraw the affected Account's (or subaccount's) investment in the Trust and terminate this Agreement with respect to such Account (or subaccount) within six (6) months after the Board informs Equitable in writing that it has determined that such decision has created a material irreconcilable conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six (6) month period, the Distributors and Trust shall continue to accept and implement orders by Equitable for the purchase (and redemption) of shares of the Trust. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any material irreconcilable conflict, but in no event will the Trust be required to establish a new funding medium for the Equitable Contracts. Equitable shall not be required by Section 7.3 to establish a new funding medium for the Equitable Contracts if an offer to do so has been declined by vote of a majority of Contractowners materially adversely affected by the material irreconcilable conflict. In the event that the Board determines that any proposed action does not adequately remedy any material irreconcilable conflict, then Equitable will withdraw the Account's (or subaccount's) investment in the Trust and terminate this Agreement within six (6) months after the Board informs Equitable in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then: (a) the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted; and (c) this Agreement shall be otherwise amended by the Trust, without the need for any consent of the other parties, as required by such change in law. -12- ARTICLE VIII. Indemnification 8.1. Indemnification By Equitable 8.1(a). Equitable agrees to indemnify and hold harmless the Trust, each member of the Board, the Distributors, and the directors and officers and each person, if any, who controls any such person within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Equitable), investigation of claims or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Trust's shares or the Equitable Contracts or interests in the Accounts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus, or Statement of Additional Information for the Equitable Contracts or contained in the Equitable Contracts or sales literature for the Equitable Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to Equitable by or on behalf of the Trust for use in the registration statement, prospectus, or Statement of Additional Information for the Equitable Contracts or in the Equitable Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Equitable Contracts or Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or Statement of Additional Information, or sales literature of the Trust not supplied by Equitable or persons under its control) or wrongful conduct of Equitable or persons under its control, with respect to the sale or distribution of the Equitable Contracts or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or Statement of Additional Information, or sales literature of the Trust or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Trust by or on behalf of Equitable; or -13- (iv) arise as a result of any failure by Equitable to provide the services and furnish the materials required to be provided or furnished by it under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by Equitable in this Agreement or arise out of or result from any other material breach of this Agreement by Equitable; as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). Equitable shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Trust, whichever is applicable. 8.1(c). Equitable shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Equitable in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Equitable of any such claim shall not relieve Equitable from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, Equitable shall be entitled to participate, at its own expense, in the defense of such action. Equitable also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from Equitable to such party of Equitable's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and Equitable will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties shall promptly notify Equitable of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Trust's shares or the Equitable Contracts or the operation of the Trust. 8.2. Indemnification by the Distributors 8.2(a). Each of the Distributors agrees to indemnify and hold harmless Equitable, and the Trust and each of their directors and officers and each person, if any, who controls Equitable within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Distributors), investigation of claims or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, -14- claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Trust's shares or the Equitable Contracts or interests in the Accounts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, prospectus or Statement of Additional Information, or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Distributors or Trust by or on behalf of Equitable for use in the Registration Statement, prospectus, or Statement of Additional Information for the Trust, or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Equitable Contracts or Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or Statement of Additional Information, or sales literature for the Equitable Contracts not supplied by the Distributors or persons under their control) or wrongful conduct of the Distributors or persons under their control, with respect to the sale or distribution of the Equitable Contracts or Trust shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or Statement of Additional Information or sales literature covering the Equitable Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to Equitable by or on behalf of the Distributors or the Trust; or (iv) arise as a result of any failure by the Distributors or the Trust to provide the services and furnish the materials required to be provided or furnished by the Distributors or the Trust under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification or other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Distributors in this Agreement or arise out of or result from any other material breach of this Agreement by the Distributors; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). Each of the Distributors shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation to which an Indemnified -15- Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Equitable or any Account, whichever is applicable. 8.2(c). Each of the Distributors shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Distributors in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributors of any such claim shall not relieve the Distributors from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Distributors will be entitled to participate, at their own expense, in the defense thereof. Each of the Distributors also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from the Distributors to such party of the Distributors' election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Distributors will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). Equitable agrees promptly to notify the Distributors of the commencement of any material litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Equitable Contracts or the operation of each Account. 8.3. Indemnification By the Trust 8.3(a). The Trust agrees to indemnify and hold harmless Equitable and each of its directors and officers and each person, if any, who controls Equitable within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust), investigation of claims or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Trust and: (i) arise as a result of any failure by the Trust to provide the services and furnish the materials required to be provided or furnished by it under the terms of this Agreement (including a failure to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust; -16- as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Trust shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Equitable, the Trust, the Distributors, or each Account, whichever is applicable. 8.3(c). The Trust shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Trust will be entitled to participate, at its own expense, in the defense thereof. The Trust also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from the Trust to such party of the Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Trust will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). Equitable and the Distributors each agree promptly to notify the Trust of the commencement of any material litigation or proceedings against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Equitable Contracts, with respect to the operation of any Account, or the sale or acquisition of shares of the Trust. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules, and regulations as the SEC may grant (including, but not limited to, any Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. -17- ARTICLE X. Termination 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party, with or without cause, upon six (6) months' advance written notice delivered to the other parties; or (b) termination by Equitable upon thirty (30) days' written notice to the Trust and the Distributors with respect to any Designated Portfolio or Class thereof based upon Equitable's determination that shares of such Designated Portfolio or Class thereof are not reasonably available to meet the requirements of the Equitable Contracts or are not consistent with Equitable's obligations to Contractowners; or (c) termination by Equitable upon thirty (30) days' written notice to the Trust and the Distributors with respect to any Designated Portfolio or Class thereof in the event any of the Designated Portfolio's shares or any shares with respect to any Class are not registered, issued or sold in accordance with applicable federal and/or state law or such law precludes the use of such shares as the underlying investment media of the Equitable Contracts issued or to be issued by Equitable; or (d) termination by Equitable by written notice to the Trust and the Distributors with respect to any Designated Portfolio or Class thereof in the event that such Designated Portfolio or Class thereof ceases to qualify as a regulated investment company under Subchapter M of the Code or any other failure under Section 817 of the Code, or under any successor or similar provision of either, or if Equitable reasonably believes that the Trust may fail to so qualify; or (e) termination by either the Trust or the Distributors by written notice to Equitable, if the Trust or the Distributors shall determine, in their sole judgment exercised in good faith, that Equitable and/or its affiliated companies have suffered a material adverse change in their business, operations, financial condition, or prospects since the date of this Agreement or are the subject of material adverse publicity; but no termination shall be effective under this subsection (e) until Equitable has been afforded a reasonable opportunity to respond to a statement by the Trust or the Distributors concerning the reason for notice of termination hereunder; or (f) termination by Equitable by written notice to the Trust and the Distributors, if Equitable shall determine, in its sole judgment exercised in good faith, that either the Trust or the Distributors has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; but no termination shall be effective under this subsection (f) until the Trust or the Distributors have been afforded a reasonable opportunity to respond to a statement by Equitable concerning the reason for notice of termination hereunder. -18- 10.2. Notwithstanding any termination of this Agreement, the Trust and the Distributors shall, at the option of Equitable, continue to make available additional shares of the Trust pursuant to the terms and conditions of this Agreement, for all Equitable Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Equitable Contracts"). Specifically, without limitation, the owners of the Existing Equitable Contracts shall be permitted to reallocate investments in the Trust, redeem investments in the Trust, and/or invest in the Trust upon the making of additional purchase payments under the Existing Equitable Contracts. The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.3. Equitable shall not redeem Trust shares attributable to the Equitable Contracts (as opposed to Trust shares attributable to Equitable's assets held in any Account) except: (a) as necessary to implement Contractowner initiated or approved transactions; or (b) as required by federal and/or state laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"); or (c) as permitted pursuant to Section 26(b) of the 1940 Act or otherwise pursuant to an order of the SEC that permits Equitable to redeem Trust shares attributable to Equitable Contracts. Upon request, Equitable shall promptly furnish to the Trust and the Distributors the opinion of counsel for Equitable (which counsel shall be reasonably satisfactory to the Trust and the Distributors) to the effect that any redemption pursuant to clause (b) above is a Legally Required Redemption or any redemption pursuant to clause (b) is permitted without first obtaining an order of the SEC pursuant to Section 26(b) or any other provision of the 1940 Act. Furthermore, except in cases where permitted under the terms of the Equitable Contracts, and as may be in the best interests of Contractowners, as determined by Equitable, Equitable shall not prevent Contractowners from allocating payments to a Designated Portfolio or Class thereof that was otherwise available under the Equitable Contracts without first giving the Trust or the Distributors ninety (90) days' notice of its intention to do so. 10.4. Notwithstanding any termination of this Agreement for any reason, the terms and conditions of the following provisions of this Agreement shall remain in effect with respect to any Existing Contract, for so long as any assets invested in the Trust are attributable to such Existing Contract: Sections 1.3 to 1.10 of Article I (governing the pricing and redemption of shares); Article II (Representations and Warranties); Sections 3.1 through 3.4 and 3.6 of Article III (Prospectuses and Proxy Statements, and Voting); Articles IV through IX (Sales Material and Information; Fees and Expenses; Diversification; Potential Conflicts; Indemnification; and Applicable Law); Article XI (Notices); and Sections 12.1, 12.2, and 12.5 through 12.8 of Article XII (Miscellaneous). Further, notwithstanding any termination of this Agreement for any reason, the terms and conditions of the following provisions of this Agreement shall remain in effect with regard to Equitable Contracts whose assets were previously invested in the Trust: Article II (Representations and Warranties), Article VI (Diversification) and Article VII (Indemnification). -19- ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Trust: EQ Advisors Trust 1290 Avenue of the Americas New York, New York 10104 Attention: Peter D. Noris If to Equitable: The Equitable Life Assurance Society of the United States 1290 Avenue of the Americas New York, New York 10104 Attention: Peter D. Noris If to the Distributors: Equitable Distributors, Inc. 1290 Avenue of the Americas New York, New York 10104 Attention: Jerome S. Golden EQ Financial Consultants, Inc. 1755 Broadway New York, New York 10019 Attention: Michael F. NcNelis ARTICLE XII. Miscellaneous 12.1. All persons dealing with the Trust must look solely to the property of the Trust for the enforcement of any claims against the Trust as neither the Board (or its members), officers, agents, or shareholders shall assume any personal liability for obligations entered into on behalf of the Trust. 12.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the Contractowners and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate, or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. Without limiting the foregoing, no party hereto shall disclose any information that such party has been advised is -20- proprietary, except such information that such party is required to disclose by any appropriate governmental authority (including without limitation the SEC, the NASD, and state securities or insurance regulators). 12.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 12.7. The rights, remedies, and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, to which the parties hereto are entitled under federal and state laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Distributors may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Distributors (but in such event the Distributors shall continue to be liable under Article VIII of this Agreement for any indemnification due to Equitable, and the assignee shall also be liable), if such assignee is duly licensed and registered to perform the obligations of the Distributors under this Agreement. 12.9. Equitable shall furnish, or shall cause to be furnished, to the Trust or its designee upon request copies of the following reports: (a) Equitable's annual statements (prepared under statutory accounting principles) and annual reports (prepared under generally accepted accounting principles ("GAAP"), if any), as soon as practical and in any event within ninety (90) days after the end of each fiscal year; and (b) any material financial statement, proxy statement, notice, or report of Equitable sent to policyholders, as soon as practical after the delivery thereof to stockholders; and (c) any registration statement (without exhibits) and financial reports of Equitable filed with the SEC or any state insurance regulator, as soon as practical after the filing thereof; and -21- (d) any other report submitted to Equitable by independent accountants in connection with any annual, interim, or special audit made by them of the books of Equitable, as soon as practical after the receipt thereof; but nothing in this subsection shall require Equitable to disclose any information that is privileged or which, if disclosed, would put Equitable at a competitive disadvantage or is both: (a) confidential; and (b) not material to Equitable's financial condition. 12.10 At the request of any party to this Agreement, each other party will make available to the requesting party's independent auditors and/or representatives of the appropriate regulatory agencies, all records, data, and access to operating procedures that may be reasonably requested in connection with compliance and regulatory requirements related to this Agreement or any party's obligations under this Agreement. 12.11 Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative as of the date specified below. EQ Advisors Trust By: ________________________ Name: ______________________ Title: _____________________ Date: ______________________ THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: ________________________ Name: ______________________ Title: _____________________ Date: ______________________ EQUITABLE DISTRIBUTORS, INC. By: _______________________ Name: _____________________ Title: ____________________ Date: _____________________ -22- EQ FINANCIAL CONSULTANTS, INC. By: ________________________ Name: ______________________ Title: _____________________ Date: ______________________ -23- SCHEDULE A ACCOUNTS AND ASSOCIATED VARIABLE INSURANCE CONTRACTS Name of Account - --------------- ____________________________________ Equitable Contracts Funded By Account - ----------------- _____________________________________ SCHEDULE B DESIGNATED PORTFOLIOS AND CLASSES SCHEDULE C LIST OF OTHER INVESTMENT COMPANIES EX-11 13 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Statement of Additional Information constituting part of this Pre-Effective Amendment No. 2 to the registration statement on Form N-1A (the "Registration Statement") of our report dated April 2, 1997, relating to the statement of assets and liabilities at April 1, 1997 of the portfolios constituting EQ Advisors Trust, which appears in such Statement of Additional Information. We also consent to the reference to us under the heading "Other Services-Independent Accountants" in such Statement of Additional Information. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 April 2, 1997 EX-13 14 FORM OF STOCK SUBSCRIPTION AGREEMENT EXHIBIT 13 FORM OF STOCK SUBSCRIPTION AGREEMENT THIS AGREEMENT is by and between Separate Account FP, a separate account of The Equitable Life Assurance Society of the United States registered as a unit investment trust with the Securities and Exchange Commission, and EQ Advisors Trust (the "Trust"), a business trust organized and existing under and by virtue of the laws of the State of Delaware, on behalf of the T. Rowe Price Equity Income Portfolio, a series of the Trust. In consideration of the mutual promises set forth herein, the parties agree as follows: 1. The Trust agrees to sell to Separate Account FP and Separate Account FP hereby subscribes to purchase ten thousand (10,000) Class IA shares of beneficial interest of the T. Rowe Price Equity Income Portfolio (the "Shares"), with a par value of $.01 per Share, at a price of ten dollars ($10.00) per Share. 2. Separate Account FP agrees to pay one hundred thousand dollars ($100,000) for such Shares at the time of their issuance, which shall occur upon call of the President of the Trust, at any time on or before the effective date of the Trust's Registration Statement filed by the Trust on Form N-1A with the Securities and Exchange Commission ("Registration Statement") on December 2, 1996 and amended on January 23, 1997 and April 4, 1997. 3. Separate Account FP acknowledges that the Shares have not been, and will not be, registered under the federal securities laws and that, therefore, the Trust is relying on certain exemptions from such registration requirements, including exemptions dependent on the intent of the undersigned in acquiring the Shares. Separate Account FP also understands that any resale of the Shares, or any part thereof, may be subject to restrictions under the federal securities laws, and that Separate Account FP may be required to bear the economic risk of any investment in the Shares for an indefinite period of time. 4. Separate Account FP 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. Separate Account FP 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 31st day of March, 1997. SEPARATE ACCOUNT FP A Separate Account of The Equitable Life Assurance Society of the United States By: /s/ Peter D. Noris ------------------------------------- Peter D. Noris Title: Executive Vice President and Chief Investment Officer EQ ADVISORS TRUST By: /s/ Peter D. Noris ------------------------------------- Peter D. Noris Title: President and Trustee EX-20 15 POWER OF ATTORNEY EXHIBIT 20 POWER OF ATTORNEY The undersigned Officers and Trustees of the EQ Advisors Trust whose signatures appear below hereby make, constitute and appoint Peter D. Noris, Mary Breen and Jane A. Kanter, and each of them acting individually, to be their true and lawful attorneys and agents, each of them with the power to act without any other and with full power of substitution, to execute, deliver and file in the undersigned capacity or capacities as shown below, any and all instruments that said attorneys and agents may deem necessary or advisable to enable the EQ Advisors Trust to comply with the Securities Act of 1933, as amended, including any and all amendments to the EQ Advisors Trust's registration statement, and any rules, regulations, orders or other requirements of the Securities and Exchange Commission thereunder in connection with the registration of shares or additional shares of common stock of the EQ Advisors Trust or any of its series or classes thereof, and the registration of the EQ Advisors Trust or any of its series under the Investment Company Act of 1940, as amended, including any and all amendments to the EQ Advisors Trust's registration statement; and without limitation of the foregoing, the power and authority to sign the name of the EQ Advisors Trust on its behalf, and to sign their names on their behalf, and said Officers and Trustees hereby grant to said attorney or attorneys, full power and authority to do and perform each and every act and thing whatsoever as said attorney or attorneys may deem necessary or advisable to carry out fully the intent of this Power of Attorney to the same extent and with the same effect as of said Officers and Trustees might or could do personally in their capacity or capacities as aforesaid and said Officers and Trustees ratify, confirm and approve all acts and things which said attorney or attorneys might do or cause to be done by virtue of this Power of Attorney and their signatures as the same may be signed by said attorney or attorneys. Signature Title Date --------- ----- ---- /s/ Peter D. Noris President, Trustee March 31, 1997 - ------------------------------------- Peter D. Noris /s/ William McCaffrey Trustee March 31, 1997 - ------------------------------------- William McCaffrey /s/ Jettie M. Edwards Trustee March 31, 1997 - ------------------------------------- Jettie M. Edwards /s/ William M. Kearns, Jr. Trustee March 31, 1997 - ------------------------------------- William M. Kearns, Jr. /s/ Christopher P.A. Komisarjevsky Trustee March 31, 1997 - ------------------------------------- Christopher P.A. Komisarjevsky /s/ Harvey Rosenthal Trustee March 31, 1997 - ------------------------------------- Harvey Rosenthal /s/ Harvey Blitz Chief Financial Officer March 31, 1997 - ------------------------------------- Controller Harvey Blitz 2 EX-27.1 16 FINANCIAL DATA SCHEDULE
6 1 T. ROWE PRICE EQUITY INCOME PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 128,750 0 128,750 0 0 128,750 128,750 0 0 10,000 0 0 0 0 0 0 100,000 0 0 0 0 0 0 0 0 0 0 0 0 10,000 0 0 0 0 0 0 0 0 0 0 100,000 10.00 0 0 0 0 0 10.00 0 0 0
EX-27.2 17 FINANCIAL DATA SCHEDULE
6 2 T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.3 18 FINANCIAL DATA SCHEDULE
6 3 EQ/PUTNAM GROWTH & INCOME VALUE PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.4 19 FINANCIAL DATA SCHEDULE
6 4 EQ/PUTNAM INTERNATIONAL EQUITY PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.5 20 FINANCIAL DATA SCHEDULE
6 5 EQ/PUTNAM INVESTORS GROWTH PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.6 21 FINANCIAL DATA SCHEDULE
6 6 EQ/PUTNAM BALANCED PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.7 22 FINANCIAL DATA SCHEDULE
6 7 MFS RESEARCH PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.8 23 FINANCIAL DATA SCHEDULE
6 8 MFS EMERGING GROWTH COMPANIES PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.9 24 FINANCIAL DATA SCHEDULE
6 9 MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.10 25 FINANCIAL DATA SCHEDULE
6 10 WARBURG PINCUS SMALL COMPANY VALUE PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.11 26 FINANCIAL DATA SCHEDULE
6 11 MERRILL LYNCH WORLD STRATEGY PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.12 27 FINANCIAL DATA SCHEDULE
6 12 MERRILL LYNCH BASIC VALUE EQUITY PORTFOLIO OTHER DEC-31-1997 APR-01-1997 APR-01-1997 0 0 0 28,750 0 28,750 0 0 28,750 28,750 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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