Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
PROSPECTUS FOR ROLLOVER IRA
AND CHOICE INCOME PLAN
DATED OCTOBER 16, 1996
--------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- -------------------------------------------------------------------------------
This prospectus describes individual retirement annuity (IRA) certificates The
Equitable Life Assurance Society of the United States (EQUITABLE LIFE, WE, OUR
and US) offers under a combination variable and fixed deferred annuity contract
(ROLLOVER IRA) issued on a group basis or as individual contracts. Enrollment
under a group contract will be evidenced by issuance of a certificate.
Certificates and individual contracts each will be referred to as
"Certificates." Under the Rollover IRA we will accept only initial
contributions that are rollover contributions or that are direct transfers from
other individual retirement arrangements, as described in this prospectus. A
minimum initial contribution of $5,000 is required to put a Certificate into
effect.
The Rollover IRA is designed to provide retirement income. Contributions
accumulate on a tax-deferred basis and can be distributed under a number of
different methods which are designed to be responsive to the owner's
(CERTIFICATE OWNER, YOU and YOUR) objectives. The distribution methods include
the Choice Income Plan featuring the IRA ASSURED PAYMENT OPTION, IRA Assured
Payment Option Plus (IRA APO PLUS), and a variety of payout options, including
variable annuities and fixed annuities. The IRA Assured Payment Option and IRA
APO Plus are also available for election in the application if you are
interested in receiving distributions rather than accumulating funds.
The Rollover IRA offers investment options (INVESTMENT OPTIONS) that permit you
to create your own strategies. These Investment Options include 6 variable
investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the GUARANTEED
PERIOD ACCOUNT.
<TABLE>
<CAPTION>
Guarantee Periods
Investment Funds: Expiration Dates:
- ------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
o Aggressive Stock o Growth Investors o High Yield February 15,
o Common Stock o Global o Money Market o 1997 through 2007
o 1997 through 2011
</TABLE>
We invest each Investment Fund in Class IB shares of a corresponding portfolio
(PORTFOLIO) of The Hudson River Trust (TRUST), a mutual fund whose shares are
purchased by separate accounts of insurance companies. The prospectus for the
Trust, which accompanies this prospectus, describes the investment objectives,
policies and risks of the Portfolios.
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set (GUARANTEED RATE) for the entire
period. On each business day (BUSINESS DAY) we will determine the Guaranteed
Rates available for amounts newly allocated to Guarantee Periods. A market
value adjustment (positive or negative) will be made for withdrawals,
transfers, surrender and certain other transactions from a Guarantee Period
before its expiration date (EXPIRATION DATE). Each Guarantee Period has its own
Guaranteed Rates.
This prospectus provides information about the Rollover IRA that prospective
investors should know before investing. You should read it carefully and retain
it for future reference. The prospectus is not valid unless accompanied by a
current prospectus for the Trust, which you should also read carefully.
Registration statements relating to Separate Account No. 49 (SEPARATE ACCOUNT)
and interests under the Guarantee Periods have been filed with the Securities
and Exchange Commission (SEC). The statement of additional information (SAI),
dated October 16, 1996, which is part of the registration statement for the
Separate Account, is available free of charge upon request by writing to our
Processing Office or calling 1-800-789-7771, our toll-free number. The SAI has
been incorporated by reference into this prospectus. The Table of Contents for
the SAI appears at the back of this prospectus.
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 CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED.
THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- -------------------------------------------------------------------------------
Copyright 1996
The Equitable Life Assurance Society of the United States,
New York, New York 10019.
All rights reserved.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December 31,
1995 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (EXCHANGE ACT) after
the date hereof and prior to the termination of the offering of the securities
offered hereby shall be deemed to be incorporated by reference in this
prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
of this prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified and
superseded, to constitute a part of this prospectus. Equitable Life files its
Exchange Act documents and reports, including its annual and quarterly reports
on Form 10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No.
0000727920.
Equitable Life will provide without charge to each person to whom this
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits not specifically incorporated by reference into the text
of such documents). Requests for such documents should be directed to The
Equitable Life Assurance Society of the United States, 787 Seventh Avenue, New
York, New York 10019. Attention: Corporate Secretary (telephone: (212)
554-1234).
2
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
GENERAL TERMS PAGE 4
FEE TABLE PAGE 6
PART 1: SUMMARY PAGE 8
What is the Rollover IRA? 8
Investment Options 8
Contributions 8
Transfers 8
Free Look Period 8
Services We Provide 8
Death Benefits 9
Guaranteed Minimum Income Benefit (GMIB) 9
Surrendering the Certificates 9
Distribution Methods 9
Taxes 10
Deductions from Annuity
Account Value 10
Deductions from Investment Funds 11
Trust Charges to Portfolios 11
PART 2: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 12
Equitable Life 12
Separate Account No. 49 12
The Trust 12
The Trust's Investment Adviser 13
Investment Policies and Objectives of
the Trust's Portfolios 14
PART 3: INVESTMENT PERFORMANCE PAGE 15
Performance Data for a Certificate 15
Rate of Return Data for Investment
Funds 16
Communicating Performance Data 18
Money Market Fund Yield Information 18
PART 4: THE GUARANTEED PERIOD
ACCOUNT PAGE 19
Guarantee Periods 19
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to the
Expiration Date 20
Modal Payment Portion 21
Death Benefit Amount 21
Investments 21
PART 5: PROVISIONS OF THE
CERTIFICATES AND SERVICES
WE PROVIDE PAGE 23
Availability of the Certificates 23
Contributions Under the Certificates 23
Methods of Payment 23
Allocation of Contributions 24
Free Look Period 24
Annuity Account Value 25
Transfers Among Investment Options 25
Dollar Cost Averaging 26
Death Benefit 26
GMIB 27
Cash Value 28
Surrendering the Certificates to
Receive the Cash Value 29
When Payments are Made 29
Assignment 29
Distribution of the Certificates 29
PART 6: DISTRIBUTION METHODS UNDER THE
CERTIFICATES PAGE 30
IRA Assured Payment Option 30
IRA APO Plus 33
Withdrawal Options 35
Income Annuity Options 37
PART 7: DEDUCTIONS AND CHARGES PAGE 39
Charges Deducted from the Annuity
Account Value 39
Charges Deducted from the Investment
Funds 40
Trust Charges to Portfolios 40
Sponsored Arrangements 40
Other Distribution Arrangements 41
PART 8: VOTING RIGHTS PAGE 42
Trust Voting Rights 42
Voting Rights of Others 42
Separate Account Voting Rights 42
Changes in Applicable Law 42
PART 9: TAX ASPECTS OF THE CERTIFICATES PAGE 43
Tax-Qualified Individual Retirement
Annuities (IRAs) 43
Penalty Tax on Early Distributions 48
Tax Penalty for Insufficient
Distributions 48
Tax Penalty for Excess Distributions or
Accumulation 48
Federal and State Income Tax
Withholding 48
Other Withholding 49
Impact of Taxes to Equitable Life 49
Transfers Among Investment Options 49
Tax Changes 49
PART 10: INDEPENDENT ACCOUNTANTS PAGE 50
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 51
APPENDIX II: GUARANTEED MINIMUM
DEATH BENEFIT (GMDB) EXAMPLE PAGE 52
APPENDIX III: GMIB EXAMPLES PAGE 53
APPENDIX IV: EXAMPLE OF PAYMENTS
UNDER THE IRA ASSURED PAYMENT
OPTION AND IRA APO PLUS PAGE 54
APPENDIX V: IRS TAX DEDUCTION TABLE PAGE 55
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS PAGE 56
</TABLE>
3
<PAGE>
- -------------------------------------------------------------------------------
GENERAL TERMS
- -------------------------------------------------------------------------------
ACCUMULATION UNIT--Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE--The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT--The individual who is the measuring life for determining annuity
benefits.
ANNUITY ACCOUNT VALUE--The sum of the amounts in the Investment Options under
the Certificate. See "Annuity Account Value" in Part 5.
ANNUITY COMMENCEMENT DATE--The date on which amounts will be applied under an
income annuity option.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading. For the purpose of determining the Transaction Date, our Business
Day ends at 4:00 p.m. Eastern Time or the closing of the New York Stock
Exchange, if earlier.
CASH VALUE--The Annuity Account Value minus any applicable charges.
CERTIFICATE--The Certificate issued under the terms of a group annuity contract
and any individual contract, including any endorsements.
CERTIFICATE OWNER--The person who owns a Rollover IRA Certificate and has the
right to exercise all rights under the Certificate. The Certificate Owner
must also be the Annuitant.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACT DATE--The date on which you are enrolled under the group annuity
contract, or the effective date of the individual contract. This is usually the
Business Day we receive the initial contribution at our Processing Office.
CONTRACT YEAR--The 12-month period beginning on your Contract Date and each
anniversary of that date.
EXPIRATION DATE--The date on which a Guarantee Period ends.
GUARANTEE PERIOD--Any of the periods of time ending on an Expiration Date that
are available for investment under the Certificates.
GUARANTEED PERIOD ACCOUNT--The Account that contains the Guarantee Periods and
the Modal Payment Portion of such Account.
GUARANTEED RATE--The annual interest rate established for each allocation to a
Guarantee Period.
INVESTMENT FUNDS--The funds of the Separate Account that are available under
the Certificates.
INVESTMENT OPTIONS--The choices for investment: the Investment Funds and each
available Guarantee Period.
IRA--An individual retirement annuity, as defined in Section 408(b) of the
Code.
IRA ASSURED PAYMENT OPTION--A distribution option which provides guaranteed
lifetime income. The IRA Assured Payment Option may be elected in the
application or elected as a distribution option at a later date. Under this
option amounts are allocated to the Guaranteed Period Account and the Life
Contingent Annuity. No amounts may be allocated to the Investment Funds.
IRA APO PLUS--A distribution option which provides guaranteed lifetime income.
IRA APO Plus may be elected in the application or as a distribution option at a
later date. Under this option amounts are allocated to the Guaranteed Period
Account, the Life Contingent Annuity and to the Investment Funds. The amount in
the Investment Funds is then systematically converted to increase the
guaranteed lifetime income.
LIFE CONTINGENT ANNUITY--Provides guaranteed lifetime income beginning at a
future date. Amounts may only be applied under the Life Contingent Annuity
through election of the IRA Assured Payment Option and IRA APO Plus.
MATURITY VALUE--The amount in a Guarantee Period on its Expiration Date.
MODAL PAYMENT PORTION--Under the IRA Assured Payment Option and IRA APO Plus,
the portion of the Guaranteed Period Account from which payments, other than
payments due on an Expiration Date, are made.
PORTFOLIOS--The portfolios of the Trust that correspond to the Investment Funds
of the Separate Account.
4
<PAGE>
PROCESSING DATE--The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on the
next succeeding Business Day. The Processing Date will be once each year on
each anniversary of the Contract Date.
PROCESSING OFFICE--The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 1.
SAI--The statement of additional information for the Separate Account under the
Rollover IRA.
SEPARATE ACCOUNT--Equitable Life's Separate Account No. 49.
TRANSACTION DATE--The Business Day we receive a contribution or a transaction
request providing all the information we need at our Processing Office. If your
contribution or request reaches our Processing Office on a non-Business Day, or
after the close of the Business Day, the Transaction Date will be the next
following Business Day. Transaction requests must be made in a form acceptable
to us.
TRUST--The Hudson River Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested.
VALUATION PERIOD--Each Business Day together with any preceding non-business
days.
5
<PAGE>
- -------------------------------------------------------------------------------
FEE TABLE
- -------------------------------------------------------------------------------
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate so
that you may compare them with other similar products. The table reflects both
the charges of the Separate Account and the expenses of the Trust. Charges for
applicable taxes such as state or local premium taxes may also apply. For a
complete description of the charges under the Certificate, see "Part 7:
Deductions and Charges." For a complete description of the Trust's charges and
expenses, see the prospectus for the Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. A market value adjustment (either
positive or negative) also may be applicable as a result of a withdrawal,
transfer or surrender of amounts from a Guarantee Period. See "Part 4: The
Guaranteed Period Account."
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon
surrender or for certain withdrawals. The applicable withdrawal charge
percentage is determined by the Contract Year in which the withdrawal is
made or the Certificate is surrendered beginning with "Contract Year 1"
with respect to each contribution withdrawn or surrendered. For each
contribution, the Contract Year in which we receive that contribution is
"Contract Year 1")(1)
CONTRACT
YEAR
--------
1 .................... 7.00%
2 .................... 6.00
3 .................... 5.00
4 .................... 4.00
5 .................... 3.00
6 .................... 2.00
7 .................... 1.00
8+ ................... 0.00
<TABLE>
<CAPTION>
Combined
GMDB/GMIB GMDB Only
Benefit Benefit
--------- ---------
<S> <C> <C>
GMDB/GMIB Charges (percentage deducted annually on each Processing Date
as a percentage of the guaranteed minimum death benefit then in effect)(2) .... 0.45% 0.20%
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge ........................................................ 0.90%
Asset Based Administrative Charge(3) .................................................... 0.30%
Total Separate Account Annual Expenses ................................................. 1.20%
</TABLE>
TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS IN EACH PORTFOLIO)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
----------------------------------------------------------------
AGGRESSIVE COMMON GROWTH HIGH MONEY
STOCK STOCK INVESTORS GLOBAL YIELD MARKET
------------ -------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.46% 0.35% 0.52% 0.53% 0.55% 0.40%
Rule 12b-1 Plan Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.03% 0.04% 0.08% 0.05% 0.04%
------------ -------- ----------- -------- ------- --------
TOTAL TRUST ANNUAL EXPENSES(5) 0.74% 0.63% 0.81% 0.86% 0.85% 0.69%
============ ======== =========== ======== ======= ========
</TABLE>
- ------------
Notes:
(1) Deducted upon a withdrawal with respect to amounts in excess of the 15%
(10% under the IRA Assured Payment Option and IRA APO Plus) free
corridor amount, and upon a surrender. See "Part 7: Deductions and
Charges," "Withdrawal Charge." We reserve the right to impose an
administrative charge of the lesser of $25 and 2.0% of the amount
withdrawn for each Lump Sum Withdrawal after the fifth in a Contract
Year. See "Withdrawal Processing Charge" also in Part 7.
(2) The guaranteed minimum death benefit (GMDB) is described under "Death
Benefit," "GMDB" and the guaranteed minimum income benefit (GMIB) is
described under "GMIB" both of which are in Part 5. The 0.45% charge
covers a 6% to Age 80 Benefit or, if a combined 6% to Age 70 Benefit is
elected, the charge is 0.30%. See "Part 7: Deductions and Charges,"
"Charges for Combined GMDB/GMIB Benefit" and "Charges for GMDB Only
Benefit."
(3) We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
6
<PAGE>
(4) The Class IB shares of the Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Rule 12b-1 Plan provides that the Trust, on behalf of each Portfolio,
may pay annually up to 0.25% 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 the Class IB shares. The
Rule 12b-1 Plan fee, which may be waived in the discretion of Equitable
Distributors, Inc., may be increased only by action of the Board of
Trustees of the Trust up to a maximum of 0.50% per annum.
(5) Expenses shown for all Portfolios are estimated. The investment advisory
fee for each Portfolio may vary from year to year depending upon the
average daily net assets of the respective Portfolio of the Trust. The
maximum investment advisory fees, however, cannot be increased without a
vote of that Portfolio's shareholders. The other direct operating
expenses will also fluctuate from year to year depending on actual
expenses. See "Trust Charges to Portfolios" in Part 7.
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner
would pay under the Combined GMDB/GMIB Benefit with a 6% to Age 80 Benefit and
under the GMDB Only Benefit in the two situations noted below assuming a $1,000
contribution invested in one of the Investment Funds listed, and a 5% annual
return on assets.(1)
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be greater
or less than those shown. Similarly, the annual rate of return assumed in the
examples is not an estimate or guarantee of future investment performance.
COMBINED GMDB/GMIB BENEFIT ELECTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END
OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS
-------- ---------
<S> <C> <C>
Aggressive Stock $89.66 $120.30
Common Stock 88.56 116.99
Growth Investors 90.35 122.39
Global 90.85 123.89
High Yield 90.75 123.59
Money Market 89.16 118.79
</TABLE>
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE
END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS
-------- ---------
<S> <C>
$24.43 $75.66
23.33 72.35
25.12 77.75
25.62 79.25
25.52 78.95
23.93 74.16
</TABLE>
GMDB ONLY BENEFIT ELECTION
- -------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE END
OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS
-------- ---------
Aggressive Stock $89.66 $115.01
Common Stock 88.56 111.68
Growth Investors 90.35 117.10
Global 90.85 118.61
High Yield 90.75 118.31
Money Market 89.16 113.49
IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE
END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS
-------- ---------
$21.78 $67.38
20.68 64.07
22.47 69.48
22.97 70.98
22.87 70.68
21.28 65.88
- ------------
Notes:
(1) The amount accumulated could not be paid in the form of an annuity at the
end of any of the periods shown in the examples. If the amount applied to
purchase an annuity is less than $2,000, or the initial payment is less
than $20 we may pay the amount to the payee in a single sum instead of as
payments under an annuity form. See "Income Annuity Options" in Part 6.
The examples do not reflect charges for applicable taxes such as state or
local premium taxes that may also be deducted in certain jurisdictions.
7
<PAGE>
- -------------------------------------------------------------------------------
PART 1: SUMMARY
- -------------------------------------------------------------------------------
The following Summary is qualified in its entirety by the terms of the
Certificate when issued and the more detailed information appearing elsewhere
in this prospectus (see "Prospectus Table of Contents").
WHAT IS THE ROLLOVER IRA?
The Rollover Individual Retirement Annuity (IRA) is designed to provide for
retirement income through the investment of rollover contributions, direct
transfers from other individual retirement arrangements and additional IRA
contributions. The Rollover IRA features a combination of Investment Options,
consisting of Investment Funds providing variable returns and Guarantee Periods
providing guaranteed interest. The Rollover IRA also makes available
distribution methods under the Choice Income Plan which includes the IRA
Assured Payment Option and IRA APO Plus (which can be applied for in the
application or at a later date). Withdrawal options and fixed and variable
income annuity options are also available.
The Rollover IRA and/or the IRA Assured Payment Option and IRA APO Plus may not
be available in all states. These Certificates are not available in Puerto
Rico.
INVESTMENT OPTIONS
The Rollover IRA offers the following Investment Options which permit you to
create your own strategy for retirement savings. All available Investment
Options may be selected under a Certificate.
INVESTMENT FUNDS
o Aggressive Stock
o Common Stock
o Growth Investors
o Global
o High Yield
o Money Market
GUARANTEE PERIODS
o Guarantee Periods (may not be available in all states) maturing in each
of calendar years 1997 through 2007.
o Guarantee Periods maturing in 1997 through 2011 under the IRA Assured
Payment Option and IRA APO Plus.
CONTRIBUTIONS
o To put a Certificate into effect, you must contribute at least $5,000 in
the form of either a rollover contribution or a direct
custodian-to-custodian transfer from one or more other individual
retirement arrangements.
o Subsequent contributions may be made in an amount of at least $1,000.
Subsequent contributions must not exceed $2,000 for any taxable year,
except for additional rollover contributions or direct transfers, both of
which are unlimited.
TRANSFERS
Under the Rollover IRA, you may make an unlimited number of transfers among the
Investment Funds. However, there are restrictions for transfers to and from the
Guaranteed Period Account and among the Guarantee Periods. Transfers from a
Guarantee Period may result in a market value adjustment. Transfers among
Investment Options are free of charge. Transfers among the Investment Options
are not taxable.
FREE LOOK PERIOD
You have the right to examine the Rollover IRA Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You may cancel
it by sending it to our Processing Office. Your refund will equal the Annuity
Account Value, reflecting any investment gain or loss, and any positive or
negative market value adjustment, through the date we receive your Certificate
at our Processing Office.
SERVICES WE PROVIDE
o REGULAR REPORTS
o Statement of your Certificate values as of the last day of the calendar
year;
o Three additional reports of your Certificate values each year;
o Annual and semi-annual statements of the Trust; and
o Written confirmation of financial transactions.
8
<PAGE>
o TOLL-FREE TELEPHONE SERVICES
o Call 1-800-789-7771 for a recording of daily Accumulation Unit Values
and Guaranteed Rates applicable to the Guarantee Periods. Also call
during our regular business hours to speak to one of our customer
service representatives.
o PROCESSING OFFICE
o FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
Post Office Box 13014
Newark, NJ 07188-0014
o FOR CONTRIBUTIONS SENT BY EXPRESS MAIL:
Equitable Life
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS,
WITHDRAWALS) SENT BY EXPRESS MAIL:
Equitable Life
Income Management Group
200 Plaza Drive
Secaucus, NJ 07096
DEATH BENEFITS
If you die before the Annuity Commencement Date, the Rollover IRA provides a
death benefit. The beneficiary will be paid the greater of the Annuity Account
Value in the Investment Funds and the guaranteed minimum death benefit (GMDB),
plus any death benefit provided with respect to the Guaranteed Period Account.
There are two plans available under the Certificates for providing guaranteed
benefits, a Combined GMDB/GMIB Benefit and a GMDB Only Benefit.
GUARANTEED MINIMUM INCOME BENEFIT (GMIB)
The GMIB (available under the Combined GMDB/ GMIB Benefit) may not currently be
available in all states.
When you elect the IRA Assured Payment Option, the GMIB provides a minimum
guaranteed lifetime income under such option with respect to amounts applied
from the Investment Funds. Any amounts in the Guaranteed Period Account will be
applied to increase the payments provided under the GMIB. A market value
adjustment may apply.
SURRENDERING THE CERTIFICATES
You may surrender a Certificate and receive the Cash Value at any time before
the Annuity Commencement Date while the Annuitant is living. Withdrawal charges
and a market value adjustment may apply. A surrender may also be subject to
income tax and tax penalty.
DISTRIBUTION METHODS
IRA ASSURED PAYMENT OPTION
The IRA Assured Payment Option (which requires a minimum amount applied of
$10,000) provides guaranteed lifetime income. You may elect to receive payments
on a monthly, quarterly or annual basis during a fixed period. Payments during
the fixed period represent distributions of the Maturity Values of serially
maturing Guarantee Periods on their Expiration Dates or, distributions from
amounts in the Modal Payment Portion of the Guaranteed Period Account. During
the fixed period you can take withdrawals from your Annuity Account Value.
After the fixed period ends, payments are made out of the Life Contingent
Annuity.
The Life Contingent Annuity does not have a Cash Value or an Annuity Account
Value. There is no death benefit under the Life Contingent Annuity and income
is paid only if you (or a joint Annuitant) are living at the date annuity
benefits begin.
A $2.50 charge will be deducted from each payment made on a monthly or
quarterly basis.
IRA APO PLUS
IRA APO Plus is a variation of the IRA Assured Payment Option. IRA APO Plus
enables you to keep a portion of your Annuity Account Value in the Investment
Funds while periodically converting such Annuity Account Value to increase the
guaranteed lifetime income under the IRA Assured Payment Option. When you elect
IRA APO Plus, a portion of your initial contribution or Annuity Account Value,
as applicable, is allocated to the IRA Assured Payment Option to provide a
minimum guaranteed lifetime income, and the remaining contribution or Annuity
Account Value is allocated to the Invest-
9
<PAGE>
ment Funds. Every three years during the fixed period, a portion of the
remaining Annuity Account Value in the Investment Funds is applied to increase
the guaranteed payments under the IRA Assured Payment Option.
WITHDRAWAL OPTIONS
o Lump Sum Withdrawals--Before the Annuity Commencement Date while the
Certificate is in effect, you may take Lump Sum Withdrawals from your
Certificate at any time. The minimum withdrawal amount is $1,000.
o Substantially Equal Payment Withdrawals--If you are below age 59 1/2,
this withdrawal option is designed to allow you to withdraw funds
annually and not have a 10% penalty tax apply. This is accomplished by
distribution of substantially equal periodic payments over your life
expectancy or over the joint life expectancies of you and your spouse.
If you change or stop such distributions before the later of age 59 1/2
or five years from the date of the first distribution, the 10% penalty
tax may apply on all prior distributions.
o Systematic Withdrawals--You may also withdraw funds under our Systematic
Withdrawal option, where the minimum withdrawal amount is $250. These
withdrawals are available if you are age 59 1/2 to 70 1/2.
o Minimum Distribution Withdrawals--You may also withdraw funds annually
under our Minimum Distribution Withdrawals option, which is designed to
meet the minimum distribution requirements set forth in the Code. The
minimum withdrawal amount is $250.
Withdrawals may be subject to a withdrawal charge and withdrawals from
Guarantee Periods prior to their Expiration Date will result in a market value
adjustment. Withdrawals may be subject to income tax and tax penalty.
INCOME ANNUITY OPTIONS
The Certificates also provide income annuity options to which amounts may be
applied at the Annuity Commencement Date. The income annuity options are
offered on a fixed and variable basis.
TAXES
Generally, any earnings on contributions made to the Certificate will not be
included in your taxable income until distributions are made from the
Certificate. Distributions prior to your attaining age 59 1/2 may be subject to
tax penalty.
DEDUCTIONS FROM ANNUITY
ACCOUNT VALUE
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of the initial and each
subsequent contribution if (i) a Lump Sum Withdrawal or cumulative withdrawals
during a Contract Year exceed the free corridor amount, or (ii) the Certificate
is surrendered. The free corridor amount is 15% under the Rollover IRA and 10%
under the IRA Assured Payment Option and IRA APO Plus. We determine the
withdrawal charge separately for each contribution in accordance with the table
below.
CONTRACT YEAR
1 2 3 4 5 6 7 8+
-------------------------------------------------------------
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
The applicable withdrawal charge percentage is determined by the Contract Year
in which the withdrawal is made or the Certificate is surrendered, beginning
with "Contract Year 1" with respect to each contribution withdrawn or
surrendered. For purposes of the table, for each contribution the Contract Year
in which we receive that contribution is "Contract Year 1."
Withdrawal Processing Charge
We reserve the right to impose an administrative charge of the lesser of $25
and 2.0% of the amount withdrawn for each Lump Sum Withdrawal after the fifth
in a Contract Year.
Charges for Combined GMDB/GMIB Benefit
We deduct a charge annually on each Processing Date for providing the Combined
GMDB/GMIB Benefit. The charge is equal to a percentage of the GMDB in effect on
the Processing Date. The percentage is equal to 0.45% for a 6% to Age 80
Benefit and 0.30% for a 6% to Age 70 Benefit.
Charges for GMDB Only Benefit
We deduct a charge annually on each Processing Date for providing the GMDB Only
Benefit. The charge is equal to a percentage of the GMDB in effect on the
Processing Date. The percentage is equal to 0.20%.
Charges for State Premium and Other
Applicable Taxes
Generally, we deduct a charge for premium and other applicable taxes from the
Annuity Account Value on the Annuity Commencement Date. The current tax charge
that might be imposed varies by state and ranges from 0 to 2.25%.
10
<PAGE>
DEDUCTIONS FROM INVESTMENT FUNDS
Mortality and Expense Risk Charge
We charge each Investment Fund a daily asset based charge for mortality and
expense risks equivalent to an annual rate of 0.90%.
Asset Based Administrative Charge
We charge each Investment Fund a daily asset based charge to cover the
administrative expenses under the Certificate equivalent to an annual rate of
0.30%. We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
TRUST CHARGES TO PORTFOLIOS
Investment advisory fees and other expenses of the Trust are charged daily
against the Trust's assets. These are reflected in the Portfolio's daily share
price and in the daily Accumulation Unit Value for the Investment Funds.
The Trust Class IB shares held in the Investment Funds are subject to a
distribution fee under a Rule 12b-1 Plan. The Rule 12b-1 Plan fee is imposed
against the assets of each Portfolio at the annual rate of 0.25%. The fee,
which may be waived in the discretion of Equitable Distributors, Inc., may be
increased only by action of the Board of Trustees of the Trust up to a maximum
of 0.50% per annum. We offer other deferred variable annuities that invest in
Trust shares that are not subject to the Rule 12b-1 Plan fee and that bear
different charges and expenses. For more information about the Plan, and the
address for any inquiries about the Plan, see "The Trust" in the accompanying
Trust prospectus.
11
<PAGE>
- -------------------------------------------------------------------------------
PART 2: EQUITABLE LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT FUNDS
- -------------------------------------------------------------------------------
EQUITABLE LIFE
Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest
life insurance companies in the United States. Equitable Life has been selling
annuities since the turn of the century. Our home office is located at 787
Seventh Avenue, New York, New York 10019. We are authorized to sell life
insurance and annuities in all fifty states, the District of Columbia, Puerto
Rico and the Virgin Islands. We maintain local offices throughout the United
States.
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest stockholder of the Holding
Company is AXA S.A. AXA beneficially owns 60.6% of the outstanding common stock
of the Holding Company plus convertible preferred stock. Under its investment
arrangements with Equitable Life and the Holding Company, AXA is able to
exercise significant influence over the operations and capital structure of the
Holding Company and its subsidiaries, including Equitable Life. AXA, a French
company, is the holding company for an international group of insurance and
related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $217.6 billion of assets as of June 30, 1996.
SEPARATE ACCOUNT NO. 49
Separate Account No. 49 is organized as a unit investment trust, a type of
investment company, and is registered with the SEC under the Investment Company
Act of 1940 (1940 Act). This registration does not involve any supervision by
the SEC of the management or investment policies of the Separate Account. The
Separate Account has several Investment Funds, each of which invests in shares
of a corresponding Portfolio of the Trust. Because amounts allocated to the
Investment Funds are invested in a mutual fund, investment return and principal
will fluctuate and the Certificate Owner's Accumulation Units may be worth more
or less than the original cost when redeemed.
Under the New York Insurance Law, the portion of the Separate Account's assets
equal to the reserves and other liabilities relating to the Certificates are
not chargeable with liabilities arising out of any other business we may
conduct. Income, gains or losses, whether or not realized, from assets of the
Separate Account are credited to or charged against the Separate Account
without regard to our other income gains or losses. We are the issuer of the
Certificates, and the obligations set forth in the Certificates (other than
those of Annuitants or Certificate Owners) are our obligations.
In addition to contributions made under the Rollover IRA Certificates, we may
allocate to the Separate Account monies received under other contracts,
certificates, or agreements. Owners of all such contracts, certificates or
agreements will participate in the Separate Account in proportion to the
amounts they have in the Investment Funds that relate to their contracts,
certificates or agreements. We may retain in the Separate Account assets that
are in excess of the reserves and other liabilities relating to the Rollover
IRA Certificates or to other contracts, certificates or agreements, or we may
transfer the excess to our General Account.
We reserve the right, subject to compliance with applicable law; (1) to add
Investment Funds (or sub-funds of Investment Funds) to, or to remove Investment
Funds (or sub-funds) from, the Separate Account, or to add other separate
accounts; (2) to combine any two or more Investment Funds or sub-funds thereof;
(3) to transfer the assets we determine to be the share of the class of
contracts to which the Certificate belongs from any Investment Fund to another
Investment Fund; (4) to operate the Separate Account or any Investment Fund as
a management investment company under the 1940 Act, in which case charges and
expenses that otherwise would be assessed against an underlying mutual fund
would be assessed against the Separate Account; (5) to deregister the Separate
Account under the 1940 Act, provided that such action conforms with the
requirements of applicable law; (6) to restrict or eliminate any voting rights
as to the Separate Account; and (7) to cause one or more Investment Funds to
invest some or all of their assets in one or more other trusts or investment
companies. If any changes are made that result in a material change in the
underlying investment policy of an Investment Fund, you will be notified as
required by law.
THE TRUST
The Trust is an open-end diversified management investment company, more
commonly called a mu-
12
<PAGE>
tual fund. As a "series" type of mutual fund, it issues several different
series of stock, each of which relates to a different Portfolio of the Trust.
The Trust commenced operations in January 1976 with a predecessor of its Common
Stock Portfolio. The Trust does not impose a sales charge or "load" for buying
and selling its shares. All dividend distributions to the Trust are reinvested
in full and fractional shares of the Portfolio to which they relate. Each
Investment Fund invests in Class IB shares of a corresponding Portfolio of the
Trust. More detailed information about the Trust, its investment objectives,
policies, restrictions, risks, expenses, the Rule 12b-1 Plan relating to the
Class IB shares, and all other aspects of its operations appears in its
prospectus which accompanies this prospectus or in its statement of additional
information.
THE TRUST'S INVESTMENT ADVISER
The Trust is advised by Alliance Capital Management L.P. (Alliance), which is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940. Alliance, a publicly-traded limited partnership, is indirectly
majority-owned by Equitable Life. On June 30, 1996, Alliance was managing over
$168 billion in assets. Alliance acts as an investment adviser to various
separate accounts and general accounts of Equitable Life and other affiliated
insurance companies. Alliance also provides management and consulting services
to mutual funds, endowment funds, insurance companies, foreign entities,
qualified and non-tax qualified corporate funds, public and private pension and
profit-sharing plans, foundations and tax-exempt organizations.
Alliance's record as an investment manager is based, in part, on its ability to
provide a diversity of investment services to domestic, international and
global markets. Alliance prides itself on its ability to attract and retain a
quality, professional work force. Alliance employs more than 188 investment
professionals, including 74 research analysts. Portfolio managers have an
average investment experience of more than 14 years.
Alliance's main office is located at 1345 Avenue of the Americas, New York, New
York 10105.
13
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF THE TRUST'S PORTFOLIOS
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of each
Portfolio will affect its return and its risks. There is no guarantee that
these objectives will be achieved.
The policies and objectives of the Trust's Portfolios are as follows:
<TABLE>
<CAPTION>
Portfolio Investment Policy Objective
- -------- ----------------- ---------
<S> <C> <C>
Aggressive Stock Primarily common stocks and other equity-type Long-term growth of
securities issued by medium and other smaller capital
sized companies with strong growth potential.
Common Stock Primarily common stock and other equity-type Long-term growth of
instruments. capital and increasing
income
Growth Investors Diversified mix of publicly-traded, High total return
fixed-income and equity securities; asset mix consistent with the
and security selection based upon factors adviser's determination
expected to increase possibility of high of reasonable risk
long-term return. The Portfolio is generally
expected to hold approximately 70% of its
assets in equity securities and 30% in fixed
income securities.
Global Primarily equity securities of non-United Long-term growth of
States as well as United States companies. capital
High Yield Primarily a diversified mix of high yield, High return by
fixed-income securities involving greater maximizing current
volatility of price and risk of principal and income and, to the extent
income than high quality fixed-income consistent with that
securities. The medium and lower quality debt objective, capital
securities in which the Portfolio may invest appreciation
are known as "junk bonds."
Money Market Primarily high quality short-term money High level of current
market instruments. income while preserving
assets and maintaining
liquidity
</TABLE>
14
<PAGE>
- -------------------------------------------------------------------------------
PART 3: INVESTMENT PERFORMANCE
- -------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds calculated
by two methods. The first method, used in calculating values for the two tables
in "Performance Data for a Certificate," reflects all applicable fees and
charges other than the charge for tax such as premium taxes. The second method,
used in preparing rates of return for the three tables in "Rate of Return Data
for Investment Funds," reflects all fees and charges other than the withdrawal
charge, the GMDB/GMIB charge and the charge for tax such as premium taxes.
These additional charges would effectively reduce the rates of return credited
to a particular Certificate.
The Separate Account was recently established and has had no prior operations,
and no Certificates have been issued prior to the date of this prospectus. The
calculations of investment performance shown below are based on the actual
investment results of the Portfolios of the Trust, from which certain fees and
charges applicable under the Rollover IRA have been deducted. The investment
results of the Portfolios of the Trust have not been adjusted to reflect the
Rule 12b-1 Plan fee relating to the Class IB shares, which were not available
for purchase prior to the date of this prospectus. The Rule 12b-1 Plan fee
would effectively reduce the investment performance shown. The results shown
are not an estimate or guarantee of future investment performance, and do not
reflect the actual experience of amounts invested under a particular
Certificate.
See "Part 4: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
PERFORMANCE DATA FOR A CERTIFICATE
The standardized performance data in the following tables illustrate the
average annual total return of the Investment Funds over the periods shown,
assuming a single initial contribution of $1,000 and the surrender of the
Certificate at the end of each period. These tables (which reflect the first
calculation method described above) are prepared in a manner prescribed by the
SEC for use when we advertise the performance of the Separate Account. An
Investment Fund's average annual total return is the annual rate of growth of
the Investment Fund that would be necessary to achieve the ending value of a
contribution kept in the Investment Fund for the period specified.
Each calculation assumes that the $1,000 contribution was allocated to only one
Investment Fund, no transfers or subsequent contributions were made and no
amounts were allocated to any other Investment Option under the Certificate.
In order to calculate annualized rates of return, we divide the Cash Value of a
Certificate which is surrendered on December 31, 1995 by the $1,000
contribution made at the beginning of each period illustrated. The result of
that calculation is the total growth rate for the period. Then we annualize
that growth rate to obtain the average annual percentage increase (decrease)
during the period shown. When we "annualize," we assume that a single rate of
return applied each year during the period will produce the ending value,
taking into account the effect of compounding.
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1995*
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------------
INVESTMENT THREE FIVE TEN SINCE
FUND ONE YEAR YEARS YEARS YEARS INCEPTION**
- ---------------- -------- -------- -------- -------- -------------
Aggressive Stock $1,231 $1,363 $2,461 -- $ 5,280
Common Stock 1,239 1,498 2,108 $3,530 11,689
Growth Investors 1,179 1,299 2,018 -- 2,286
Global 1,104 1,531 1,961 -- 2,139
High Yield 1,115 1,323 1,832 -- 2,076
Money Market 975 1,032 1,120 1,525 2,235
- ------------
* See footnotes on next page.
15
<PAGE>
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1995*
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------------
INVESTMENT THREE FIVE TEN SINCE
FUND ONE YEAR YEARS YEARS YEARS INCEPTION**
- ---------------- -------- -------- -------- -------- -------------
Aggressive Stock 23.06% 10.88% 19.73% -- 18.10%
Common Stock 23.87 14.42 16.09 13.44% 13.08
Growth Investors 17.86 9.10 15.07 -- 12.54
Global 10.39 15.27 14.42 -- 8.82
High Yield 11.48 9.78 12.87 -- 8.45
Money Market (2.52) 1.05 2.29 4.31 5.51
- ------------
* The tables reflect charges under a Certificate with the 0.45% GMDB/GMIB
charge.
** The "Since Inception" dates are as follows: Aggressive Stock (January 27,
1986); Common Stock (January 13, 1976); Growth Investors (October 2,
1989); Global (August 27, 1987); High Yield (January 2, 1987); and Money
Market (July 13, 1981).
RATE OF RETURN DATA FOR INVESTMENT FUNDS
The following tables (which reflect the second calculation method described
above) provide you with information on rates of return on an annualized,
cumulative and year-by-year basis.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends. Cumulative rates of return
reflect performance over a stated period of time. Annualized rates of return
represent the annual rate of growth that would have produced the same
cumulative return, if performance had been constant over the entire period.
Performance data of the Money Market and Common Stock Funds for the periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which were
reorganized in unit investment trust form. The "Since Inception" figures for
these Funds are based on the date of inception of the predecessor separate
accounts. This performance data has been adjusted to reflect the maximum
investment advisory fee payable for the corresponding Portfolio of the Trust,
as well as an assumed charge of 0.06% for direct operating expenses.
Performance data for the remaining Investment Funds reflect (i) the investment
results of the corresponding Portfolios of the Trust from the date of inception
of those Portfolios and (ii) the actual investment advisory fee, and direct
operating expenses of the relevant Portfolio.
The performance data for all periods has also been adjusted to reflect the
Separate Account mortality and expense risk charge, and the asset based
administrative charge equal to a total of 1.20% relating to the Certificates,
as well as the Trust's expenses.
BENCHMARKS
Market indices are not subject to any charges for investment advisory fees,
brokerage commission or other operating expenses typically associated with a
managed portfolio. Nor do they reflect other charges such as the mortality and
expense risk charge and the asset based administrative charge under the
Certificates. Comparisons with these benchmarks, therefore, are of limited use.
We include them because they are widely known and may help you to understand
the universe of securities from which each Portfolio is likely to select its
holdings. Benchmark data reflect the reinvestment of dividend income.
PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS:
AGGRESSIVE STOCK: January 27, 1986; 50% Stan dard & Poor's Mid-Cap Total
Return Index and 50% Russell 2000 Small Stock Index.
COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
GROWTH INVESTORS: October 2, 1989; 30% Lehman Government/Corporate Bond Index
and 70% Standard & Poor's 500 Index.
GLOBAL: August 27, 1987; Morgan Stanley Capital International World Index.
HIGH YIELD: January 2, 1987; Merrill Lynch High Yield Master Index.
16
<PAGE>
MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill Index.
The Lipper Variable Insurance Products Performance Analysis Survey (Lipper)
records the performance of a large group of variable annuity products,
including managed separate accounts of insurance companies. According to Lipper
Analytical Services, Inc., the data are presented net of investment management
fees, direct operating expenses and asset-based charges applicable under
annuity contracts. Lipper data provide a more accurate picture than market
benchmarks of the Rollover IRA performance relative to other variable annuity
products.
ANNUALIZED RATES OF RETURN FOR PERIODS ENDING DECEMBER 31, 1995:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS INCEPTION
-------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK 30.06% 12.55% 20.29% -- -- 18.53%
Lipper Small Company Growth 28.19 15.26 25.72 -- -- 16.06
Benchmark 29.69 13.67 20.16 -- -- 13.58
COMMON STOCK 30.87 15.99 16.74 13.78% 13.00% 13.41
Lipper Growth 31.08 12.09 15.53 12.05 12.26 12.25
Benchmark 37.54 15.30 16.57 14.87 14.79 14.24
GROWTH INVESTORS 24.86 10.81 15.72 -- -- 14.64
Lipper Flexible Portfolio 21.58 9.32 11.43 -- -- 9.44
Benchmark 32.05 13.35 14.70 -- -- 11.97
GLOBAL 17.39 16.80 15.10 -- -- 10.04
Lipper Global 13.87 13.45 9.10 -- -- 2.52
Benchmark 20.72 15.83 11.74 -- -- 6.75
HIGH YIELD 18.48 11.46 13.57 -- -- 8.89
Lipper High Yield 17.36 9.80 15.79 -- -- 8.87
Benchmark 19.91 11.57 17.17 -- -- 11.28
MONEY MARKET 4.48 2.99 3.23 4.76 -- 6.16
Lipper Money Market 4.35 2.88 3.10 4.71 -- 6.27
Benchmark 5.74 4.34 4.47 5.77 -- 7.09
</TABLE>
- ------------
* See footnotes on next page.
CUMULATIVE RATES OF RETURN FOR PERIODS ENDING DECEMBER 31, 1995:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS INCEPTION
-------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK 30.06% 42.58% 151.85% -- -- 440.73%
Lipper Small Company
Growth 28.19 55.24 268.67 -- -- 337.96
Benchmark 29.69 46.89 150.49 -- -- 254.09
COMMON STOCK 30.87 56.05 116.80 263.70% 525.22% 1,133.55
Lipper Growth 31.08 41.29 107.30 215.49 483.45 920.87
Benchmark 37.54 53.30 115.25 300.11 692.18 1,327.94
GROWTH INVESTORS 24.86 36.07 107.47 -- -- 134.80
Lipper Flexible Portfolio 21.58 30.92 72.73 -- -- 76.92
Benchmark 32.05 45.64 98.56 -- -- 102.72
GLOBAL 17.39 59.33 102.02 -- -- 122.13
Lipper Global 13.87 46.36 55.44 -- -- 23.09
Benchmark 20.72 55.39 74.20 -- -- 72.38
HIGH YIELD 18.48 38.47 88.94 -- -- 115.04
Lipper High Yield 17.36 32.45 108.96 -- -- 117.28
Benchmark 19.91 38.89 120.85 -- -- 161.50
MONEY MARKET 4.48 9.23 17.25 59.16 -- 137.35
Lipper Money Market 4.35 8.87 16.48 58.55 -- 140.42
Benchmark 5.74 13.58 24.45 75.23 -- 170.07
</TABLE>
- ------------
* See footnotes on next page.
17
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1983 1984 1985 1986
<S> <C> <C> <C> <C>
AGGRESSIVE STOCK -- -- -- 33.77%
COMMON STOCK** 24.60% (3.14)% 31.83% 15.96
GROWTH INVESTORS -- -- -- --
GLOBAL -- -- -- --
HIGH YIELD -- -- -- --
MONEY MARKET** 7.65 9.53 7.17 5.33
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK 6.01% (0.08)% 41.79% 6.86% 84.63% (4.33)% 15.35% (4.97)% 30.06%
COMMON STOCK** 6.15 20.97 24.09 (9.22) 36.23 1.98 23.33 (3.31) 30.87
GROWTH INVESTORS -- -- 3.52 9.33 47.12 3.64 13.89 (4.31) 24.86
GLOBAL (13.63) 9.55 25.22 (7.20) 28.99 (1.70) 30.54 3.97 17.39
HIGH YIELD 3.44 8.42 3.88 (2.31) 22.97 10.96 21.67 (3.95) 18.48
MONEY MARKET** 5.35 6.03 7.88 6.93 4.91 2.32 1.73 2.77 4.48
</TABLE>
- ------------
* Returns do not reflect the withdrawal charge, the GMDB/GMIB charge, and
any charge for tax such as premium taxes.
<TABLE>
<CAPTION>
** Prior to 1982 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK 8.14% (10.33)% 6.94% 28.28% 48.32% (6.99)% 16.16%
MONEY MARKET -- -- -- -- -- 5.68 11.67
</TABLE>
COMMUNICATING PERFORMANCE DATA
In reports or other communications or in advertising material, we may describe
general economic and market conditions affecting the Separate Account and the
Trust and may compare the performance of the Investment Funds with (1) that of
other insurance company separate accounts or mutual funds included in the
rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., VARDS
or similar investment services that monitor the performance of insurance
company separate accounts or mutual funds, (2) other appropriate indices of
investment securities and averages for peer universes of funds which are shown
under "Benchmarks" and "Fund Inception Dates and Comparative Benchmarks" in
this Part 3, or (3) data developed by us derived from such indices or averages.
The Morningstar Variable Annuity/Life Report consists of nearly 700 variable
life and annuity funds, all of which report their data net of investment
management fees, direct operating expenses and separate account charges. VARDS
is a monthly reporting service that monitors approximately 760 variable life
and variable annuity funds on performance and account information.
Advertisements or other communications furnished to present or prospective
Certificate Owners may also include evaluations of an Investment Fund or
Portfolio by financial publications that are nationally recognized such as
Barron's, Morningstar's Variable Annuity Sourcebook, Business Week, Chicago
Tribune, Forbes, Fortune, Institutional Investor, Investment Adviser,
Investment Dealer's Digest, Investment Management Weekly, Los Angeles Times,
Money, Money Management Letter, Kiplinger's Personal Finance, Financial
Planning, National Underwriter, Pension & Investments, USA Today, Investor's
Daily, The New York Times, and The Wall Street Journal.
MONEY MARKET FUND YIELD INFORMATION
The current yield and effective yield of the Money Market Fund may appear in
reports and promotional material to current or prospective Certificate Owners.
Current yield for the Money Market Fund will be based on net changes in a
hypothetical investment over a given seven-day period, exclusive of capital
changes, and then "annualized" (assuming that the same seven-day result would
occur each week for 52 weeks). "Effective yield" is calculated in a manner
similar to that used to calculate current yield, but when annualized, any
income earned by the investment is assumed to be reinvested. The "effective
yield" will be slightly higher than the "current yield" because any earnings
are compounded weekly. Money Market Fund yields and effective yields assume the
deduction of all Certificate charges and expenses other than the withdrawal
charge, GMDB/ GMIB charge and any charge for tax such as premium tax. See "Part
5: Money Market Fund Yield Information" in the SAI.
18
<PAGE>
- -------------------------------------------------------------------------------
PART 4: THE GUARANTEED PERIOD ACCOUNT
- -------------------------------------------------------------------------------
GUARANTEE PERIODS
Each amount allocated to a Guarantee Period and held to the Period's Expiration
Date accumulates interest at a Guaranteed Rate. The Guaranteed Rate for each
allocation is the annual interest rate applicable to new allocations to that
Guarantee Period, which was in effect on the Transaction Date for the
allocation. We may establish different Guaranteed Rates under different classes
of Certificates. We use the term GUARANTEED PERIOD AMOUNT to refer to the
amount allocated to and accumulated in each Guarantee Period. The Guaranteed
Period Amount is reduced or increased by any market value adjustment as a
result of withdrawals, transfers or charges (see below).
Your Guaranteed Period Account contains the Guarantee Periods to which you have
allocated Annuity Account Value. On the Expiration Date of a Guarantee Period,
its Guaranteed Period Amount and its value in the Guaranteed Period Account are
equal. We call the Guaranteed Period Amount on an Expiration Date the Guarantee
Period's Maturity Value. We report the Annuity Account Value in your Guaranteed
Period Account to reflect any market value adjustment that would apply if all
Guaranteed Period Amounts were withdrawn as of the calculation date. The
Annuity Account Value in the Guaranteed Period Account with respect to the
Guarantee Periods on any Business Day, therefore, will be the sum of the
present value of the Maturity Value in each Guarantee Period, using the
Guaranteed Rate in effect for new allocations to such Guarantee Period on such
date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1997 through 2007.
Not all of these Guarantee Periods will be available for ages 76 and above. See
"Allocation of Contributions" in Part 5. Also, the Guarantee Periods may not be
available for investment in all states. As Guarantee Periods expire we expect
to add maturity years so that generally 10 are available at any time.
Under the IRA Assured Payment Option and IRA APO Plus, in addition to the
Guarantee Periods above, Guarantee Periods ending on February 15th for each of
the maturity years 2008 through 2011 are also available.
We will not accept allocations to a Guarantee Period if, on the Transaction
Date:
o Such Transaction Date and the Expiration Date for such Guarantee Period fall
within the same calendar year.
o The Guaranteed Rate is 3%.
o The Guarantee Period has an Expiration Date beyond the February 15th
immediately following the Annuity Commencement Date.
Guaranteed Rates and Price Per $100 of Maturity Value
Because the Maturity Value of a contribution allocated to a Guarantee Period
can be determined at the time it is made, you can determine the amount required
to be allocated to a Guarantee Period in order to produce a target Maturity
Value (assuming no transfers or withdrawals are made and no charges are
allocated to the Guarantee Period). The required amount is the present value of
that Maturity Value at the Guaranteed Rate on the Transaction Date for the
contribution, which may also be expressed as the price per $100 of Maturity
Value on such Transaction Date.
Guaranteed Rates for new allocations as of October 1, 1996 and the related
price per $100 of Maturity Value for each currently available Guarantee Period
were as follows:
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE PER $100
FEBRUARY 15TH OF OCTOBER 1, OF MATURITY
MATURITY YEAR 1996 VALUE
- ---------------- ------------ --------------
1997 4.21% $98.46
1998 4.80 93.76
1999 5.10 88.86
2000 5.29 84.03
2001 5.41 79.40
2002 5.52 74.90
2003 5.65 70.43
2004 5.66 66.62
2005 5.80 62.34
2006 5.92 58.30
2007 6.03 54.45
19
<PAGE>
Available under the IRA Assured Payment Option and IRA APO Plus
2008 5.95% $51.80
2009 5.95 48.88
2010 5.95 46.14
2011 5.95 43.55
Allocation Among Guarantee Periods
The same approach as described above may also be used to determine the amount
which you would need to allocate to each Guarantee Period in order to create a
series of constant Maturity Values for two or more years.
For example, if you wish to have $100 mature on February 15th of each of years
1997 through 2001, then according to the above table the lump sum contribution
you would have to make as of October 1, 1996 would be $444.51 (i.e., the sum of
the price per $100 of Maturity Value for each maturity year from 1997 through
2001).
The above table is provided to illustrate the use of present value
calculations. It does not take into account the potential for charges to be
deducted or withdrawals or transfers from Guarantee Periods. Actual
calculations will also be based on Guaranteed Rates on each actual Transaction
Date, which may differ.
Options at Expiration Date
Under the Rollover IRA, we will notify you on or before December 31st prior to
the Expiration Date of each Guarantee Period in which you have any Guaranteed
Period Amount. You may elect one of the following options to be effective at
the Expiration Date, subject to the restrictions set forth on the prior page
and under "Allocation of Contributions" in Part 5:
(a) to transfer the Maturity Value into any Guarantee Period we are then
offering, or into any of our Investment Funds; or
(b) to withdraw the Maturity Value (subject to any withdrawal charges
which may apply).
If we have not received your election as of the Expiration Date, the Maturity
Value in the expired Guarantee Period will be transferred into the Guarantee
Period with the earliest Expiration Date.
MARKET VALUE ADJUSTMENT FOR TRANSFERS, WITHDRAWALS OR SURRENDER PRIOR TO THE
EXPIRATION DATE
Any withdrawal (including transfers, surrender and deductions) from a Guarantee
Period prior to its Expiration Date will cause any remaining Guaranteed Period
Amount for that Guarantee Period to be increased or decreased by a market value
adjustment. The amount of the adjustment will depend on two factors: (a) the
difference between the Guaranteed Rate applicable to the amount being withdrawn
and the Guaranteed Rate on the Transaction Date for new allocations to a
Guarantee Period with the same Expiration Date, and (b) the length of time
remaining until the Expiration Date. In general, if interest rates have risen
between the time when an amount was originally allocated to a Guarantee Period
and the time it is withdrawn, the market value adjustment will be negative, and
vice versa; and the longer the period of time remaining until the Expiration
Date, the greater the impact of the interest rate difference. Therefore, it is
possible that a significant rise in interest rates could result in a
substantial reduction in your Annuity Account Value in the Guaranteed Period
Account related to longer term Guarantee Periods.
The market value adjustment (positive or negative) resulting from a withdrawal
of all funds from a Guarantee Period will be determined for each contribution
allocated to that Period as follows:
(1) We determine the present value of the Maturity Value on the Transaction
Date as follows:
(a) We determine the Guaranteed Period Amount that would be payable on the
Expiration Date, using the applicable Guaranteed Rate.
(b) We determine the period remaining in your Guarantee Period (based on
the Transaction Date) and convert it to fractional years based on a
365 day year. For example three years and 12 days becomes 3.0329.
(c) We determine the current Guaranteed Rate which applies on the
Transaction Date to new allocations to the same Guarantee Period.
(d) We determine the present value of the Guaranteed Period Amount payable
at the Expiration Date, using the period determined in (b) and the
rate determined in (c).
(2) We determine the Guaranteed Period Amount as of the current date.
(3) We subtract (2) from the result in (1)(d). The result is the market
value adjustment applicable to such Guarantee Period, which may be
positive or negative.
The market value adjustment (positive or negative) resulting from a withdrawal
of a portion of the amount in a Guarantee Period will be a percentage of the
market value adjustment that would be ap-
20
<PAGE>
plicable upon a withdrawal of all funds from a Guarantee Period. This
percentage is determined by (i) dividing the amount of the withdrawal or
transfer from the Guarantee Period by (ii) the Annuity Account Value in such
Guarantee Period prior to the withdrawal or transfer. See Appendix I for an
example.
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose even if new allocations to that Guarantee
Period would not be accepted at the time. This rate will not be less than 3%.
If we do not have a Guaranteed Rate in effect for a Guarantee Period to which
the "current Guaranteed Rate" in (1)(c) would apply, we will use the rate at
the next closest Expiration Date. If we are no longer offering new Guarantee
Periods, the "current Guaranteed Rate" will be determined in accordance with
our procedures then in effect. For purposes of calculating the market value
adjustment only, we reserve the right to add up to 0.25% to the current rate in
(1)(c) above.
MODAL PAYMENT PORTION
Under the IRA Assured Payment Option and IRA APO Plus, a portion of your
contributions or Annuity Account Value is allocated to the Modal Payment
Portion of the Guaranteed Period Account for payments to be made prior to the
Expiration Date of the earliest Guarantee Period we then offer. Such amount
will accumulate interest beginning on the Transaction Date at an interest rate
we set. Interest will be credited daily. Such rate will not be less than 3%.
Upon the expiration of a Guarantee Period, the Guaranteed Period Amount will be
held in the Modal Payment Portion of the Guaranteed Period Account. Amounts
from an expired Guarantee Period held in the Modal Payment Portion of the
Guaranteed Period Account will be credited with interest at a rate equal to the
Guaranteed Rate applicable to the expired Guarantee Period, beginning on the
Expiration Date of such Guarantee Period.
There is no market value adjustment with respect to amounts held in the Modal
Payment Portion of the Guaranteed Period Account.
DEATH BENEFIT AMOUNT
The death benefit provided with respect to the Guaranteed Period Account is
equal to the Annuity Account Value in the Guaranteed Period Account or, if
greater, the sum of the Guaranteed Period Amounts in each Guarantee Period,
plus any amounts in the Modal Payment Portion of the Guaranteed Period Account.
See "Annuity Account Value" in Part 5.
INVESTMENTS
Amounts allocated to Guarantee Periods or the Modal Payment Portion of the
Guaranteed Period Account will be held in a "nonunitized" separate account
established by Equitable Life under the laws of New York. This separate account
provides an additional measure of assurance that full payment of amounts due
under the Guarantee Periods and the Modal Payment Portion of the Guaranteed
Period Account will be made. Under the New York Insurance Law, the portion of
the separate account's assets equal to the reserves and other contract
liabilities relating to the Certificates are not chargeable with liabilities
arising out of any other business we may conduct.
Investments purchased with amounts allocated to the Guaranteed Period Account
are the property of Equitable Life. Any favorable investment performance on the
assets held in the separate account accrues solely to Equitable Life's benefit.
Certificate Owners do not participate in the performance of the assets held in
this separate account. Equitable Life may, subject to applicable state law,
transfer all assets allocated to the separate account to its general account.
Regardless of whether assets supporting Guaranteed Period Accounts are held in
a separate account or our general account, all benefits relating to the Annuity
Account Value in the Guaranteed Period Account are guaranteed by Equitable
Life.
Equitable Life has no specific formula for establishing the Guaranteed Rates
for the Guarantee Periods. Equitable Life expects the rates to be influenced
by, but not necessarily correspond to, among other things, the yields on the
fixed income securities to be acquired with amounts that are allocated to the
Guarantee Periods at the time that the Guaranteed Rates are established. Our
current plans are to invest such amounts in fixed income obligations, including
corporate bonds, mortgage backed and asset backed securities and government and
agency issues having durations in the aggregate consistent with those of the
Guarantee Periods.
Although the foregoing generally describes Equitable Life's plans for investing
the assets supporting Equitable Life's obligations under the fixed portion of
the Certificates, Equitable Life is not obligated to invest those assets
according to any particular plan except as may be required by state insurance
laws, nor will the Guaranteed Rates Equitable Life establishes be determined by
the performance of the nonunitized separate account.
General Account
Our general account supports all of our policy and contract guarantees,
including those applicable to
21
<PAGE>
the Guaranteed Period Account, as well as our general obligations. Amounts
applied under the Life Contingent Annuity become part of the general account.
See "IRA Assured Payment Option," "Life Contingent Annuity," in Part 6.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations
of all jurisdictions where we are authorized to do business. Because of
applicable exemptions and exclusionary provisions, interests in the general
account have not been registered under the Securities Act of 1933 (1933 Act),
nor is the general account an investment company under the 1940 Act.
Accordingly, neither the general account nor the Life Contingent Annuity is
subject to regulation under the 1933 Act or the 1940 Act. However, the market
value adjustment interests under the Certificates are registered under the 1933
Act.
We have been advised that the staff of the SEC has not made a review of the
disclosure that is included in the prospectus for your information that relates
to the general account (other than market value adjustment interests) and the
Life Contingent Annuity. The disclosure, however, may be subject to certain
generally applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
22
<PAGE>
- -------------------------------------------------------------------------------
PART 5: PROVISIONS OF THE CERTIFICATES AND SERVICES
WE PROVIDE
- -------------------------------------------------------------------------------
THE PROVISIONS DISCUSSED IN THIS PART 5 APPLY WHEN YOUR CERTIFICATE IS
OPERATING PRIMARILY TO ACCUMULATE ANNUITY ACCOUNT VALUE. DIFFERENT RULES MAY
APPLY WHEN YOU ELECT THE IRA ASSURED PAYMENT OPTION OR IRA APO PLUS IN THE
APPLICATION OR AS LATER ELECTED AS A DISTRIBUTION OPTION UNDER YOUR ROLLOVER
IRA AS DISCUSSED IN PART 6. THE PROVISIONS OF YOUR CERTIFICATE MAY BE
RESTRICTED BY APPLICABLE LAWS OR REGULATIONS.
AVAILABILITY OF THE CERTIFICATES
The Rollover IRA Certificates are available for issue ages 20 through 78. These
Certificates may not be available in all states. These Certificates are not
available in Puerto Rico.
CONTRIBUTIONS UNDER THE CERTIFICATES
Your initial contribution must be at least $5,000. We will only accept
initial contributions which are either rollover contributions under Sections
402(c), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code, or direct
custodian-to-custodian transfers from other individual retirement
arrangements. See "Part 9: Tax Aspects of the Certificates."
You may make subsequent contributions in an amount of at least $1,000.
Subsequent contributions may be "regular" IRA contributions (limited to a
maximum of $2,000 a year), rollover contributions as described above, or direct
transfers as described above. Rollover contributions and direct transfers are
not subject to the $2,000 annual limit.
We may refuse to accept any contribution if the sum of all contributions under
all accumulation Certificates with the same Annuitant would then total more
than $1,000,000. We reserve the right to limit aggregate contributions made
after the first Contract Year to 150% of first year contributions. We may also
refuse to accept any contribution if the sum of all contributions under all
Equitable Life annuity accumulation certificates/contracts that you own would
then total more than $2,500,000.
"Regular" IRA contributions may no longer be made for the taxable year in which
you attain age 70 1/2 and thereafter. Rollover and direct transfer
contributions may be made until you attain age 84. However, any amount
contributed after you attain age 70 1/2 must be net of your required minimum
distribution for the year in which the rollover or direct transfer contribution
is made. See "Part 9: Tax Aspects of the Certificates." For the consequences of
making a "regular" IRA contribution to your Certificate, also see Part 9.
Contributions are credited as of the Transaction Date.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check. All
contributions made by check must be drawn on a bank or credit union in the
U.S., in U.S. dollars and made payable to Equitable Life. All checks are
accepted subject to collection. All contributions should be sent to Equitable
Life at our Processing Office address designated for contributions.
Wire Transmittals
We will accept, by agreement with broker-dealers who use wire transmittals,
transmittal of initial contributions by wire order from the broker-dealer to
the Processing Office. Such transmittals must be accompanied by essential
information we require to allocate the contribution.
Contributions accepted by wire order will be invested at the value next
determined following receipt for contributions allocated to the Investment
Funds. Contributions allocated to the Guaranteed Period Account will receive
the Guaranteed Rate(s) in effect for the applicable Guarantee Period(s) on the
date contributions are received. Wire orders not accompanied by complete
information, may be retained for a period not exceeding five Business Days
while an attempt is made to obtain the required information. If the required
information cannot be obtained within those five Business Days, the Processing
Office will inform the broker-dealer, on behalf of the applicant, of the
reasons for the delay and return the contribution immediately to the applicant,
unless the applicant specifically consents to our retaining the contribution
until the required information is received by the Processing Office.
Notwithstanding the acceptance by us of the wire order and the essential
information, however, a Certificate generally will not be issued until the
receipt and acceptance of a properly completed ap-
23
<PAGE>
plication. In certain cases we may issue a Certificate based on information
forwarded electronically. In these cases, you must sign our Acknowledgment of
Receipt form.
Where a signed application is required, no financial transactions will be
permitted until such time as we receive such signed application and have issued
the Certificate. Where an Acknowledgment of Receipt is required, financial
transactions will only be permitted if requested in writing, signed by the
Certificate Owner and signature guaranteed until we receive such signed
Acknowledgment of Receipt.
After your Certificate has been issued, subsequent contributions may be
transmitted by wire.
ALLOCATION OF CONTRIBUTIONS
You have two options from which to choose for allocation of your
contributions: Self-Directed Allocation and Principal Assurance.
Self-Directed Allocation
You design your own investment program by allocating your contributions among
the Investment Options in any way you choose. Your contributions may be
allocated to one or up to all of the available Investment Options at any time.
We allocate contributions among the Investment Options according to your
allocation percentages. Allocations must be in whole percentages. Allocation
percentages can be changed at any time by writing to our Processing Office, or
by telephone. The change will be effective on the Transaction Date and will
remain in effect for future contributions unless another change is requested.
Allocation of the initial contribution is subject to the provisions for the
free look period. See "Free Look Period" below. Allocation of any contribution
to the Guaranteed Period Account is subject to the following restrictions:
o No more than 60% of any contribution may be allocated to the
Guaranteed Period Account.
o At ages 76 and above, allocations may be made only to Guarantee Periods
with maturities of five years or less; however, in no event may
allocations be made to Guarantee Periods with maturities beyond the
February 15th immediately following the Annuity Commencement Date.
Principal Assurance
This option (available for issue ages 20 through 75) is designed to assure that
your Maturity Value in a specified Guarantee Period equals your initial
contribution while at the same time allowing you to invest in the Investment
Funds. The maturity year you select for such specified Guarantee Period
generally may not be later than 10 years nor earlier than seven years. Before
you select a maturity year that would extend beyond the year in which you will
attain age 70 1/2, you should consider your ability to take minimum
distributions from other IRA funds that you may have or from the Investment
Funds to the extent possible. See "Required Minimum Distributions" in Part 9.
In order to accomplish this strategy, we will allocate a portion (equal to the
present value) of your initial contribution to a Guarantee Period based on the
year you select. See "Guaranteed Rates and Price Per $100 of Maturity Value" in
Part 4. You may allocate the balance of your contribution to the Investment
Funds in any way you choose. Such allocations to the Investment Funds must be
in whole percentages. Allocation of the portion of your initial contribution to
the Investment Funds is subject to the provisions for the free look period. See
"Free Look Period" below.
Principal Assurance may only be elected at issue of your Certificate and
assumes no withdrawals or transfers of the amount allocated to the specified
Guarantee Period.
Subsequent contributions must be allocated under "Self-Directed Allocation"
described above.
Allocations to the Investment Funds
A contribution allocated to an Investment Fund purchases Accumulation Units in
that Investment Fund based on the Accumulation Unit Value for that Investment
Fund computed on the Transaction Date.
Allocations to the Guaranteed Period Account
Contributions allocated to the Guaranteed Period Account will have the
Guaranteed Rate for the specified Guarantee Period offered on the Transaction
Date.
FREE LOOK PERIOD
You have the right to examine the Rollover IRA Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You cancel it
by sending it to our Processing Office. The free look is extended if your state
requires a refund period of longer than 10 days.
Your refund will equal the Annuity Account Value reflecting any investment gain
or loss, and any positive or negative market value adjustment, through the date
we receive your Certificate at our Processing Office. Some states or Federal
income tax regulations may require that we calculate the refund differently. In
those states that require that we
24
<PAGE>
calculate the refund differently, we may require that any portion of your
initial contribution that you request to have allocated to the Investment
Funds, be allocated to the Money Market Fund until the end of the free look
period.
If the IRA Assured Payment Option or IRA APO Plus is elected in the application
for the Certificate, your refund will include any amount applied under the Life
Contingent Annuity. See "IRA Assured Payment Option," "Life Contingent Annuity"
in Part 6.
We follow these same procedures if you change your mind before a Certificate
has been issued, but after a contribution has been made. See "Part 9: Tax
Aspects of the Certificates" for possible consequences of canceling your
Certificate during the free look period.
If you cancel your Certificate during the free look period, we may require that
you wait six months before you may apply for a Certificate with us again.
ANNUITY ACCOUNT VALUE
The Annuity Account Value is the sum of the Annuity Account Values in the
Investment Funds and the Guaranteed Period Account.
Annuity Account Value in Investment Funds
The Annuity Account Value in an Investment Fund on any Business Day is equal to
the number of Accumulation Units in that Investment Fund times the Accumulation
Unit Value for the Investment Fund for that date. The number of Accumulation
Units in an Investment Fund at any time is equal to the sum of Accumulation
Units purchased by contributions and transfers less the sum of Accumulation
Units redeemed for withdrawals, transfers or deductions for charges.
The number of Accumulation Units purchased or sold in any Investment Fund
equals the dollar amount of the transaction divided by the Accumulation Unit
Value for that Investment Fund for the applicable Transaction Date.
The number of Accumulation Units will not vary because of any later change in
the Accumulation Unit Value. The Accumulation Unit Value varies with the
investment performance of the correspond-ing Portfolios of the Trust, which in
turn reflects the investment income and realized and unrealized capital gains
and losses of the Portfolios, as well as the Trust fees and expenses. The
Accumulation Unit Value is also stated after deduction of the Separate Account
asset charges relating to the Certificates. A description of the computation of
the Accumulation Unit Value is found in the SAI.
Annuity Account Value in Guaranteed Period
Account
The Annuity Account Value in the Guaranteed Period Account on any Business Day
will be the sum of the present value of the Maturity Value in each Guarantee
Period, using the Guaranteed Rate in effect for new allocations to such
Guarantee Period on such date. (This is equivalent to the Guaranteed Period
Amount increased or decreased by the full market value adjustment.) The Annuity
Account Value, therefore, may be higher or lower than the contributions (less
withdrawals) accumulated at the Guaranteed Rate. At the Expiration Date the
Annuity Account Value in the Guaranteed Period Account will equal the Maturity
Value. While the IRA Assured Payment Option or IRA APO Plus is in effect, the
Annuity Account Value will include any amount in the Modal Payment Portion of
the Guaranteed Period Account. However, amounts held in the Modal Payment
Portion of the Guaranteed Period Account are not subject to a market value
adjustment. See "Part 4: The Guaranteed Period Account."
TRANSFERS AMONG INVESTMENT OPTIONS
At any time prior to the Annuity Commencement Date, you may transfer all or
portions of your Annuity Account Value among the Investment Options, subject to
the following restrictions.
o Transfers are permitted to or from a Guarantee Period once per quarter
during each Contract Year. Such transfers may be made at any time
during each quarter.
o Transfers out of a Guarantee Period other than at the Expiration Date
will result in a market value adjustment. See "Part 4: The Guaranteed
Period Account."
o Transfers to Guarantee Periods are subject to the restrictions set
forth under "Guarantee Periods and Expiration Dates" in Part 4 and
are limited based on your age. See "Allocation of Contributions"
above.
Transfer requests must be made directly to our Processing Office. Your request
for a transfer should specify your Certificate number, the amounts or
percentages to be transferred and the Investment Options to and from which the
amounts are to be transferred. Your transfer request may be in writing or by
telephone.
For telephone transfer requests, procedures have been established by Equitable
Life that are considered to be reasonable and are designed to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting on
telephone instructions and providing written confir-
25
<PAGE>
mation. In light of the procedures established, Equitable Life will not be
liable for following telephone instructions that it reasonably believes to be
genuine.
We may restrict, in our sole discretion, the use of an agent acting under a
power of attorney, such as a market timer, on behalf of more than one
Certificate Owner to effect transfers. Any agreements to use market timing
services to effect transfers are subject to our rules then in effect and must
be on a form satisfactory to us.
A transfer request will be effective on the Transaction Date and the transfer
to or from Investment Funds will be made at the Accumulation Unit Value next
computed after the Transaction Date. All transfers will be confirmed in
writing.
DOLLAR COST AVERAGING
If you have at least $5,000 of Annuity Account Value in the Money Market Fund,
you may choose to have a specified dollar amount transferred from the Money
Market Fund to other Investment Funds on a monthly basis. The main objective of
dollar cost averaging is to attempt to shield your investment from short term
price fluctuations. Since the same dollar amount is transferred to other
Investment Funds each month, more Accumulation Units are purchased in an
Investment Fund if the value per Accumulation Unit is low and fewer
Accumulation Units are purchased if the value per Accumulation Unit is high.
Therefore, a lower average value per Accumulation Unit may be achieved over the
long term. This plan of investing allows you to take advantage of market
fluctuations but does not assure a profit or protect against a loss in
declining markets.
The dollar cost averaging option may be elected at the time you apply for the
Certificate or at a later date. The minimum amount that may be transferred each
month is $250. The maximum amount which may be transferred is equal to the
Annuity Account Value in the Money Market Fund at the time the option is
elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. If, on any transfer date, the Annuity Account Value in the Money Market
Fund is equal to or less than the amount you have elected to have transferred,
the entire amount will be transferred and the dollar cost averaging option will
end. You may change the transfer amount once each Contract Year, or cancel this
option by sending us satisfactory notice to our Processing Office at least
seven calendar days before the next transfer date.
DEATH BENEFIT
Generally, upon receipt of proof satisfactory to us of your death prior to the
Annuity Commencement Date, we will pay the death benefit to the beneficiary
named in your Certificate. You designate the beneficiary at the time you apply
for the Certificate. While the Certificate is in effect, you may change your
beneficiary by writing to our Processing Office. The change will be effective
on the date the written submission was signed. The death benefit payable will
be determined as of the date we receive such proof of death and any required
instructions as to the method of payment.
The death benefit is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the GMDB defined below; and
(2) the death benefit provided with respect to the Guaranteed Period
Account. See "Part 4: The Guaranteed Period Account."
There are two plans available under the Certificates for providing guaranteed
benefits, a Combined GMDB/GMIB Benefit (available for Annuitant issue ages 20
through 75), and a GMDB Only Benefit, which has a lower charge. The GMDB and
the GMIB are discussed below.
For Annuitant issue ages 20 through 75, you must elect either the Combined
GMDB/GMIB Benefit or the GMDB Only Benefit in the application. Once elected,
the plan may not be changed. For Annuitant issue ages 76 through 78, for
Certificates issued in New York and in states where the GMIB is not currently
available, the GMDB Only Benefit will apply.
For the specific charges, see "Part 7: Deductions and Charges."
GMDB
Applicable to Certificates issued in all states except New York
The GMDB is determined daily. On the Contract Date, the GMDB is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the GMDB is equal to (a) the GMDB determined on the immediately
preceding Business Day, plus (b) any subsequent contributions and transfers
into the Investment Funds, less (c) any transfers and withdrawals from such
Funds. In addition, interest (see below) is credited to and becomes part of the
GMDB on each Processing Date.
o 6% to Age 80 Benefit --interest will be credited at the effective annual
GMDB interest rate of 6% (3% for amounts in the Money Market Fund)
through age 80, and 0% thereafter. Contributions, transfers and
withdrawals during the Contract Year will be taken into account.
26
<PAGE>
Applicable to Certificates issued in New York for Annuitant issue ages 20
through 78
The GMDB is determined daily. On the Contract Date, the GMDB is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the GMDB is equal to (a) the GMDB calculated on the immediately
preceding Business Day, plus (b) any subsequent contributions and transfers
into the Investment Funds, less (c) any transfers and withdrawals from such
Funds. Additionally, on each Processing Date the GMDB is reset at the greater
of the current GMDB and the current Annuity Account Value in the Investment
Funds, not to exceed a cap as described below. The cap does not apply on the
seventh Processing Date. This cap is equal to (a) the portion of the initial
contribution allocated to the Investment Funds, plus (b) any subsequent
contributions and transfers into the Investment Funds, less (c) any transfers
and withdrawals from such Funds, plus (d) interest (see below) that is credited
on each Processing Date, plus (e) any amount by which the GMDB is increased
because the cap did not apply on the seventh Processing Date.
o 6% to Age 80 Cap --interest will be credited at the effective annual GMDB
interest rate of 6% (3% for amounts in the Money Market Fund) through age
80, and 0% thereafter.
See Appendix II for an example of the calculation of the GMDB.
How Withdrawals and Transfers Affect the GMDB
Withdrawals and transfers out of the Investment Funds will generally cause a
reduction in the GMDB on a dollar-for-dollar basis. However, if on any
Transaction Date, (i) the GMDB exceeds the Annuity Account Value and (ii) the
sum of withdrawals and transfers out of the Investment Funds is greater than 6%
of the beginning of year GMDB, the GMDB will be reduced on a pro rata basis on
the Transaction Date. The amount of the reduction will be determined by
dividing the amount of the withdrawal by the Annuity Account Value on the
Transaction Date and multiplying this percentage by the current GMDB.
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your GMDB.
For example, assuming a beginning of year GMDB of $100,000 and a withdrawal of
$5,000, which represents 5% of the beginning of year GMDB ($5,000/$100,0000),
such withdrawal would cause the current GMDB to be reduced by $5,000. If a
withdrawal in the amount of $10,000, which represents 10% of the beginning of
year GMDB ($10,000/ $100,000) were to be made, assuming a current Annuity
Account Value of $50,000 the current GMDB would be reduced by 20%
($10,000/$50,000), or $20,000 ($100,000 x .20).
How Payment is Made
We will pay the death benefit to the beneficiary in the form of the income
annuity option you have chosen under your Certificate. If no income annuity
option has been chosen at the time of your death, the beneficiary will receive
the death benefit in a lump sum. However, subject to Equitable Life's rules
then in effect and any other applicable requirements under the Code, the
beneficiary may elect to apply the death benefit amount to one or more income
annuity options offered by Equitable Life. See "Income Annuity Options" in Part
6.
If you elect to have your spouse be both the sole primary beneficiary and the
successor Annuitant/ Certificate Owner, then no death benefit is payable until
your surviving spouse's death.
On the Processing Date following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of the Certificate
and is in effect at your death, the GMDB will be reset at the greater of the
current GMDB and the current Annuity Account Value in the Investment Funds. The
GMDB interest rate will subsequently be credited based on the age (as of the
Processing Date) of the successor Annuitant/Certificate Owner. For such
Certificates, if the Combined GMDB/GMIB Benefit was elected, the GMIB
(discussed below) will continue to be available on Contract Date anniversaries
seven and later based on the Contract Date, provided the GMIB is exercised as
specified under GMIB below, based on the age of the successor Annuitant/
Certificate Owner.
GMIB
The GMIB (available under the Combined GMDB/ GMIB Benefit) may not currently be
available in your state. When it becomes available it will be added to your
Certificate if you then elect the Combined GMDB/GMIB Benefit. State
availability information may be obtained from your registered representative.
When you elect the IRA Assured Payment Option (discussed in Part 6), the GMIB
provides a minimum amount of guaranteed lifetime income under such option. On
the Transaction Date the amount of the periodic lifetime income to be provided
will be based on the greater of (i) the Annuity Account Value in the Investment
Funds and (ii) an amount equal to the GMDB described above, reduced by any
remaining
27
<PAGE>
withdrawal charges; each divided by "guaranteed maximum annuity purchase rates"
under the Certificate. The guaranteed maximum annuity purchase rates are based
on (i) interest at 2.5% if the GMIB is exercised within 30 days following a
Contract Date anniversary in years 7 through 9 and at 3.0% if exercised within
30 days following the 10th or later Contract Date anniversary and (ii)
mortality based on the 1983 Individual Annuity Mortality Table "a" projected
with modified Scale G. The mortality table used in determining such annuity
purchase rates assumes that mortality will improve in the future and is more
conservative than the basis underlying current annuity purchase rates. Your
Annuity Account Value in the Investment Funds will depend on the performance of
such Funds. The amount equal to the GMDB (as discussed above) does not have an
Annuity Account Value or a Cash Value and is used solely for purposes of
calculating the GMIB.
If you have any Annuity Account Value in the Guaranteed Period Account as of
the Transaction Date that you exercise the GMIB, such Annuity Account Value
will also be applied (at current annuity purchase rates) toward providing
payments under the IRA Assured Payment Option. Such Annuity Account Value will
increase the payments provided by the GMIB. A market value adjustment may
apply.
When you exercise the GMIB, we automatically determine whether the application
of your Annuity Account Value in the Investment Funds at current purchase rates
under the IRA Assured Payment Option (with a fixed period as specified below)
would produce higher lifetime income, and if so, the higher income will be
provided.
In addition, you can elect any of our income annuity options. See "Income
Annuity Options" in Part 6.
The GMIB applies only if your election of the IRA Assured Payment Option meets
the following conditions:
o The IRA Assured Payment Option is elected within 30 days following the
7th or later Contract Date anniversary; provided it is not elected
earlier than your age 60, nor later than age 83.
o The fixed period you select is as indicated below, based on your age at
the time of election and the type of payments selected:
LEVEL PAYMENTS
--------------
AGE FIXED PERIOD
--- ------------
60 through 75 10 years
76 through 78 85 less your age
79 through 83 7 years
INCREASING PAYMENTS
-------------------
AGE FIXED PERIOD
--- ------------
60 through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
o Payments start one payment mode after the IRA Assured Payment Option
goes into effect.
Each year on your Contract Date anniversary, if you are eligible to exercise
the GMIB, we will send you a notice of how much income could be provided under
such option on the Contract Date anniversary. You may then notify us within 30
days following the Contract Date anniversary if you want to exercise the GMIB
by submitting the proper form. The income to be provided under the IRA Assured
Payment Option will be determined on the Transaction Date that we receive your
request and, therefore, may differ from the notice. It will be based on the
GMIB as of such Transaction Date.
The GMDB, which relates to the Investment Funds, will no longer be in effect if
you elect the IRA Assured Payment Option. If you subsequently terminate the IRA
Assured Payment Option and have your Certificate operate under the Rollover IRA
rules, then the GMDB will go back into effect based on your Annuity Account
Value in the Investment Funds as of the Transaction Date that the Rollover IRA
goes into effect.
See Appendix III for examples on the GMIB.
Alternate Combined GMDB/GMIB Benefit available for issue ages 20 through 65
- --------------------------------------------------------------------------
In addition to a Combined GMDB/GMIB benefit where GMDB interest is credited
through age 80 (6% to Age 80 Benefit), there is a lower cost benefit where GMDB
interest is credited through age 70 (6% to Age 70 Benefit). If you wish to
elect this alternate benefit, you must do so in the application; otherwise the
6% to Age 80 Benefit will apply. Once elected, the benefit may not be changed.
This alternate benefit is not available for election if you elect IRA APO Plus
(discussed in Part 6) in the application.
CASH VALUE
The Cash Value under the Certificate fluctuates daily with the investment
performance of the Invest-
28
<PAGE>
ment Funds you have selected and reflects any upward or downward market value
adjustment. See "Part 4: The Guaranteed Period Account." We do not guarantee
any minimum Cash Value except for amounts in a Guarantee Period held to the
Expiration Date. On any date before the Annuity Commencement Date while the
Certificate is in effect, the Cash Value is equal to the Annuity Account
Value, less any withdrawal charge. The free corridor amount will not apply
when calculating the withdrawal charge applicable upon a surrender. See "Part
7: Deductions and Charges."
SURRENDERING THE CERTIFICATES TO
RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while you
are living and before the Annuity Commencement Date.
For a surrender to be effective, we must receive your written request and the
Certificate at our Processing Office. The Cash Value will be determined on the
Transaction Date. All benefits under the Certificate will be terminated as of
that date.
You may receive the Cash Value in a single sum payment or apply it under one or
more of the income annuity options. See "Income Annuity Options" in Part 6. We
will usually pay the Cash Value within seven calendar days, but we may delay
payment as described in "When Payments are Made" below.
For the tax consequences of surrenders, see "Part 9: Tax Aspects of the
Certificates."
WHEN PAYMENTS ARE MADE
Under applicable law, application of proceeds from the Investment Funds to a
variable annuity, payment of a death benefit from the Investment Funds, payment
of any portion of the Annuity Account Value (less any applicable withdrawal
charge) from the Investment Funds, and, upon surrender, payment of the Cash
Value from the Investment Funds will be made within seven calendar days after
the Transaction Date. Payments or application of proceeds from the Investment
Funds can be deferred for any period during which (1) the New York Stock
Exchange is closed or trading on it is restricted, (2) sales of securities or
determination of the fair value of an Investment Fund's assets is not
reasonably practicable because of an emergency, or (3) the SEC, by order,
permits us to defer payment in order to protect persons with interest in the
Investment Funds.
We can defer payment of any portion of the Annuity Account Value in the
Guaranteed Period Account for up to six months while you are living. We may
also defer payments for any amount attributable to a contribution made in the
form of a check for a reasonable amount of time (not to exceed 15 days) to
permit the check to clear.
ASSIGNMENT
The Certificates are not assignable or transferrable except through surrender
to us. They may not be borrowed against or used as collateral for a loan or
other obligation.
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates, Equitable Distributors, Inc. (EDI), an
indirect wholly owned subsidiary of Equitable Life, has responsibility for
sales and marketing functions for the Certificates. EDI also serves as the
principal underwriter of the Separate Account under the 1940 Act. EDI is
registered with the SEC as a broker-dealer under the Exchange Act and is a
member of the National Association of Securities Dealers, Inc. EDI's principal
business address is 787 Seventh Avenue, New York, New York 10019.
The Certificates will be sold by registered representatives of EDI, as well as
by unaffiliated broker-dealers with which EDI has entered into selling
agreements. Broker-dealer sales compensation will generally not exceed six
percent of total contributions made under a Certificate. EDI may also receive
compensation and reimbursement for its marketing services under the terms of
its distribution agreement with Equitable Life. Broker-dealers receiving sales
compensation will generally pay a portion thereof to their registered
representatives as commissions related to sales of the Certificates. The
offering of the Certificates is intended to be continuous.
29
<PAGE>
- -------------------------------------------------------------------------------
PART 6: DISTRIBUTION METHODS UNDER THE CERTIFICATES
- -------------------------------------------------------------------------------
THE PROVISIONS DISCUSSED IN THIS PART 6 APPLY WHEN YOU ELECT THE IRA ASSURED
PAYMENT OPTION OR IRA APO PLUS IN THE APPLICATION OR AS A DISTRIBUTION OPTION
AT A LATER DATE, AS WELL AS TO OTHER DISTRIBUTION METHODS UNDER YOUR
CERTIFICATE.
The Rollover IRA Certificates offer several distribution methods specifically
designed to provide retirement income. The Choice Income Plan which includes
the IRA Assured Payment Option and IRA APO Plus, may be elected in the
application or as a distribution option at a later date. In addition, the
Certificates provide for Lump Sum Withdrawals, Substantially Equal Payment
Withdrawals, Systematic Withdrawals and Minimum Distribution Withdrawals. Fixed
and variable income annuity options are also available for amounts to be
applied at the Annuity Commencement Date. The IRA Assured Payment Option and
IRA APO Plus may not be available in all states.
The Certificates are subject to the Code's minimum distribution requirements.
Generally, distributions from these Certificates must commence by April 1 of
the calendar year following the calendar year in which you attain age 70 1/2.
Subsequent distributions must be made by December 31st of each calendar year.
If you do not commence minimum distributions in the calendar year in which you
attain age 70 1/2, and wait until the three month period (January 1 to April 1)
in the next calendar year to commence minimum distributions, then you must take
two required minimum distributions in that calendar year. If the required
minimum distribution is not made, a penalty tax in an amount equal to 50% of
the difference between the amount required to be withdrawn and the amount
actually withdrawn may apply. See "Part 9: Tax Aspects of the Certificates" for
a discussion of various special rules concerning the minimum distribution
requirements.
For IRA retirement benefits subject to minimum distribution requirements, we
will send a form outlining the distribution options available before you reach
age 70 1/2 (if you have not annuitized before that time).
IRA ASSURED PAYMENT OPTION
The IRA Assured Payment Option is designed to provide you with guaranteed
payments for your life (SINGLE LIFE) or for the lifetime of you and a joint
Annuitant you designate (JOINT AND SURVIVOR) through a series of distributions
from the Annuity Account Value that are followed by Life Contingent Annuity
payments. Payments you receive during the fixed period are designed to pay out
the entire Annuity Account Value by the end of the fixed period and to meet or
exceed minimum distribution requirements, if applicable. See "Minimum
Distribution Withdrawals" below. The fixed period ends with the distribution of
the Maturity Value of the last Guarantee Period, or distribution of the final
amount in the Modal Payment Portion of the Guaranteed Period Account. The fixed
period may also be referred to as the "liquidity period" as during this period,
you have access to the Cash Value through Lump Sum Withdrawals or surrender of
the Certificate, with lifetime income continuing in reduced amounts.
After the fixed period, the payments are made under the Life Contingent Annuity
described below.
You may elect the IRA Assured Payment Option at any time if your initial
contribution or Annuity Account Value is at least $10,000 at the time of
election, by submitting a written request satisfactory to us. The IRA Assured
Payment Option may be elected at ages 59 1/2 through 83. If you are over age 70
1/2, the availability of this option may be restricted under certain limited
circumstances. See "Tax Considerations for the IRA Assured Payment Option and
IRA APO Plus" in Part 9. The IRA Assured Payment Option with level payments
(described below) may be elected at ages as young as 45. However, there are tax
considerations that should be taken into account before electing level payments
under the IRA Assured Payment Option if you are under age 59 1/2. See "Penalty
Tax on Early Distributions" in Part 9. The IRA Assured Payment Option with
increasing payments (described below) may be elected at ages as young 53 1/2
provided payments do not start before you attain age 59 1/2.
Once the IRA Assured Payment Option is elected, all amounts currently held
under your Rollover IRA must be allocated to the Guarantee Periods, the Modal
Payment Portion of the Guaranteed Period Account, if applicable, and the Life
Contingent Annuity. See "Allocation of Contributions or Annuity Account Value"
below. Subsequent contributions may be made according to the rules set forth
below and in "Tax-Free Transfers and Rollovers" in Part 9.
Subsequent Contributions under the IRA Assured
Payment Option
Subsequent "regular" IRA contributions may no longer be made for the taxable
year in which you attain age 70 1/2 and thereafter. Subsequent rollover and
direct transfer contributions may be made at any time until the earlier of (i)
when you attain age 84 and (ii) when the Certificate is within seven years of
the end of the fixed period while the IRA Assured Payment Option is in effect.
However, any amount
30
<PAGE>
contributed after you attain age 70 1/2 must be net of your required minimum
distribution for the year in which the rollover or direct transfer contribution
is made.
Payments
You may elect to receive monthly, quarterly or annual payments. However, all
payments are made on the 15th of the month. Payments to be made on an
Expiration Date during the fixed period represent distributions of the
Maturity Values of serially maturing Guarantee Periods on their Expiration
Dates. Payments to be made monthly, quarterly or annually on dates other than
an Expiration Date represent distributions from amounts in the Modal Payment
Portion of the Guaranteed Period Account. See "Part 4: The Guaranteed Period
Account."
A $2.50 charge will be deducted from each payment made on a monthly or
quarterly basis under the IRA Assured Payment Option.
You have a choice of receiving level payments during the fixed period and then
under the Life Contingent Annuity. Or, you may elect to receive payments that
increase. During the fixed period, payments are designed to increase by 10%
every three years on each third anniversary of the payment start date. After
the end of the fixed period, your first payment under the Life Contingent
Annuity will be 10% greater than the final payment made under the fixed period.
Thereafter, payments will increase annually on each anniversary of the payment
start date under the Life Contingent Annuity based on the annual increase, if
any, in the Consumer Price Index, but in no event greater than 3% per year.
Payments will generally start one payment mode from the date the IRA Assured
Payment Option goes into effect. Or you may choose to defer the date payments
will start generally for a period of up to 60 months. Deferral of the payment
start date permits you to lock in rates at a time when you may consider current
rates to be high, while permitting you to delay receiving payments if you have
no immediate need to receive income under your Certificate. In making this
decision, you should consider that the amount of income you purchase is based
on the rates applicable on the Transaction Date, so if rates rise during the
interim, your payments may be less than they would have been if you had elected
the IRA Assured Payment Option at a later date. Deferral of the payment start
date is not available above age 80. Before you elect to defer the date your
payments will start, you should consider the consequences of this decision on
the requirement under the Code that you take minimum distributions each
calendar year with respect to the value of your IRA. See "Required Minimum
Distributions" in Part 9. The ability to defer the payment start date may not
be available in all states. Also, if amounts are applied to the IRA Assured
Payment Option as a result of the GMIB (discussed in Part 5), deferral of the
payment start date is not permitted.
Required minimum distributions will be calculated based on the Annuity Account
Value in each Guarantee Period and the deemed value of the Life Contingent
Annuity for tax purposes. If at any time your payment under the IRA Assured
Payment Option would be less than the minimum amount required to be distributed
under minimum distribution rules, we will notify you of the difference. You
will have the option to have an additional amount withdrawn under your
Certificate and such withdrawal will be treated as a Lump Sum Withdrawal;
however, no withdrawal charge will apply. An adjustment will be made to future
scheduled payments. Or, you may take the amount from other IRA funds you may
have. See "Lump Sum Withdrawals" below and "Required Minimum Distributions" in
Part 9.
See Appendix IV for an example of payments purchased under an IRA Assured
Payment Option.
Fixed Period
If you elect level payments, you may select a fixed period of not less than
seven years nor more than 15 years. The maximum fixed period available based on
your age at issue of the Certificate (or age at the time of election if the IRA
Assured Payment Option is elected after issue) is as follows:
AGE* MAXIMUM FIXED PERIOD
---- --------------------
45 through 70 15 years
71 through 78 85 less your age
79 through 83 7 years
The minimum and maximum fixed period will be reduced by each year you defer the
date payments will start.
If you elect increasing payments, you do not have a choice as to the fixed
period. Based on your age at issue of the Certificate (or age at the time of
election if the IRA Assured Payment Option is elected after issue), your fixed
period will be as follows:
AGE* FIXED PERIOD
---- ------------
59 1/2 through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
If you elect increasing payments and defer the date payments will start, your
fixed period will be as follows:
FIXED PERIOD BASED ON
DEFERRAL PERIOD
---------------------------
AGE* 1-36 37-60
MONTHS MONTHS
---- ------ ------
53 1/2 through 70 12 years 9 years
71 through 75 9 years 9 years
76 through 80 6 years 6 years
81 through 83 N/A N/A
* For joint and survivor, the fixed period is based on the age of the younger
Annuitant.
31
<PAGE>
If amounts are applied to the IRA Assured Payment Option as a result of the
GMIB, the fixed periods will be as discussed under "GMIB" in Part 5.
Allocation of Contributions or Annuity Account Value
If the IRA Assured Payment Option is elected in the application, then based on
the amount of your initial contribution, your age and sex (and the age and sex
of the joint Annuitant, if applicable), the mode of payment, the form of
payments and the fixed period you select, your entire contribution will be
allocated by us. A portion of the initial contribution will be allocated among
the Guarantee Periods and the Modal Payment Portion of the Guaranteed Period
Account, if applicable, to provide fixed period payments and a portion will be
applied under the Life Contingent Annuity in order to provide the payments for
life. For initial contributions of $500,000 or more, amounts allocated to the
Life Contingent Annuity may also be based on your under writing classification.
In general, underwriting classification is based on your medical history and
smoker status and may result in a smaller allocation of amounts to the Life
Contingent Annuity if your classification is lower than our standard class. If
the IRA Assured Payment Option is elected any time after issue of the Rollover
IRA Certificate or if you cancel IRA APO Plus (discussed below) and elect the
IRA Assured Payment Option, then based on your Annuity Account Value and the
information you provide as described above, your entire Annuity Account Value,
including any amounts currently invested in the Investment Funds, will be
allocated by us among the Guarantee Periods, the Modal Payment Portion of the
Guaranteed Period Account, if applicable, and applied under the Life Contingent
Annuity. While the IRA Assured Payment Option is in effect, no amounts may be
allocated to the Investment Funds. If amounts in the Guarantee Periods are
transferred, a market value adjustment may apply.
If you elect the IRA Assured Payment Option in the application and your initial
contribution will come from multiple sources, your application must also
indicate that contributions are to be allocated to the Money Market Fund under
the Rollover IRA described in Part 5. Election of the IRA Assured Payment
Option must include your instructions to apply your Annuity Account Value, on
the date the last such contribution is received, under the IRA Assured Payment
Option as described above.
Any subsequent contributions made while the IRA Assured Payment Option is in
effect must be allocated to the Guarantee Periods and applied to the Life
Contingent Annuity. We will determine the allocation of such contributions,
such that your payments will be increased and the fixed period and date that
payments are to start under the Life Contingent Annuity will remain the same.
Life Contingent Annuity
The Life Contingent Annuity provides lifetime payments starting after the end
of the fixed period. The portion of your contributions or Annuity Account Value
applied under the Life Contingent Annuity does not have a Cash Value or an
Annuity Account Value and, therefore, does not provide for transfers or
withdrawals. Once the fixed period has ended and payments have begun under the
Life Contingent Annuity, subsequent amounts may no longer be applied under the
Life Contingent Annuity.
THERE IS NO DEATH BENEFIT PROVIDED UNDER THE LIFE CONTINGENT ANNUITY AND
ANNUITY INCOME IS PAID ONLY IF YOU (OR A JOINT ANNUITANT) ARE LIVING AT THE
DATE ANNUITY BENEFITS BEGIN. BENEFITS ARE ONLY PAID DURING YOUR LIFETIME AND,
IF APPLICABLE, THE LIFETIME OF A JOINT ANNUITANT. CONSEQUENTLY, YOU SHOULD
CONSIDER THE POSSIBILITY THAT NO AMOUNTS WILL BE PAID UNDER THE LIFE CONTINGENT
ANNUITY IF YOU (OR A JOINT ANNUITANT) DO NOT SURVIVE TO THE DATE PAYMENTS ARE
TO START UNDER SUCH ANNUITY.
You may elect to have the Life Contingent Annuity provide level or increasing
payments on a Single Life or a Joint and 100% to Survivor basis. If you elect
increasing payments, the payments will increase annually based on the increase,
if any, in the Consumer Price Index, but in no event greater than 3% per year.
The Life Contingent Annuity may also provide payments on a Joint and one-half
to Survivor or a Joint and two-thirds to Survivor basis.
Payments under the Life Contingent Annuity will be made to you during your
lifetime (and the lifetime of the joint Annuitant, if applicable) on the same
payment mode and date as the payments that were made during the fixed period.
Election Restrictions under Joint and
Survivor
Election of the IRA Assured Payment Option with a Joint and Survivor form of
the Life Contingent Annuity is subject to the following restrictions: (i) the
joint Annuitant must be your spouse; (ii) neither you nor the joint Annuitant
can be over age 83; (iii) under level payments if you elect the Joint and 100%
to Survivor form, only the longest fixed period is permitted; and (iv) the
fixed period may be limited by the minimum distribution rules. See "Required
Minimum Distributions" in Part 9.
Withdrawals under the IRA Assured
Payment Option
While the IRA Assured Payment Option is in effect, if you take a Lump Sum
Withdrawal as described under "Lump Sum Withdrawals" below (or if a Lump Sum
Withdrawal is made to satisfy minimum distribution requirements under the
Certificate), such
32
<PAGE>
withdrawals will be taken from all remaining Guarantee Periods to which your
Annuity Account Value is allocated and the Modal Payment Portion of the
Guaranteed Period Account, if applicable, such that the amount of the payments
and the length of the fixed period will be reduced, and the date payments are
to start under the Life Contingent Annuity will be accelerated. Additional
amounts above the amount of the requested withdrawal will be withdrawn from the
Guaranteed Period Account and applied to the Life Contingent Annuity to the
extent necessary to achieve this result. As a result, the same pattern of
payments will continue in reduced amounts for your life, and if applicable, the
life of your joint Annuitant. If you have elected increasing payments, the
first reduction in your payments will take place no later than the date of the
next planned increase.
Substantially Equal Payment Withdrawals, Systematic Withdrawals and Minimum
Distribution Withdrawals may not be elected while the IRA Assured Payment
Option is in effect. See "Substantially Equal Payment Withdrawals," "Systematic
Withdrawals" and "Minimum Distribution Withdrawals," below.
Death Benefit
Once you have elected the IRA Assured Payment Option, if a death benefit
becomes payable during the fixed period we will pay the death benefit amount,
as described under "Death Benefit" in Part 5, to the designated beneficiary.
Unless you have elected a Joint and Survivor form under the Life Contingent
Annuity, no payment will be made under the Life Contingent Annuity. The death
benefit payable relates only to the Guarantee Periods under the Certificate; a
death benefit is never payable under the Life Contingent Annuity.
If you have elected a Joint and Survivor form of annuity under the Life
Contingent Annuity, payments will be made to you or the joint Annuitant, if
living on the date payments are to start. The designated beneficiary and the
joint Annuitant must be your spouse.
Termination of the IRA Assured
Payment Option
The IRA Assured Payment Option will be terminated if: (i) you cancel such
option at any time by sending a written request satisfactory to us; (ii) you
submit a subsequent contribution and you do not want it applied under the IRA
Assured Payment Option; (iii) you request a transfer of your Annuity Account
Value as described under "Transfers Among Investment Options" in Part 5, while
the IRA Assured Payment Option is in effect; or (iv) you request a change in
the date the payments are to start under the Life Contingent Annuity. Once the
IRA Assured Payment Option is terminated, in order to receive distributions
from your Annuity Account Value you must utilize the withdrawal options
described under "Withdrawal Options" below. Although the Life Contingent
Annuity will continue in effect and payments will be made if you or your joint
Annuitant, if applicable, are living on the date payments are to start,
additional Life Contingent Annuity payments may not be purchased. You may elect
to start the IRA Assured Payment Option again by submitting a written request
satisfactory to us, but no sooner than three years after the Option was
terminated. If you elected the IRA Assured Payment Option at age 70 1/2 or
older and subsequently terminate this Option, required minimum distributions
must continue to be made with respect to your Certificate.
Before terminating the IRA Assured Payment Option, you should consider the
implications this may have under the minimum distribution requirements. See
"Tax Considerations for the IRA Assured Payment Option and IRA APO Plus" in
Part 9.
Income Annuity Options and Surrendering
the Certificates
If you elect an annuity benefit as described under "Income Annuity Options"
below, or surrender the Certificate for its Cash Value as described under
"Surrendering the Certificates to Receive the Cash Value" in Part 5, once we
receive your returned Certificate, your Certificate will be returned to you
with a notation that the Life Contingent Annuity is still in effect.
Thereafter, no subsequent contributions will be accepted under the Certificate
and no amounts may be applied under the Life Contingent Annuity.
Withdrawal Charge
While the IRA Assured Payment Option is in effect, withdrawal charges will not
apply to the level or increasing payments made during the fixed period. Except
as necessary to meet minimum distribution requirements under the Certificate,
Lump Sum Withdrawals will be subject to a withdrawal charge and will have a 10%
free corridor available. Upon termination of the IRA Assured Payment Option,
the free corridor will apply as described under "Withdrawal Charge" in Part 7.
IRA APO PLUS
IRA APO Plus is a variation of the IRA Assured Payment Option. IRA APO Plus is
available at ages 59 1/2 through 83. It may also be elected at ages as young as
53 1/2 provided payments under IRA APO Plus do not start before you attain age
59 1/2. Except as indicated below, all provisions of the IRA Assured Payment
Option apply to IRA APO Plus. IRA APO
33
<PAGE>
Plus enables you to keep a portion of your Annuity Account Value in the
Investment Funds while periodically converting such Annuity Account Value to
increase the guaranteed lifetime income under the IRA Assured Payment Option.
When you elect IRA APO Plus, a portion of your initial contribution or Annuity
Account Value as applicable is allocated by us to the IRA Assured Payment
Option to provide a minimum guaranteed lifetime income through allocation of
amounts to the Guarantee Periods and the Modal Payment Portion of the
Guaranteed Period Account, if applicable, and application of amounts to the
Life Contingent Annuity. The remaining Annuity Account Value remains in the
Investment Funds. Periodically during the fixed period (as described below), a
portion of the remaining Annuity Account Value in the Investment Funds is
applied to increase the guaranteed level payments under the IRA Assured Payment
Option.
IRA APO Plus allows you to remain invested in the Investment Funds for longer
than would be possible if you applied your entire Annuity Account Value all at
once to the IRA Assured Payment Option or to an income annuity option, while
utilizing an "exit strategy" to provide retirement income.
If IRA APO Plus is elected in the application, we may require that the portion
of the initial contribution to be allocated to the Investment Funds, be
allocated to the Money Market Fund until the end of the free look period.
See "Free Look Period" in Part 5.
The fixed period under IRA APO Plus will be based on your age (or the age of
the younger Annuitant if Joint and Survivor is elected) at issue of the
Certificate (or age at the time of election if IRA APO Plus is elected after
issue) and will be the same as the periods indicated for increasing payments
under "IRA Assured Payment Option" above.
You may elect to defer the payment start date as described in "Payments" under
"IRA Assured Payment Option," above. The fixed period will also be as indicated
for deferral of the payment start date for increasing payments under the IRA
Assured Payment Option.
You elect IRA APO Plus in the application or at a later date by submitting the
proper form. IRA APO Plus may not be elected if the IRA Assured Payment Option
is already in effect.
The amount applied under IRA APO Plus is either the initial contribution if IRA
APO Plus is elected at issue of the Certificate, or the Annuity Account Value
if IRA APO Plus is elected after issue of the Certificate. Out of a portion of
the amount applied, level payments are provided under the IRA Assured Payment
Option equal to the initial payment that would have been provided on the
Transaction Date by the allocation of the entire amount to increasing payments
as described in "Payments" under "IRA Assured Payment Option," above. The
difference between the amount required for level payments and the amount
required for increasing payments is allocated to the Investment Funds in
accordance with your instructions. If you have Annuity Account Value in the
Guaranteed Period Account at the time this option is elected, a market value
adjustment may apply as a result of such amounts being transferred to effect
the IRA Assured Payment Option.
On the third February 15th following the date the first payment is made (if
payments are to be made on February 15th, the date of the first payment will be
counted as the first February 15th) during the fixed period while you are
living, a portion of the Annuity Account Value in the Investment Funds is taken
pro rata from the Annuity Account Value in each Investment Fund and is applied
to increase the level payments under the IRA Assured Payment Option. If a
deferral period of three years or more is elected, a portion of the Annuity
Account Value in the Investment Funds will be applied on the February 15th
prior to the date the first payment is made, to increase the initial level
payments. If payments are to be made on February 15th, the date of the first
payment will be counted as the first February 15th.
The amount applied is the amount which provides for level payments equal to the
initial payment that would have been provided by the allocation of the entire
Annuity Account Value to increasing payments, as described in the preceding
paragraph. This process is repeated each third year during the fixed period.
The first increased payment will be reflected in the payment made following
three full years of payments and then every three years thereafter. On the
Transaction Date immediately following the last payment during the fixed
period, the remaining Annuity Account Value in the Investment Funds is first
applied to the Life Contingent Annuity to change the level payments previously
purchased to increasing payments. If there is any Annuity Account Value
remaining after the increasing payments are purchased, this balance is applied
to the Life Contingent Annuity to further increase such increasing payments. If
the Annuity Account Value in the Investment Funds is insufficient to purchase
the increasing payments, then the level payments previously purchased will be
increased to the extent possible.
While IRA APO Plus provides a minimum guaranteed lifetime payment under the IRA
Assured Payment Option, the total amount of income that can be provided over
time will depend on the investment
34
<PAGE>
performance of the Investment Funds in which you have Annuity Account Value, as
well as the current Guaranteed Rates and the cost of the Life Contingent
Annuity, which may vary. Consequently, the aggregate amount of guaranteed
lifetime income under IRA APO Plus may be more or less than the amount that
could have been purchased by application at the outset of the entire initial
contribution or Annuity Account Value to the IRA Assured Payment Option.
See Appendix IV for an example of the payments purchased under IRA Assured
Payment Option and IRA APO Plus.
In calculating your required minimum distributions your Annuity Account Value
in the Investment Funds, the Annuity Account Value in each Guarantee Period,
any amount in the Modal Payment Portion of the Guaranteed Period Account, and
the deemed value of the Life Contingent Annuity for tax purposes will be taken
into account as described in "Payments" under "IRA Assured Payment Option,"
above. Also see "Required Minimum Distributions" in Part 9.
Allocation of Subsequent Contributions under IRA APO Plus
Any subsequent contributions you make may only be allocated to the Investment
Funds, where it is later applied by us under the IRA Assured Payment Option.
Subsequent contributions will be allocated among the Investment Funds according
to your allocation percentages. Allocation percentages can be changed at any
time by writing to our Processing Office. Subsequent contributions may no
longer be made after the end of the fixed period.
Transfers Among Investment Options under IRA APO Plus
While IRA APO Plus is in effect, you may transfer all or a portion of your
Annuity Account Value in the Investment Funds, among the Investment Funds in
any way you choose. However, you may not transfer Annuity Account Value from
the Investment Funds to the Guaranteed Period Account.
Withdrawals under IRA APO Plus
While IRA APO Plus is in effect, if you take a Lump Sum Withdrawal as described
under "Lump Sum Withdrawals" below (or if a Lump Sum Withdrawal is made to
satisfy minimum distribution requirements under the Certificate), such
withdrawals will be taken on a pro rata basis from your Annuity Account Value
in the Investment Funds unless you specify otherwise. If there is insufficient
value in the Investment Funds the excess will be taken from the Guarantee
Periods and the Modal Payment Portion of the Guaranteed Period Account, if
applicable, as described under "Withdrawals under the IRA Assured Payment
Option" above.
A Lump Sum Withdrawal taken to satisfy minimum distribution requirements under
the Certificate will not be subject to a withdrawal charge.
Death Benefit
Once you have elected IRA APO Plus, if a death benefit becomes payable during
the fixed period we will pay the death benefit amount as described under "Death
Benefit" in Part 5, to the designated beneficiary. Unless you have elected
Joint and Survivor under the Life Contingent Annuity, no payment will be made
under the Life Contingent Annuity. The death benefit relates only to the
Investment Funds and the Guarantee Periods under the Certificate; a death
benefit is never payable under the Life Contingent Annuity.
Termination of IRA APO Plus
You may terminate IRA APO Plus at any time by submitting a request satisfactory
to us. In connection with the termination, you may either (i) elect to
terminate IRA APO Plus at any time and have your Certificate operate under the
Rollover IRA rules (see "Part 5: Provisions of the Certificates and Services We
Provide") or (ii) elect the IRA Assured Payment Option (GMIB, discussed in Part
5 may apply) with level or increasing payments. In the latter case your
remaining Annuity Account Value in the Investment Funds will be allocated to
the Guaranteed Period Account and applied under the Life Contingent Annuity. A
market value adjustment may apply for any amounts allocated from a Guarantee
Period. At least 45 days prior to the end of each three year period, we will
send you a quote indicating how much future income could be provided under the
IRA Assured Payment Option. The quote would be based on your current Annuity
Account Value, current Guaranteed Rates for the Guarantee Periods and current
purchase rates under the Life Contingent Annuity as of the date of the quote.
The actual amount of future income would depend on the rates in effect on the
Transaction Date.
WITHDRAWAL OPTIONS
The Rollover IRA is an annuity contract, even though you may elect to receive
your benefits in a non-annuity form. You may take withdrawals from your
Certificate before the Annuity Commencement Date and while you are alive.
Four withdrawal options are available: Lump Sum Withdrawals, Substantially
Equal Payment Withdrawals, Systematic Withdrawals and Minimum Distribution
Withdrawals. Withdrawals may result in withdrawal charges. See
35
<PAGE>
"Part 7: Deductions and Charges." Special withdrawal rules may apply under the
IRA Assured Payment Option and IRA APO Plus.
Amounts withdrawn from the Guaranteed Period Account, other than at the
Expiration Date, will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration
Date" in Part 4. Withdrawals may be taxable and subject to tax penalty. See
"Part 9: Tax Aspects of the Certificates."
As a deterrent to early withdrawal (generally prior to age 59 1/2) the Code
provides certain penalties. We may also be required to withhold income taxes
from the amount distributed. These rules are outlined in "Part 9: Tax Aspects
of the Certificates."
LUMP SUM WITHDRAWALS
You may take Lump Sum Withdrawals at any time subject to a minimum withdrawal
amount of $1,000. A request to withdraw more than 90% of the Cash Value as of
the Transaction Date will result in the termination of the Certificate and will
be treated as a surrender of the Certificate for its Cash Value. See
"Surrendering the Certificates to Receive the Cash Value," in Part 5.
To make a Lump Sum Withdrawal, you must submit a request satisfactory to us
which specifies the Investment Options from which the Lump Sum Withdrawal will
be taken. If we have received the information we require, the requested
withdrawal will become effective on the Transaction Date and proceeds will
usually be mailed within seven calendar days thereafter, but we may delay
payment as described in "When Payments Are Made" in Part 5. If we receive only
partially completed information, our Processing Office will contact you for
specific instructions before your request can be processed.
Lump Sum Withdrawals in excess of the 15% free corridor amount may be subject
to a withdrawal charge. While either the IRA Assured Payment Option or IRA APO
Plus is in effect, Lump Sum Withdrawals that exceed the 10% free corridor
amount may be subject to a withdrawal charge. See "Withdrawal Charge" in Part
7.
SUBSTANTIALLY EQUAL PAYMENT WITHDRAWALS
Substantially Equal Payment Withdrawals provide distributions from the Annuity
Account Value of the amounts necessary so that the 10% penalty tax, normally
applicable to distributions made prior to age 59 1/2, does not apply. See
"Penalty Tax on Early Distributions," in Part 9. Once distributions begin, they
should not be changed or stopped until the later of age 59 1/2 or five years
from the date of the first distribution. If you change or stop the
distributions or take a Lump Sum Withdrawal, you may be liable for the 10%
penalty tax that would have otherwise been due on all prior distributions made
under this option and for any interest thereon.
Substantially Equal Payment Withdrawals may be elected at any time if you are
below age 59 1/2. You can elect this option by submitting the proper form. You
select the day and the month when the first withdrawal will be made, but it may
not be sooner than 28 days after the issue of the Certificate. In no event may
you elect to receive the first payment in the same Contract Year in which a
Lump Sum Withdrawal was taken. We will calculate the amount of the distribution
under a method we select and payments will be made monthly, quarterly or
annually as you select. These payments will continue to be made until we
receive written notice from you to cancel this option. Such notice must be
received at our Processing Office at least seven calendar days prior to the
next scheduled withdrawal date. A Lump Sum Withdrawal taken while Substantially
Equal Payment Withdrawals are in effect will cancel such withdrawals. You may
elect to start receiving Substantially Equal Payment Withdrawals again, but in
no event can the payments start in the same Contract Year in which a Lump Sum
Withdrawal was taken. We will calculate a new distribution amount.
Unless you specify otherwise, Substantially Equal Payment Withdrawals will be
withdrawn on a pro rata basis from your Annuity Account Value in the Investment
Funds. If there is insufficient value or no value in the Investment Funds, any
additional amount of the withdrawal or the total amount of the withdrawal, as
applicable, will be withdrawn from the Guarantee Periods in order of the
earliest Expiration Date(s) first.
Substantially Equal Payment Withdrawals are not subject to a withdrawal charge.
SYSTEMATIC WITHDRAWALS
This option may be elected if you are age 59 1/2 to 70 1/2. Systematic
Withdrawals provide level percentage or level amount payouts. You may choose to
receive Systematic Withdrawals on a monthly, quarterly or annual frequency. You
select a dollar amount or percentage of the Annuity Account Value to be
withdrawn, subject to a maximum of 1.2% monthly, 3.6% quarterly and 15.0%
annually, but in no event may any payment be less than $250. If at the time a
Systematic Withdrawal is to be made, the withdrawal amount would be less than
$250, no payment will be made and your Systematic Withdrawal election will
terminate.
36
<PAGE>
You select the date of the month when the withdrawals will be made, but you may
not choose a date later than the 28th day of the month. If no date is selected,
withdrawals will be made on the same calendar day of the month as the Contract
Date. The commencement of payments under the Systematic Withdrawal option may
not be elected to start sooner than 28 days after issue of the Certificate.
You may elect Systematic Withdrawals at any time by completing the proper form
and sending it to our Processing Office. You may change the payment frequency
of your Systematic Withdrawals once each Contract Year or cancel this
withdrawal option at any time by sending notice in a form satisfactory to us.
The notice must be received at our Processing Office at least seven calendar
days prior to the next scheduled withdrawal date. You may also change the
amount or percentage of your Systematic Withdrawals once in each Contract Year.
However, you may not change the amount or percentage in any Contract Year where
you have previously taken another withdrawal under the Lump Sum Withdrawal
option described above.
Unless you specify otherwise, Systematic Withdrawals will be withdrawn on a pro
rata basis from your Annuity Account Value in the Investment Funds. If there is
insufficient value or no value in the Investment Funds, any additional amount
of the withdrawal required or the total amount of the withdrawal, as
applicable, will be withdrawn from the Guarantee Periods in order of the
earliest Expiration Date(s) first.
Systematic Withdrawals are not subject to a withdrawal charge, except to the
extent that, when added to a Lump Sum Withdrawal previously taken in the same
Contract Year, the Systematic Withdrawal exceeds the 15% free corridor amount.
See "Withdrawal Charge" in Part 7.
MINIMUM DISTRIBUTION WITHDRAWALS
Minimum Distribution Withdrawals provide distributions from the Annuity Account
Value of the amounts necessary to meet minimum distribution requirements set
forth in the Code.
This option may be elected in the year in which you attain age 70 1/2. You can
elect Minimum Distribution Withdrawals by submitting the proper election form.
The minimum amount we will pay out is $250.
You may elect Minimum Distribution Withdrawals for each Certificate you own,
subject to our rules then in effect. Currently, Minimum Distribution
Withdrawal payments will be made annually.
Unless you specify otherwise, Minimum Distributions Withdrawals will be
withdrawn on a pro rata basis from your Annuity Account Value in the Investment
Funds. If there is insufficient value or no value in the Investment Funds, any
additional amount of the withdrawal required or the total amount of the
withdrawal, as applicable, will be withdrawn from the Guarantee Periods in
order of the earliest Expiration Date(s) first.
Minimum Distribution Withdrawals are not subject to a withdrawal charge, except
to the extent that, when added to a Lump Sum Withdrawal previously taken in the
same Contract Year, the Minimum Distribution Withdrawal exceeds the 15% free
corridor amount. See "Withdrawal Charge" in Part 7.
Example
- -------
The chart below illustrates the pattern of payments, under Minimum Distribution
Withdrawals for a male who purchases the Rollover IRA at age 70 with a single
contribution of $100,000, with payments commencing at the end of the first
Contract Year.
PATTERN OF MINIMUM DISTRIBUTION WITHDRAWALS
$100,000 SINGLE CONTRIBUTION FOR A
SINGLE LIFE-MALE AGE 70
[THE FOLLOWING TABLE WAS REPRESENTED
AS AN AREA GRAPH IN THE PROSPECTUS]
Assumes 6.0% Rate of Return
Amount
Age Withdrawn
--- ---------
70 $6,250
75 7,653
80 8,667
85 8,770
90 6,931
95 3,727
100 1,179
[END OF GRAPHICALLY REPRESENTED DATA]
Payments are calculated each year based on the Annuity Account Value at the end
of each year, using the recalculation method of determining payments. (See
"Part 1--Minimum Distribution Withdrawals" in the SAI.) Payments are made
annually, and it is further assumed that no Lump Sum Withdrawals are taken.
This example assumes an annual rate of return of 6.0% compounded annually for
both the Investment Funds and the Guaranteed Period Account. This rate of
return is for illustrative purposes only and is not intended to represent an
expected or guaranteed rate of return. Your investment results will vary. In
addition, this example does not reflect any charges that may be applicable
under the Rollover IRA. Such charges would effectively reduce the actual
return.
INCOME ANNUITY OPTIONS
Income annuity options provide periodic payments over a specified period of
time which may be fixed or may be based on your life. Annuity forms of
payment are calculated as of the Annuity Commencement Date, which is on file
with our Processing Office. You
37
<PAGE>
can change the Annuity Commencement Date by writing to our Processing Office
any time before the Annuity Commencement Date. However, you may not choose a
date later than the 28th day of any month. Also, no Annuity Commencement Date
will be later than the Processing Date which follows your 90th birthday (may be
different in some states).
Before the Annuity Commencement Date, we will send you a letter advising that
annuity benefits are available. Unless you otherwise elect, we will pay you a
fixed annuity benefit on the "normal form" indicated for your Certificate as of
your Annuity Commencement Date. The amount applied to provide the annuity
benefit will be (1) the Annuity Account Value for any life annuity form or (2)
the Cash Value for any period certain only annuity form except that if the
period certain is more than five years, the amount applied will be no less than
95% of the Annuity Account Value.
Amounts in the Guarantee Periods that are applied to an income annuity option
prior to an Expiration Date will result in a market value adjustment. See
"Market Value Adjustment for Transfers, Withdrawals or Surrender Prior to the
Expiration Date" in Part 4.
ANNUITY FORMS
o Life Annuity: An annuity which guarantees payments for the rest of your
life. Payments end with the last monthly payment before your death.
Because there is no death benefit associated with this annuity form, it
provides the highest monthly payment of any of the life income annuity
options, so long as you are living.
o Life Annuity-Period Certain: This annuity form also guarantees payments
for the rest of your life. In addition, if you die before a specific
period of time (the "certain period") has ended, payments will continue
to your beneficiary for the balance of the certain period. Certain
periods may be 5, 10, 15 or 20 years. A life annuity with a certain
period of 10 years is the normal form of annuity under the Certificates.
o Life Annuity-Refund Certain: This annuity form guarantees payments to you
for the rest of your life. In addition, if you die before the amount
applied to purchase this annuity option has been recovered, payments will
continue to your beneficiary until that amount has been recovered. This
option is available only as a fixed annuity.
o Period Certain Annuity: This annuity form guarantees payments for a
specific period of time, usually 5, 10, 15 or 20 years, and does not
involve life contingencies.
o Joint and Survivor Life Annuity: This annuity form guarantees life
income to you and, after your death, continuation of income to the
survivor.
The life annuity-period certain and the life annuity-refund certain are
available on either a single life or joint and survivor life basis.
The income annuity options outlined above are available in both fixed and
variable form, unless otherwise indicated. Fixed annuity payments are
guaranteed by us and will be based either on the tables of guaranteed annuity
payments in your Certificate or on our then current annuity rates, whichever is
more favorable for you. Variable income annuities may be funded through the
Common Stock Fund through the purchase of annuity units. The amount of each
variable annuity payment may fluctuate, depending upon the performance of the
Common Stock Fund. That is because the annuity unit value rises and falls
depending on whether the actual rate of net investment return (after deduction
of charges) is higher or lower than the assumed base rate. See "Annuity Unit
Values" in the SAI. Variable income annuities may also be available by separate
prospectus through the Common Stock or other Funds of other separate accounts
we offer.
For all Annuitants, the normal form of annuity provides for fixed payments. We
may offer other forms not outlined here. Your registered representative can
provide details.
For each income annuity option, we will issue a separate written agreement
putting the option into effect. Before we pay any annuity benefit, we require
the return of the Certificate.
The amount of the annuity payments will depend on the amount applied to
purchase the annuity, the type of annuity chosen and, in the case of a life
income annuity option, your age (or your and the joint Annuitant's ages) and in
certain instances, the sex of the Annuitant(s). Once an income annuity option
is chosen and payments have commenced, no change can be made.
If, at the time you elect an income annuity option, the amount to be applied is
less than $2,000 or the initial payment under the option elected is less than
$20 monthly, we reserve the right to pay the Annuity Account Value in a single
sum rather than as payments under the annuity form chosen.
38
<PAGE>
- -------------------------------------------------------------------------------
PART 7: DEDUCTIONS AND CHARGES
- -------------------------------------------------------------------------------
CHARGES DEDUCTED FROM THE
ANNUITY ACCOUNT VALUE
We allocate the entire amount of each contribution to the Investment Options
you select, subject to certain restrictions. We then periodically deduct
certain amounts from your Annuity Account Value. Unless otherwise indicated,
the charges described below and under "Charges Deducted from the Investment
Funds" below will not be increased by us for the life of the Certificates. We
may reduce certain charges under sponsored arrangements. See "Sponsored
Arrangements" below. Charges are deducted proportionately from all the
Investment Funds in which your Annuity Account Value is invested on a pro rata
basis, except as noted below.
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of each contribution made
to the extent that (i) a Lump Sum Withdrawal or cumulative withdrawals during a
Contract Year exceed the free corridor amount, or (ii) if the Certificate is
surrendered to receive its Cash Value. We determine the withdrawal charge
separately for each contribution in accordance with the table below.
CONTRACT YEAR
1 2 3 4 5 6 7 8+
-------------------------------------------------------------
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
If the IRA Assured Payment Option or IRA APO Plus is in effect, the withdrawal
charge will be imposed as a percentage of contributions (less withdrawals),
less the amount applied under the Life Contingent Annuity.
The applicable withdrawal charge percentage is determined by the Contract Year
in which the excess withdrawal is made or the Certificate is surrendered,
beginning with "Contract Year 1" with respect to each contribution withdrawn or
surrendered. For purposes of the table, for each contribution, the Contract
Year in which we receive that contribution is "Contract Year 1."
The withdrawal charge is deducted from the Investment Options from which each
such withdrawal is made in proportion to the amount being withdrawn from each
Investment Option.
Free Corridor Amount
The free corridor amount is 15% of the Annuity Account Value at the
beginning of the Contract Year, minus any amount previously withdrawn
during that Contract Year.
While either the IRA Assured Payment Option or IRA APO Plus is in effect,
the free corridor amount is 10% of the Annuity Account Value at the
beginning of the Contract Year.
There is no withdrawal charge if a Lump Sum Withdrawal is taken to satisfy
minimum distribution requirements under the Certificate. A free corridor amount
is not applicable to a surrender.
For purposes of calculating the withdrawal charge, (1) we treat contributions
as being withdrawn on a first-in first-out basis, and (2) amounts withdrawn up
to the free corridor amount are not considered a withdrawal of any
contributions.
The withdrawal charge is to help cover sales expenses.
Withdrawal Processing Charge
We reserve the right to impose a charge of the lesser of $25 and 2.0% of the
amount withdrawn for each Lump Sum Withdrawal after the fifth in a Contract
Year. This charge, if made, is to cover our administrative expenses in
processing Lump Sum Withdrawals. See "Asset Based Administrative Charge" below.
Charges for Combined GMDB/GMIB Benefit
We deduct a charge annually on each Processing Date for providing the Combined
GMDB/GMIB Benefit. The charge is equal to a percentage of the GMDB in effect on
the Processing Date. The percentage is equal to 0.45% for the 6% to Age 80
Benefit and 0.30% for the 6% to Age 70 Benefit.
Charges for GMDB Only Benefit
We deduct a charge annually on each Processing Date for providing the GMDB Only
Benefit. The charge is equal to a percentage of the GMDB in effect on the
Processing Date. The percentage is equal to 0.20%.
If the amount collected from this charge exceeds the cost of providing the
benefits, it will be to our profit, and may be used to pay distribution
expenses not recovered from sales charges under the Certificates.
39
<PAGE>
Charges for State Premium and Other
Applicable Taxes
We deduct a charge for applicable taxes, such as state or local premium taxes,
that might be imposed in your state. Generally we deduct this charge from the
amount applied to provide an income annuity option. In certain states, however,
we may deduct the charge for taxes from contributions. The current tax charge
that might be imposed varies by state and ranges from 0% to 2.25%.
CHARGES DEDUCTED FROM THE
INVESTMENT FUNDS
Mortality and Expense Risk Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality and expense risks. The daily charge is at the rate
of 0.002477%, which is equivalent to an annual rate of 0.90%, on the assets in
each Investment Fund. Approximately 0.60% of this annual charge is allocated to
the mortality risk and 0.30% is allocated to the expense risk.
We will realize a gain from this charge to the extent it is not needed to
provide for benefits and expenses under the Certificate. We will use any gain
for any lawful purpose including payment of distribution expenses not recovered
from sales charges under the Certificate.
The mortality risk assumed is the risk that Annuitants as a group will live for
a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. We also assume a risk that the
mortality assumptions reflected in our guaranteed annuity payment tables, shown
in each Certificate, will differ from actual mortality experience. Lastly, we
assume a mortality risk to the extent that the guaranteed minimum death benefit
charge is insufficient to pay any amount by which such death benefit exceeds
the Cash Value of the Certificate.
The expense risk assumed is the risk that it will cost us more to issue and
administer the Certificates than we expect.
Asset Based Administrative Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for administrative expenses under the Certificates. The daily
charge is at a rate of 0.000831% (equivalent to an annual rate of 0.30%) on the
assets in each Investment Fund. We reserve the right to increase this charge to
an annual rate of 0.35%, the maximum permitted under the Certificates. The
withdrawal processing charge and the asset based administrative charge are not
designed to produce a profit for Equitable Life.
TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against the Trust's assets, the Rule
12b-1 Plan fee, direct operating expenses of the Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, bank and custodian charges
and liability insurance), and certain investment-related expenses of the Trust
(such as brokerage commissions and other expenses related to the purchase and
sale of securities), are reflected in each Portfolio's daily share price. The
maximum investment advisory fees paid annually by the Portfolios cannot be
changed without a vote by shareholders. They are as follows:
DAILY AVERAGE NET ASSETS
-------------------------------
FIRST NEXT OVER
$350 $400 $750
MILLION MILLION MILLION
--------- --------- ---------
Aggressive Stock ........ .500% .475% .450%
Common Stock and Money
Market .................. .400% .375% .350%
Growth Investors, Global
and High Yield ......... .550% .525% .500%
Investment advisory fees are established under the Trust's investment advisory
agreements between the Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that the Trust, on behalf of each Portfolio may
pay annually up to 0.25% 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 the Class IB shares. The Rule 12b-1 Plan fee, which
may be waived in the discretion of EDI, may be increased only by action of the
Board of Trustees of the Trust up to a maximum of 0.50% per annum.
All of these fees and expenses are described more fully in the Trust
prospectus.
SPONSORED ARRANGEMENTS
For certain sponsored arrangements, we may reduce the withdrawal charge or
change the minimum initial contribution requirements. Under the IRA Assured
Payment Option and IRA APO Plus, we may increase Guaranteed Rates and reduce
purchase rates under the Life Contingent Annuity. We may also change the
guaranteed minimum death benefit and the guaranteed minimum income benefit.
Sponsored arrangements include those in which an employer allows us to sell
Certificates to its employees or retirees on an individual basis.
40
<PAGE>
Our costs for sales, administration, and mortality generally vary with the size
and stability of the sponsoring organization among other factors. We take all
these factors into account when reducing charges. To qualify for reduced
charges, a sponsored arrangement must meet certain requirements, including our
requirements for size and number of years in existence. Sponsored arrangements
that have been set up solely to buy Certificates or that have been in existence
less than six months will not qualify for reduced charges.
We may also establish different Guaranteed Rates for the Guarantee Periods
under different classes of Certificates for sponsored arrangements.
We will make these and any similar reductions according to our rules in effect
when a Certificate is approved for issue. We may change these rules from time
to time. Any variation in the withdrawal charge will reflect differences in
costs or services and will not be unfairly discriminatory.
Sponsored arrangements may be governed by the Code, the Employee Retirement
Income Security Act of 1974 (ERISA), or both. We make no representations as to
the impact of those and other applicable laws on such programs. WE RECOMMEND
THAT EMPLOYERS PURCHASING OR MAKING CERTIFICATES AVAILABLE FOR PURCHASE UNDER A
SPONSORED ARRANGEMENT SEEK THE ADVICE OF THEIR OWN LEGAL AND BENEFITS ADVISERS.
OTHER DISTRIBUTION ARRANGEMENTS
The withdrawal charge may be reduced or eliminated when sales are made in a
manner that results in savings of sales and administrative expenses, such as
sales through persons who are compensated by clients for recommending
investments and receive no commission or reduced commissions in connection with
the sale of the Certificates. In no event will a reduction or elimination of
the withdrawal charge be permitted where it would be unfairly discriminatory.
41
<PAGE>
- -------------------------------------------------------------------------------
PART 8: VOTING RIGHTS
- -------------------------------------------------------------------------------
TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of the Trust. Since we own
the assets of the Separate Account, we are the legal owner of the shares and,
as such, have the right to vote on certain matters. Among other things, we may
vote:
o to elect the Trust's Board of Trustees,
o to ratify the selection of independent auditors for the Trust, and
o on any other matters described in the Trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because the Trust is a Massachusetts business trust, annual meetings are not
required. Whenever a shareholder vote is taken, we will give Certificate Owners
the opportunity to instruct us how to vote the number of shares attributable to
their Certificates. If we do not receive instructions in time from all
Certificate Owners, we will vote the shares of a Portfolio for which no
instructions have been received in the same proportion as we vote shares of
that Portfolio for which we have received instructions. We will also vote any
shares that we are entitled to vote directly because of amounts we have in an
Investment Fund in the same proportions that Certificate Owners vote.
Each Trust share is entitled to one vote. Fractional shares will be counted.
Voting generally is on a Portfolio-by-Portfolio basis except that shares will
be voted on an aggregate basis when universal matters, such as election of
Trustees and ratification of independent auditors, are voted upon. However, if
the Trustees determine that shareholders in a Portfolio are not affected by a
particular matter, then such shareholders generally would not be entitled to
vote on that matter.
VOTING RIGHTS OF OTHERS
Currently, we control the Trust. Trust shares are held by other separate
accounts of ours and by separate accounts of insurance companies affiliated and
unaffiliated with us. Shares held by these separate accounts will probably be
voted according to the instructions of the owners of insurance policies and
contracts issued by those insurance companies. While this will dilute the
effect of the voting instructions of the Rollover IRA Certificate Owners, we
currently do not foresee any disadvantages arising out of this. The Trust's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts that possibly may arise and to determine what action,
if any, should be taken in response. If we believe that the Trust's response to
any of those events insufficiently protects our Certificate Owners, we will see
to it that appropriate action is taken to protect our Certificate Owners.
SEPARATE ACCOUNT VOTING RIGHTS
If actions relating to the Separate Account require Certificate Owner approval,
Certificate Owners will be entitled to one vote for each Accumulation Unit they
have in the Investment Funds. Each Certificate Owner who has elected a variable
annuity payout may cast the number of votes equal to the dollar amount of
reserves we are holding for that annuity in the Common Stock Fund divided by
the Accumulation Unit Value for the Common Stock Fund. We will cast votes
attributable to any amounts we have in the Investment Funds in the same
proportion as votes cast by Certificate Owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
Federal securities laws. To the extent that those laws or the regulations
promulgated under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
42
<PAGE>
- -------------------------------------------------------------------------------
PART 9: TAX ASPECTS OF THE CERTIFICATES
- -------------------------------------------------------------------------------
TAX-QUALIFIED INDIVIDUAL RETIREMENT ANNUITIES (IRAS)
Introduction
The Rollover IRA Certificate is designed to qualify as an IRA under Section
408(b) of the Code. Your rights under the Rollover IRA cannot be forfeited.
This prospectus contains the information which the Internal Revenue Service
(IRS) requires to be disclosed to an individual before he or she purchases an
IRA.
This Part covers some of the special tax rules that apply to individual
retirement arrangements. You should be aware that an IRA is subject to certain
restrictions in order to qualify for its special treatment under the Federal
tax law.
This prospectus provides our general understanding of applicable Federal income
tax rules, but does not provide detailed tax information and does not address
issues such as state income and other taxes or Federal gift and estate taxes.
Please consult a tax adviser when considering the tax aspects of the Rollover
IRA Certificates.
Further information on IRA tax matters can be obtained from any IRS district
office. Additional information regarding IRAs, including a discussion of
required distributions, can be found in IRS Publication 590, entitled
"Individual Retirement Arrangements (IRAs)," which is generally updated
annually.
The Rollover IRA Certificate has been approved by the IRS as to form for use as
an IRA. This IRS approval is a determination only as to the form of the annuity
and does not represent a determination of the merits of the annuity as an
investment.
Cancelation
You can cancel a Certificate issued as an IRA by following the directions in
Part 5 under "Free Look Period." Since there may be adverse tax consequences if
a Certificate is canceled (and because we are required to report to the IRS
certain distributions from canceled IRAs), you should consult with a tax
adviser before making any such decision. If you cancel this Certificate, you
may establish a new individual retirement arrangement if at the time you meet
the requirements for establishing an individual retirement arrangement.
Contributions to IRAs
Individuals may make three different types of contributions to purchase an IRA,
or as later additions to an existing IRA: "regular" contributions out of
earnings, tax-free "rollover" contributions from tax-qualified plans, or direct
custodian-to-custodian transfers from other individual retirement arrangements
("direct transfers").
The initial contribution to the Certificate must be either a rollover or a
direct custodian-to-custodian transfer. See "Tax-Free Transfers and Rollovers,"
discussed below. Any subsequent contributions you make may be any of rollovers,
direct transfers or "regular" IRA contributions. See "Contributions Under the
Certificates" in Part 5. The immediately following discussion relates to
"regular" IRA contributions. For the reasons noted in "Tax-Free Transfers and
Rollovers" below, you should consult with your tax adviser before making any
subsequent contributions to an IRA which is intended to serve as a "conduit"
IRA.
Generally, $2,000 is the maximum amount of deductible and nondeductible
contributions which may be made to all IRAs by an individual in any taxable
year. The above limit may be less when the individual's earnings are below
$2,000. This limit does not apply to rollover contributions or direct
custodian-to-custodian transfers into an IRA.
The amount of IRA contributions for a tax year that an individual can deduct
depends on whether the individual (or the individual's spouse, if a joint
return is filed) is covered by an employer-sponsored tax-favored retirement
plan. If the individual's spouse does not work or elects to be treated as
having no compensation, the individual and the individual's spouse may
contribute up to $2,250 to individual retirement arrangements (but no more than
$2,000 to any one individual retirement arrangement). The non-working spouse
owns his or her individual retirement arrangements, even if the working spouse
makes contributions to purchase the spousal individual retirement arrangements.
If neither the individual nor the individual's spouse is covered during any
part of the taxable year by an employer-sponsored tax-favored retirement plan
(including a qualified plan, a tax sheltered account or annuity under Section
403(b) of the Code (TSA) or a simplified employee pension plan), then
regardless of adjusted gross income (AGI), each working spouse may make
deductible contributions to an IRA for each tax year (MAXIMUM PERMISSIBLE
DOLLAR DEDUCTION) up to the lesser of $2,000 or 100% of compensation. In
certain cases, individuals covered by a tax-favored retirement plan include
persons eligible to participate in the plan although not actually
participating. Whether or not a person is covered by a retirement plan will be
reported on an employee's Form W-2.
43
<PAGE>
If the individual is single and covered by a retirement plan during any part of
the taxable year, the deduction for IRA contributions phases out with AGI
between $25,000 and $35,000. If the individual is married and files a joint
return, and either the individual or the spouse is covered by a tax-favored
retirement plan during any part of the taxable year, the deduction for IRA
contributions phases out with AGI between $40,000 and $50,000. If the
individual is married, files a separate return and is covered by a tax-favored
retirement plan during any part of the taxable year, the deduction for IRA
contributions phases out with AGI between $0 and $10,000. Married individuals
filing separate returns must take into account the retirement plan coverage of
the other spouse, unless the couple has lived apart for the entire taxable
year. If AGI is below the phase-out range, an individual is entitled to the
Maximum Permissible Dollar Deduction. In computing the partial deduction for
IRA contributions the individual must round the amount of the deduction to the
nearest $10. The permissible deduction for IRA contributions is a minimum of
$200 if AGI is less than the amount at which the deduction entirely phases out.
If the individual (or the individual's spouse, unless the couple has lived
apart the entire taxable year and their filing status is married, filing
separately) is covered by a tax-favored retirement plan, the deduction for IRA
contributions must be computed using one of two methods. Under the first
method, the individual determines AGI and subtracts $25,000 if the individual
is a single person, $40,000 if the individual is married and files a joint
return with the spouse, or $0 if the individual is married and files a separate
return. The resulting amount is the individual's Excess AGI. The individual
then determines the limit on the deduction for IRA contributions using the
following formula:
Maximum Adjusted
$10,000-Excess AGI Permissible Dollar
- ------------------ X Dollar = Deduction
$10,000 Deduction Limit
Under the second method, the individual determines his or her Excess AGI and
then refers to the table in Appendix V originally prepared by the IRS to
determine the deduction.
Contributions may be made for a tax year until the deadline for filing a
Federal income tax return for that tax year (without extensions). No
contributions are allowed for the tax year in which an individual attains age
70 1/2 or any tax year after that. A working spouse age 70 1/2 or over,
however, can contribute up to the lesser of $2,000 or 100% of "earned income"
to a spousal individual retirement arrangement for a non-working spouse until
the year in which the non-working spouse reaches age 70 1/2.
An individual not eligible to deduct part or all of the IRA contribution may
still make nondeductible contributions on which earnings will accumulate on a
tax-deferred basis. The deductible and nondeductible contributions may not,
however, together exceed the lesser of the $2,000 limit (or $2,250 spousal
limit) or 100% of compensation for each tax year. See "Excess Contributions"
below. Individuals must keep their own records of deductible and nondeductible
contributions in order to prevent double taxation on the distribution of
previously taxed amounts. See "Distributions from IRA Certificates" below.
An individual making nondeductible contributions in any taxable year, or
receiving amounts from any IRA to which he or she has made nondeductible
contributions, must file the required information with the IRS. Moreover,
individuals making nondeductible IRA contributions must retain all income tax
returns and records pertaining to such contributions until interest in such
IRAs are fully distributed.
Excess Contributions
Excess contributions to an IRA are subject to a 6% excise tax for the year in
which made and for each year thereafter until withdrawn. In the case of
"regular" IRA contributions any contribution in excess of the lesser of $2,000
or 100% of compensation or earned income is an "excess contribution," (without
regard to the deductibility or nondeductibility of IRA contributions under this
limit). Also, any "regular" contributions made after you reach age 70 1/2 are
excess contributions. In the case of rollover IRA contributions, excess
contributions are amounts which are not eligible to be rolled over (for
example, after tax contributions to a qualified plan or minimum distributions
required to be made after age 70 1/2). An excess contribution (rollover or
"regular") which is withdrawn, however, before the time for filing the
individual's Federal income tax return for the tax year (including extensions)
is not includable in income and therefore is not subject to the 10% penalty tax
on early distributions (discussed below under "Penalty Tax on Early
Distributions"), provided any earnings attributable to the excess contribution
are also withdrawn and no tax deduction is taken for the excess contribution.
The withdrawn earnings on the excess contribution, however, would be includable
in the individual's gross income and would be subject to the 10% penalty tax.
If excess contributions are not withdrawn before the time for filing the
individual's Federal income tax return for the year (including extensions),
"regular" contributions may still be withdrawn after that time if the IRA
contribution for the tax year did not exceed $2,250 and no tax deduction was
taken for the excess contribution; in that event, the excess contribution would
not be includable in gross income and would not be subject to the 10% penalty
tax. Lastly, excess "regular" contributions may also be removed by
underutilizing the allowable contribution limits for a later year.
44
<PAGE>
If excess rollover contributions are not withdrawn before the time for filing
the individual's Federal tax return for the year (including extensions) and the
excess contribution occurred as a result of incorrect information provided by
the plan, any such excess amount can be withdrawn if no tax deduction was taken
for the excess contribution. As above, excess rollover contributions withdrawn
under those circumstances would not be includable in gross income and would not
be subject to the 10% penalty tax.
Tax-Free Transfers and Rollovers
Rollover contributions may be made to an IRA from these sources: (i) qualified
plans, (ii) TSAs (including 403(b)(7) custodial accounts) and (iii) other
individual retirement arrangements.
The rollover amount must be transferred to the Certificate either as a direct
rollover of an "eligible rollover distribution" (described below) or as a
rollover by the individual plan participant or owner of the individual
retirement arrangement. In the latter cases, the rollover must be made within
60 days of the date the proceeds from another individual retirement arrangement
or an eligible rollover distribution from a qualified plan or TSA were
received. Generally the taxable portion of any distribution from a qualified
plan or TSA is an eligible rollover distribution and may be rolled over
tax-free to an IRA unless the distribution is (i) a required minimum
distribution under Section 401(a)(9) of the Code; or (ii) one of a series of
substantially equal periodic payments made (not less frequently than annually)
(a) for the life (or life expectancy) of the plan participant or the joint
lives (or joint life expectancies) of the plan participant and his or her
designated beneficiary, or (b) for a specified period of ten years or more.
Under some circumstances, amounts from a Certificate may be rolled over on a
tax-free basis to a qualified plan. To get this "conduit" IRA treatment, the
source of funds used to establish the IRA must be a rollover contribution from
the qualified plan and the entire amount received from the IRA (including any
earnings on the rollover contribution) must be rolled over into another
qualified plan within 60 days of the date received. Similar rules apply in the
case of a TSA. If you make a contribution to the Certificate which is from an
eligible rollover distribution and you commingle such contribution with other
contributions, you may not be able to roll over these eligible rollover
distribution contributions and earnings to another qualified plan (or TSA, as
the case may be) at a future date, unless the Code permits.
Under the conditions and limitations of the Code, an individual may elect for
each IRA to make a tax-free rollover once every 12-month period among
individual retirement arrangements (including rollovers from retirement bonds
purchased before 1983). Custodian-to-custodian transfers are not rollovers and
can be made more frequently than once a year.
The same tax-free treatment applies to amounts withdrawn from the Certificate
and rolled over into other individual retirement arrangements unless the
distribution was received under an inherited IRA. Tax-free rollovers are also
available to the surviving spouse beneficiary of a deceased individual, or a
spousal alternate payee of a qualified domestic relations order applicable to a
qualified plan. In some cases, IRAs can be transferred on a tax-free basis
between spouses or former spouses incidental to a judicial decree of divorce or
separation.
Distributions from IRA Certificates
Income or gains on contributions under IRAs are not subject to Federal income
tax until benefits are distributed to the individual. Distributions include
withdrawals from your Certificate, surrender of your Certificate and annuity
payments from your Certificate. Death benefits are also distributions. Except
as discussed below, the amount of any distribution from an IRA is fully
includable as ordinary income by the individual in gross income.
If the individual makes non-deductible IRA contributions, those contributions
are recovered tax-free when distributions are received. The individual must
keep records of all nondeductible contributions. At the end of each tax year in
which the individual has received a distribution, the individual determines a
ratio of the total nondeductible IRA contributions (less any amounts previously
withdrawn tax-free) to the total account balances of all IRAs held by the
individual at the end of the tax year (including rollover IRAs) plus all IRA
distributions made during such tax year. The resulting ratio is then multiplied
by all distributions from the IRA during that tax year to determine the
nontaxable portion of each distribution.
In addition, a distribution (other than a required minimum distribution
received after age 70 1/2) is not taxable if (1) the amount received is a
return of excess contributions which are withdrawn, as described under "Excess
Contributions" above, (2) the entire amount received is rolled over to another
individual retirement arrangement (see "Tax-Free Transfers and Rollovers"
above) or (3) in certain limited circumstances, where the IRA acts as a
"conduit," the entire amount is paid into a qualified plan or TSA that permits
rollover contributions.
Distributions from an IRA are not entitled to the special favorable five-year
averaging method (or, in certain cases, favorable ten-year averaging and
long-term capital gain treatment) available in certain cases to distributions
from qualified plans.
Required Minimum Distributions
The minimum distribution rules require IRA owners to start taking annual
distributions from their retirement plans by age 70 1/2. The distribution
requirements are designed to provide for distribution of the
45
<PAGE>
owner's interest in the IRA over the owner's life expectancy. Whether the
correct amount has been distributed is calculated on a year by year basis;
there are no provisions in the Code to allow amounts taken in excess of the
required amount to be carried over or carried back and credited to other years.
Generally, an individual must take the first required minimum distribution with
respect to the calendar year in which the individual turns age 70 1/2. The
individual has the choice to take the first required minimum distribution
during the calendar year he or she turns age 70 1/2, or to delay taking it
until the three month (January 1-April 1) period in the next calendar year.
(Distributions must commence no later than the "Required Beginning Date," which
is the April 1st of the calendar year following the calendar year in which the
individual turns age 70 1/2.) If the individual chooses to delay taking the
first annual minimum distribution, then the individual will have to take two
minimum distributions in that year--the delayed one for the first year and the
one actually for that year. Once minimum distributions begin, they must be made
at some time every year.
There are two approaches to taking minimum distributions--"account based" or
"annuity based"--and there are a number of distribution options in both of
these categories. These choices are intended to give individuals a great deal
of flexibility to provide for themselves and their families.
An account based minimum distribution approach may be a lump sum payment, or
periodic withdrawals made over a period which does not extend beyond the
individual's life expectancy or the joint life expectancies of the individual
and a designated beneficiary. An annuity based approach involves application of
the Annuity Account Value to an annuity for the life of the individual or the
joint lives of the individual and a designated beneficiary, or for a period
certain not extending beyond applicable life expectancies.
You should discuss with your tax adviser which minimum distribution options are
best for your own personal situation. Individuals who are participants in more
than one tax-favored retirement plan may be able to choose different
distribution options for each plan.
Your required minimum distribution for any taxable year is calculated by taking
into account the required minimum distribution from each of your individual
retirement arrangements. The IRS, however, does not require that you make the
required distribution from each individual retirement arrangement that you
maintain. As long as the total amount distributed annually satisfies your
overall minimum distribution requirement, you may choose to take your annual
required distribution from any one or more individual retirement arrangements
that you maintain.
An individual may recompute his or her minimum distribution amount each year
based on the individual's current life expectancy as well as that of the
spouse. No recomputation is permitted, however, for a beneficiary other than a
spouse. If there is an insufficient distribution in any year, a 50% tax may be
imposed on the amount by which the minimum required to be distributed exceeds
the amount actually distributed. The penalty tax may be waived by the Secretary
of the Treasury in certain limited circumstances. Failure to have distributions
made as the Code and Treasury regulations require may result in
disqualification of your IRA. See "Tax Penalty for Insufficient Distributions"
below.
Except as described in the next sentence, if the individual dies after
distribution in the form of an annuity has begun, or after the Required
Beginning Date, payment of the remaining interest must be made at least as
rapidly as under the method used prior to the individual's death. (The IRS has
indicated that an exception to the rule that payment of the remaining interest
must be made at least as rapidly as under the method used prior to the
individual's death applies if the beneficiary of the IRA is the surviving
spouse. In some circumstances, the surviving spouse may elect to "make the IRA
his or her own" and halt distributions until he or she reaches age 70 1/2).
If an individual dies before the Required Beginning Date and before
distributions in the form of an annuity begin, distributions of the
individual's entire interest under the Certificate must be completed within
five years after death, unless payments to a designated beneficiary begin
within one year of the individual's death and are made over the beneficiary's
life or over a period certain which does not extend beyond the beneficiary's
life expectancy.
If the surviving spouse is the designated beneficiary, the spouse may delay the
commencement of such payments up until the individual would have attained 70
1/2. In the alternative, a surviving spouse may elect to roll over the
inherited IRA into the surviving spouse's own IRA.
Taxation of Death Benefits
Distributions received by a beneficiary are generally given the same tax
treatment the individual would have received if distribution had been made to
the individual.
If you elect to have your spouse be the sole primary beneficiary and to be
the successor Annuitant and
46
<PAGE>
Certificate Owner, then your surviving spouse automatically becomes both the
successor Certificate Owner and Annuitant, and no death benefit is payable
until the surviving spouse's death.
Guaranteed Minimum Death Benefit
The Code provides that no part of an individual retirement account may be
invested in life insurance contracts. Treasury Regulations provide that an
individual retirement account may be invested in an annuity contract which
provides a death benefit of the greater of premiums paid or the contract's cash
value. Your Certificate provides a minimum death benefit guarantee that in
certain circumstances may be greater than either of contributions made or the
Annuity Account Value. Although there is no ruling regarding the type of
minimum death benefit guarantee provided by the Certificate, Equitable Life
believes that the Certificate's minimum death benefit guarantee should not
adversely affect the qualification of the Certificate as an IRA. Nevertheless,
it is possible that the IRS could disagree, or take the position that some
portion of the charge in the Certificate for the minimum death benefit
guarantee should be treated for Federal income tax purposes as a taxable
partial withdrawal from the Certificate. If this were so, such a deemed
withdrawal would also be subject to tax penalty for Certificate Owners under
age 59 1/2.
Tax Considerations for the IRA Assured Payment Option and IRA APO Plus
Although the Life Contingent Annuity does not have a Cash Value, it will be
assigned a value for tax purposes which will generally change each year. This
value must be taken into account when determining the amount of required
minimum distributions from your IRA even though the Life Contingent Annuity may
not be providing a source of funds to satisfy such required minimum
distribution. Accordingly, before you apply any IRA funds under the IRA Assured
Payment Option or IRA APO Plus or terminate such Options, you should be aware
of the tax considerations discussed below. Consult with your tax adviser to
determine the impact of electing the IRA Assured Payment Option and IRA APO
Plus in view of your own particular situation.
When funds have been allocated to the Life Contingent Annuity, you will
generally be required to determine your required minimum distribution by
annually recalculating your life expectancy. The IRA Assured Payment Option and
IRA APO Plus will not be available if you have previously made a different
election. Recalculation is no longer required once the only payments you or
your spouse receive are under the Life Contingent Annuity.
If prior to the date payments are to start under the Life Contingent Annuity,
you surrender your Certificate, or withdraw any remaining Annuity Account
Value, it may be necessary for you to satisfy your required minimum
distribution by accelerating the start date of payments for your Life
Contingent Annuity, or to the extent available, take distributions from other
IRA funds you may have. Alternatively you may convert your IRA Life Contingent
Annuity under the IRA Rollover to a non-qualifed Life Contingent Annuity. This
would be viewed as a distribution of the value of the Life Contingent Annuity
from the IRA, and therefore, would be a taxable event. However, since the Life
Contingent Annuity would no longer be part of an IRA, its value would not have
to be taken into account in determining future required minimum distributions.
If you have elected a Joint and Survivor form of the Life Contingent Annuity,
the joint Annuitant must be your spouse. You must determine your required
minimum distribution by annually recalculating both your life expectancy and
your spouse's life expectancy. The IRA Assured Payment Option and IRA APO Plus
will not be available if you have previously made a different election.
Recalculation is no longer required once the only payments you or your spouse
receive are under the Life Contingent Annuity. The value of such an annuity
will change in the event of your death or the death of your spouse. For this
reason, it is important that we be informed if you or your spouse dies before
the Life Contingent Annuity has started payments so that a lower valuation can
be made. Otherwise a higher tax value may result in an overstatement of the
amount that would be necessary to satisfy your required minimum distribution
amount.
Allocations of funds to the Life Contingent Annuity may prevent the
Certificate from later receiving "conduit" IRA treatment. See "Tax-Free
Transfers and Rollovers" above.
Prohibited Transaction
An IRA may not be borrowed against or used as collateral for a loan or other
obligation. If the IRA is borrowed against or used as collateral, its
tax-favored status will be lost as of the first day of the tax year in which
the event occurred. If this happens, the individual must include in Federal
gross income for that year an amount equal to the fair market value of the IRA
Certificate as of the first day of that tax year, less the amount of any
nondeductible contributions not previously withdrawn. Also, the early
distribution penalty tax of 10% will apply if the individual has not reached
age 59 1/2 before the first day of that tax year. See "Penalty Tax on Early
Distributions" below.
47
<PAGE>
PENALTY TAX ON EARLY DISTRIBUTIONS
The taxable portion of IRA distributions will be subject to a 10% penalty tax
unless the distribution is made (1) on or after your death, (2) because you
have become disabled, (3) on or after the date when you reach age 59 1/2, or
(4) in accordance with the exception outlined below if you are under 59 1/2.
A payout over your life or life expectancy (or joint and survivor lives or life
expectancies), which is part of a series of substantially equal periodic
payments made at least annually, is also not subject to penalty tax. To permit
you to meet this exception, Equitable Life has two options: Substantially Equal
Payment Withdrawals and the IRA Assured Payment Option with level payments,
both of which are described in Part 6. If you are a Rollover IRA Certificate
Owner who will be under age 59 1/2 as of the date the first payment is expected
to be received and you choose either option, Equitable Life will calculate the
substantially equal annual payments under a method we will select based on
guidelines issued by the IRS (currently contained in IRS Notice 89-25, Question
and Answer 12). Although Substantially Equal Payment Withdrawals and IRA
Assured Payment Option level payments are not subject to the 10% penalty tax,
they are taxable as discussed in "Distributions from IRA Certificates," above.
Once Substantially Equal Payment Withdrawals or IRA Assured Payment Option
level payments begin, the distributions should not be stopped or changed until
the later of your attaining age 59 1/2 or five years after the date of the
first distribution, or the penalty tax, including an interest charge for the
prior penalty avoidance, may apply to all withdrawals. Also, it is possible
that the IRS could view any additional withdrawal or payment you take from your
Certificate as changing your pattern of Substantially Equal Payment Withdrawals
or IRA Assured Payment Option payments for purposes of determining whether the
penalty applies.
Where a taxpayer under age 59 1/2 purchases an individual retirement annuity
contract calling for substantially equal periodic payments during a fixed
period, continuing afterwards under a joint life contingent annuity with a
reduced payment to the survivor (e.g., a joint and 50% to survivor), the
question might be raised whether payments will not be substantially equal for
the joint lives of the taxpayer and survivor, as the payments will be reduced
at some point. In issuing our information returns, we code the substantially
equal periodic payments from such a contract as eligible for an exception from
the early distribution penalty. We believe that any change in payments to the
survivor would come within the statutory provision covering change of payments
on account of death. As there is no direct authority on this point, however, if
you are under age 59 1/2, you should discuss this item with your own tax
adviser when electing a reduced survivorship option.
TAX PENALTY FOR INSUFFICIENT
DISTRIBUTIONS
Failure to make required distributions discussed above in "Required Minimum
Distributions" may cause the disqualification of the IRA. Disqualification may
result in current taxation of your entire benefit. In addition a 50% penalty
tax may be imposed on the difference between the required distribution amount
and the amount actually distributed, if any.
We do not automatically make distributions from a Certificate before the
Annuity Commencement Date unless a request has been made. It is your
responsibility to comply with the minimum distribution rules. We will notify
you when our records show that your age 70 1/2 is approaching. If you do not
select a method, we will assume you are taking your minimum distribution from
another IRA that you maintain. You should consult with your tax adviser
concerning these rules and their proper application to your situation.
TAX PENALTY FOR EXCESS DISTRIBUTIONS OR ACCUMULATION
A 15% excise tax applies to an individual's aggregate excess distributions from
all tax-favored retirement plans (including IRAs). The excise tax is in
addition to the ordinary income tax due but is reduced by the amount (if any)
of the early distribution penalty tax imposed by the Code. The aggregate
distributions in any year will be subject to excise tax if they exceed an
indexed amount ($155,000 in 1996).
In addition, in certain cases the estate tax imposed on a deceased individual's
estate will be increased if the accumulated value of the individual's interest
in qualified annuities and tax favored retirement plans is excessive.
FEDERAL AND STATE INCOME TAX
WITHHOLDING
Equitable Life is required to withhold Federal income tax from IRA
distributions, unless the recipient elects not to be subject to income tax
withholding. The rate of withholding will depend on the type of distribution
and, in certain cases, the amount of the distribution. Special withholding
rules apply to foreign recipients and United States citizens residing outside
the United States. If a recipient does not
48
<PAGE>
have sufficient income tax withheld or does not make sufficient estimated
income tax payments, however, the recipient may incur penalties under the
estimated income tax rules. Recipients should consult their tax advisers to
determine whether they should elect out of withholding. Requests not to
withhold Federal income tax must be made in writing prior to receiving benefits
under the Certificate. Our Processing Office will provide forms for this
purpose. No election out of withholding is valid unless the recipient provides
us with the correct taxpayer identification number and a United States
residence address.
Certain states have indicated that income tax withholding will apply to
payments made from the Certificate to residents. In some states, a recipient
may elect out of state withholding. Generally, an election out of Federal
withholding will also be considered an election out of state withholding. If
you need more information concerning a particular state or any required forms,
call our Processing Office at the toll-free number and consult your tax
adviser.
Periodic payments are generally subject to wage-bracket type withholding (as if
such payments were payments of wages by an employer to an employee) unless the
recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and claiming
three withholding exemptions. There is an annual threshold of taxable income
from periodic annuity payments which is exempt from withholding based on this
assumption. For 1996, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,075 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies a
different choice of withholding exemptions. A withholding election may be
revoked at any time and remains effective until revoked. If a recipient fails
to provide a correct taxpayer identification number, withholding is made as if
the recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally be
subject to withholding at a flat 10% rate. A recipient who provides a United
States residence address and a correct taxpayer identification number will
generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make withholding
elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than the Certificate Owner, a Federal generation skipping
tax may be payable with respect to the benefit at rates similar to the maximum
estate tax rate in effect at the time. The generation skipping tax provisions
generally apply to transfers which would also be subject to the gift and estate
tax rules. Individuals are generally allowed an aggregate generation skipping
tax exemption of $1 million. Because these rules are complex, you should
consult with your tax adviser for specific information, especially where
benefits are passing to younger generations, as opposed to a spouse or child.
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account
for taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities and individual retirement arrangements. In addition, the
Treasury Department may amend existing regulations, issue new regulations, or
adopt new interpretations of existing laws. State tax laws or, if you are not a
United States resident, foreign tax laws, may affect the tax consequences to
you or the beneficiary. These laws may change from time to time without notice
and, as a result, the tax consequences may be altered. There is no way of
predicting whether, when or in what form any such change would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
49
<PAGE>
- -------------------------------------------------------------------------------
PART 10: INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995 included in Equitable Life's
Annual Report on Form 10-K, incorporated by reference in the prospectus, have
been examined by Price Waterhouse LLP, independent accountants, whose reports
thereon are incorporated herein by reference. Such consolidated financial
statements and consolidated financial statement schedules have been
incorporated herein by reference in reliance upon the reports of Price
Waterhouse LLP given upon their authority as experts in accounting and
auditing.
50
<PAGE>
APPENDIX I: MARKET VALUE ADJUSTMENT EXAMPLE
- -------------------------------------------------------------------------------
The example below shows how the market value adjustment would be determined and
how it would be applied to a withdrawal, assuming that $100,000 were allocated
on February 15, 1997 to a Guarantee Period with an Expiration Date of February
15, 2006 at a Guaranteed Rate of 7.00% resulting in a Maturity Value at the
Expiration Date of $183,846, and further assuming that a withdrawal of $50,000
were made on February 15, 2001.
ASSUMED
GUARANTEED RATE ON FEBRUARY 15, 2001
------------------------------------
5.00% 9.00%
---------- ----------
As of February 15, 2001 (Before Withdrawal)
- -------------------------------------------
(1) Present Value of Maturity Value, also
Annuity Account Value .................. $144,048 $119,487
(2) Guaranteed Period Amount ............... 131,080 131,080
(3) Market Value Adjustment: (1)-(2) ...... 12,968 (11,593)
On February 15, 2001 (After Withdrawal)
- -------------------------------------------
(4) Portion of (3) Associated
with Withdrawal: (3) x [$50,000 / (1)] $ 4,501 $ (4,851)
(5) Reduction in Guaranteed
Period Amount: [$50,000-(4)] ........... 45,499 54,851
(6) Guaranteed Period Amount: (2)-(5) ..... 85,581 76,229
(7) Maturity Value ......................... 120,032 106,915
(8) Present Value of (7), also
Annuity Account Value .................. 94,048 69,487
You should note that under this example if a withdrawal is made when rates have
increased (from 7.00% to 9.00% in the example), a portion of a negative market
value adjustment is realized. On the other hand, if a withdrawal is made when
rates have decreased (from 7.00% to 5.00% in the example), a portion of a
positive market value adjustment is realized.
51
<PAGE>
APPENDIX II: GUARANTEED MINIMUM DEATH BENEFIT (GMDB) EXAMPLE
- -----------------------------------------------------------------------------
Under the Certificates the death benefit is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the GMDB (see "GMDB" in Part 5); and
(2) the death benefit provided with respect to the Guaranteed Period
Account (see "Death Benefit Amount" in Part 4).
The following is an example illustrating the calculation of the GMDB. Assuming
$100,000 is allocated to the Investment Funds (with no allocation to the Money
Market Fund), no subsequent contributions, no transfers and no withdrawals, the
GMDB for an Annuitant age 45 would be calculated as follows:
END OF
CONTRACT ANNUITY NON-NEW YORK NEW YORK
YEAR ACCOUNT VALUE GMDB(1) GMDB
---- --------------- ------- ----
1 $105,000 $106,000 $105,000(2)
2 $108,675 $112,360 $108,675(2)
3 $124,976 $119,102 $119,102(3)
4 $135,912 $126,248 $126,248(3)
5 $149,503 $133,823 $133,823(3)
6 $149,503 $141,852 $141,852(3)
7 $161,463 $150,363 $161,463(3)
8 $161,463 $159,385 $161,463(2)
The Annuity Account Values for Contract Years 1 through 8 are determined based
on hypothetical rates of return of 5.00%, 3.50%, 15.00%, 8.75%, 10.00%, 0.00%,
8.00% and 0.00%, respectively.
NON-NEW YORK
(1) For Contract Years 1 through 8, the GMDB equals the initial contribution
increased by 6%.
NEW YORK
(2) At the end of Contract Years 1 and 2, and again at the end of Contract
Year 8, the GMDB is equal to the Annuity Account Value.
(3) At the end of Contract Years 3 through 6, the GMDB is equal to the
contribution increased by 6% instead of the Annuity Account Value, since
the GMDB cannot be greater than this amount. However, at the end of the
seventh Contract Year the GMDB is equal to the Annuity Account Value of
$161,463 even though it is greater than the contribution increased at 6%
($150,363) because the cap does not apply on the seventh Processing Date.
52
<PAGE>
APPENDIX III: GMIB EXAMPLES
- -----------------------------------------------------------------------------
The GMIB is equal to:
(A) the greater of
(i) the Annuity Account Value in the Investment Funds, and
(ii) an amount equal to the GMDB (reduced by any remaining withdrawal
charges); divided by
(B) the guaranteed maximum annuity purchase rates.
The examples below assume a male age 60 has purchased the Rollover IRA with an
initial contribution of $100,000 that is allocated 100% to the Investment Funds
(excluding the Money Market Fund). The GMDB in the 10th Contract Year is
$179,085 at 6% interest. Assuming hypothetical rates of return (after deduction
of charges) in the Investment Funds of 0% in Example 1 and 8% in Example 2
during the 10 Contract Years, the GMIB in the 10th Contract Year (assuming
level payment under the IRA Assured Payment Option) would be as follows:
EXAMPLE 1 EXAMPLE 2
----------- -----------
(1) Hypothetical Rate of Return ....... 0% 8%
(2) Annuity Account Value as of the
Contract Date ...................... $100,000 $100,000
(3) The greater of (i) the GMDB and
(ii) the Annuity Account Value as
of the 10th Contract Date
anniversary ........................ $ 79,085 $215,892
(4) Guaranteed Maximum Annuity Purchase
Rates for level payments under the
IRA Assured Payment Option ......... $ 14.73 $ 14.73
(5) GMIB as of 10th Contract Date
anniversary ((3) / (4)) ............ $ 12,160 $ 14,659
In Example 1, the GMDB which is higher than the Annuity Account Value would
provide a GMIB of $12,160. In Example 2, the Annuity Account Value, which at
this point is higher than the GMDB, would provide a GMIB of $14,659.
The rates of return discussed above are for illustrative purposes only and are
not intended to represent an expected or guaranteed rate of return. Your
investment results will vary. The level of GMIB under the IRA Assured Payment
Option will also depend on the guaranteed maximum annuity purchase rates as of
the Transaction Date and the type of payments selected. The examples assume no
transfers or withdrawals, which would affect the GMDB and, thus, the GMIB.
53
<PAGE>
APPENDIX IV: EXAMPLE OF PAYMENTS UNDER THE IRA ASSURED PAYMENT
OPTION AND IRA APO PLUS
- -------------------------------------------------------------------------------
The second column in the chart below illustrates the payments for a male age 70
who purchased the IRA Assured Payment Option on October 1, 1996 with a single
contribution of $100,000, with increasing annual payments. The payments are to
commence on February 15, 1997. It assumes that the fixed period is 15 years and
that the Life Contingent Annuity will provide payments on a Single Life basis.
Based on Guaranteed Rates for the Guarantee Periods and the current purchase
rate for the Life Contingent Annuity, on October 1, 1996, the initial payment
would be $7,048.32 and would increase in each three year period to a final
payment of $10,319.45. The first payment under the Life Contingent Annuity
would be $11,351.39.
Alternatively as shown in the third and fourth columns, this individual could
purchase IRA APO Plus with the same $100,000 contribution, with the same fixed
period and the Life Contingent Annuity on a Single Life basis. Based on
Guaranteed Rates for the Guarantee Periods and the current purchase rate for
the Life Contingent Annuity, on October 1, 1996, the same initial payment of
$7,048.32 would be purchased under IRA APO Plus. However, unlike the payment
under the IRA Assured Payment Option that will increase every three years, this
initial payment under IRA APO Plus is not guaranteed to increase. Therefore,
only $79,640.09 is needed to purchase the initial payment stream, and the
remaining $20,359.91 is invested in the Investment Funds according to the
Certificate Owner's instructions. Any future increase in payments under IRA APO
Plus will depend on the investment performance in the Investment Funds.
Assuming hypothetical average annual rates of return of 0% and 8% (after
deduction of charges) for the Investment Funds, the Annuity Account Value in
the Investment Funds would grow to $20,359.91 and $25,647.63 respectively after
three years. A portion of this amount is used to purchase the increase in the
payments at the beginning of the fourth year. The remainder will stay in the
Investment Funds to be drawn upon for the purchase of increases in payments at
the end of each third year thereafter during the fixed period and at the end of
the fixed period under the Life Contingent Annuity. Based on Guaranteed Rates
for the Guarantee Periods and purchase rates for the Life Contingent Annuity as
of October 1, 1996, the third and fourth columns illustrate the increasing
payments that would be purchased under IRA APO Plus assuming 0% and 8% rates of
return respectively.
Under both options, while the Certificate Owner is living payments increase
annually after the 16th year under the Life Contingent Annuity based on the
increase, if any, in the Consumer Price Index, but in no event greater than 3%
per year.
ANNUAL PAYMENTS
ILLUSTRATIVE ILLUSTRATIVE
GUARANTEED INCREASING PAYMENTS PAYMENTS PAYMENTS
UNDER THE UNDER UNDER
YEARS IRA ASSURED PAYMENT OPTION IRA APO PLUS AT 0% IRA APO PLUS AT 8%
- ------- ------------------------------ ------------------ ------------------
1-3 $ 7,048.32 $7,048.32 $ 7,048.32
4-6 7,753.15 8,336.74 8,800.85
7-9 8,528.47 8,336.74 8,817.96
10-12 9,381.31 8,529.34 9,791.83
13-15 10,319.45 8,529.34 9,791.83
16 11,351.39 8,723.31 10,919.35
As described above, a portion of the illustrated contribution is applied to the
Life Contingent Annuity. This amount will generally be larger under the IRA
Assured Payment Option than under IRA APO Plus, and conversely a smaller
portion of the contribution will be allocated to Guarantee Periods under the
former than the latter. In this illustration, $82,069.88 is allocated under the
IRA Assured Payment Option to the Guarantee Periods and under IRA APO Plus,
$89,906.43 is allocated to the Guarantee Periods and the Investment Funds. The
balance of the $100,000 ($17,930.12 and $10,093.57, respectively) is applied to
the Life Contingent Annuity.
The rates of return of 0% and 8% are for illustrative purposes only and are not
intended to represent an expected or guaranteed rate of return. Your investment
results will vary. Payments will also depend on the Guaranteed Rates and Life
Contingent Annuity purchase rates in effect as of the Transaction Date. It is
assumed that no Lump Sum Withdrawals are taken.
54
<PAGE>
APPENDIX V: IRS TAX DEDUCTION TABLE
- -------------------------------------------------------------------------------
If your Maximum Permissible Dollar Deduction is $2,000, use this table to
estimate the amount of your contribution which will be deductible.
<TABLE>
<CAPTION>
EXCESS AGI DEDUCTION EXCESS AGI DEDUCTION EXCESS AGI DEDUCTION EXCESS AGI DEDUCTION
- ------------ ----------- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 $2,000 $2,550 $1,490 $5,050 $990 $ 7,550 $490
50 1,990 2,600 1,480 5,100 980 7,600 480
100 1,980 2,650 1,470 5,150 970 7,650 470
150 1,970 2,700 1,460 5,200 960 7,700 460
200 1,960 2,750 1,450 5,250 950 7,750 450
250 1,950 2,800 1,440 5,300 940 7,800 440
300 1,940 2,850 1,430 5,350 930 7,850 430
350 1,930 2,900 1,420 5,400 920 7,900 420
400 1,920 2,950 1,410 5,450 910 7,950 410
450 1,910 3,000 1,400 5,500 900 8,000 400
500 1,900 3,050 1,390 5,550 890 8,050 390
550 1,890 3,100 1,380 5,600 880 8,100 380
600 1,880 3,150 1,370 5,650 870 8,150 370
650 1,870 3,200 1,360 5,700 860 8,200 360
700 1,860 3,250 1,350 5,750 850 8,250 350
750 1,850 3,300 1,340 5,800 840 8,300 340
800 1,840 3,350 1,330 5,850 830 8,350 330
850 1,830 3,400 1,320 5,900 820 8,400 320
900 1,820 3,450 1,310 5,950 810 8,450 310
950 1,810 3,500 1,300 6,000 800 8,500 300
1,000 1,800 3,550 1,290 6,050 790 8,550 290
1,050 1,790 3,600 1,280 6,100 780 8,600 280
1,100 1,780 3,650 1,270 6,150 770 8,650 270
1,150 1,770 3,700 1,260 6,200 760 8,700 260
1,200 1,760 3,750 1,250 6,250 750 8,750 250
1,250 1,750 3,800 1,240 6,300 740 8,800 240
1,300 1,740 3,850 1,230 6,350 730 8,850 230
1,350 1,730 3,900 1,220 6,400 720 8,900 220
1,400 1,720 3,950 1,210 6,450 710 8,950 210
1,450 1,710 4,000 1,200 6,500 700 9,000 200
1,500 1,700 4,050 1,190 6,550 690 9,050 200
1,550 1,690 4,100 1,180 6,600 680 9,100 200
1,600 1,680 4,150 1,170 6,650 670 9,150 200
1,650 1,670 4,200 1,160 6,700 660 9,200 200
1,700 1,660 4,250 1,150 6,750 650 9,250 200
1,750 1,650 4,300 1,140 6,800 640 9,300 200
1,800 1,640 4,350 1,130 6,850 630 9,350 200
1,850 1,630 4,400 1,120 6,900 620 9,400 200
1,900 1,620 4,450 1,110 6,950 610 9,450 200
1,950 1,610 4,500 1,100 7,000 600 9,500 200
2,000 1,600 4,550 1,090 7,050 590 9,550 200
2,050 1,590 4,600 1,080 7,100 580 9,600 200
2,100 1,580 4,650 1,070 7,150 570 9,650 200
2,150 1,570 4,700 1,060 7,200 560 9,700 200
2,200 1,560 4,750 1,050 7,250 550 9,750 200
2,250 1,550 4,800 1,040 7,300 540 9,800 200
2,300 1,540 4,850 1,030 7,350 530 9,850 200
2,350 1,530 4,900 1,020 7,400 520 9,900 200
2,400 1,520 4,950 1,010 7,450 510 9,950 200
2,450 1,510 5,000 1,000 7,500 500 10,000 0
2,500 1,500
</TABLE>
- ------------
Excess AGI = Your AGI minus your THRESHOLD LEVEL:
If you are single, your Threshold Level is $25,000.
If you are married, your Threshold Level is $40,000.
If you are married and file a separate tax return, your Excess
AGI = your AGI.
55
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals 2
Part 2: Accumulation Unit Values 2
Part 3: Annuity Unit Values 2
Part 4: Custodian and Independent Accountants 3
Part 5: Money Market Fund Yield Information 3
Part 6: Long-Term Market Trends 4
Part 7: Financial Statements 6
HOW TO OBTAIN A ROLLOVER IRA STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 49
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI:
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
56
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No: 333-05593
ACCUMULATOR PROSPECTUS
DATED OCTOBER 16, 1996
--------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- ------------------------------------------------------------------------------
This prospectus describes certificates The Equitable Life Assurance Society
of the United States (EQUITABLE LIFE, WE, OUR and US) offers under a
combination variable and fixed deferred annuity contract (ACCUMULATOR) issued
on a group basis or as individual contracts. Enrollment under a group
contract will be evidenced by issuance of a certificate. Certificates and
individual contracts each will be referred to as "Certificates." Accumulator
Certificates are used for after-tax contributions to a non-qualified annuity.
A minimum initial contribution of $5,000 is required to put the Certificate
into effect.
The Accumulator is designed to provide retirement income at a future date.
Contributions accumulate on a tax-deferred basis and can be later distributed
under a number of different methods which are designed to be responsive to
the owner's (CERTIFICATE OWNER, YOU and YOUR) objectives.
The Accumulator offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 6
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the
GUARANTEED PERIOD ACCOUNT.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Guarantee Periods
Investment Funds: Expiration Dates:
- ------------------------------------------------------------------ ----------------------
o Aggressive Stock o Growth Investors o High Yield February 15,
o Common Stock o Global o Money Market o 1997 through 2007
</TABLE>
We invest each Investment Fund in Class IB shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (TRUST), a
mutual fund whose shares are purchased by separate accounts
of insurance companies. The prospectus for the Trust, which
accompanies this prospectus, describes the investment objectives, policies
and risks of the Portfolios.
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set (GUARANTEED RATE) for the entire
period. On each business day (BUSINESS DAY) we will determine the Guaranteed
Rates available for amounts newly allocated to Guarantee Periods. A market
value adjustment (positive or negative) will be made for withdrawals,
transfers, surrender and certain other transactions from a Guarantee Period
before its expiration date (EXPIRATION DATE). Each Guarantee Period has its
own Guaranteed Rates.
You may choose from a variety of payout options, including variable annuities
and fixed annuities.
This prospectus provides information about the Accumulator that prospective
investors should know before investing. You should read it carefully and
retain it for future reference. The prospectus is not valid unless
accompanied by a current prospectus for the Trust, which you should also read
carefully.
Registration statements relating to Separate Account No. 49 (SEPARATE
ACCOUNT) and interests under the Guarantee Periods have been filed with the
Securities and Exchange Commission (SEC). The statement of additional
information (SAI), dated October 16, 1996, which is part of the registration
statement for the Separate Account, is available free of charge upon request
by writing to our Processing Office or calling 1-800-789-7771, our toll-free
number. The SAI has been incorporated by reference into this prospectus. The
Table of Contents for the SAI appears at the back of this prospectus.
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 CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED.
THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- -------------------------------------------------------------------------------
Copyright 1996
The Equitable Life Assurance Society of the United States, New York, New York
10019.
All rights reserved.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1995 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (EXCHANGE
ACT) after the date hereof and prior to the termination of the offering of
the securities offered hereby shall be deemed to be incorporated by reference
in this prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified and superseded, to constitute a part of this prospectus.
Equitable Life files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically
pursuant to EDGAR under CIK No. 0000727920.
Equitable Life will provide without charge to each person to whom this
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 787
Seventh Avenue, New York, New York 10019. Attention: Corporate Secretary
(telephone: (212) 554-1234).
2
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
GENERAL TERMS PAGE 4
FEE TABLE PAGE 5
PART 1: SUMMARY PAGE 7
What is the Accumulator? 7
Investment Options 7
Contributions 7
Transfers 7
Free Look Period 7
Services We Provide 7
Withdrawal Options 8
Death Benefits 8
Guaranteed Minimum Income Benefit (GMIB) 8
Surrendering the Certificates 8
Income Annuity Options 8
Taxes 8
Deductions from Annuity
Account Value 8
Deductions from Investment
Funds 9
Trust Charges to Portfolios 9
PART 2: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 10
Equitable Life 10
Separate Account No. 49 10
The Trust 10
The Trust's Investment Adviser 11
Investment Policies and Objectives of the
Trust's Portfolios 12
PART 3: INVESTMENT PERFORMANCE PAGE 13
Performance Data for a Certificate 13
Rate of Return Data for Investment
Funds 14
Communicating Performance Data 16
Money Market Fund Yield Information 16
PART 4: THE GUARANTEED PERIOD ACCOUNT PAGE 17
Guarantee Periods 17
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to the
Expiration Date 18
Death Benefit Amount 19
Investments 19
PART 5: PROVISIONS OF THE CERTIFICATES
AND SERVICES WE PROVIDE PAGE 20
Availability of the Certificates 20
Contributions Under the Certificates 20
Methods of Payment 20
Allocation of Contributions 20
Free Look Period 21
Annuity Account Value 21
Transfers Among Investment Options 22
Dollar Cost Averaging 22
Withdrawal Options 23
Death Benefit 23
When the Certificate Owner Dies
Before the Annuitant 25
GMIB 25
Cash Value 26
Surrendering the Certificates to
Receive the Cash Value 26
Income Annuity Options 26
Assured Payment Plan 27
When Payments are Made 28
Assignment 28
Distribution of the Certificates 28
PART 6: DEDUCTIONS AND CHARGES PAGE 29
Charges Deducted from the Annuity
Account Value 29
Charges Deducted from the Investment
Funds 30
Trust Charges to Portfolios 30
Group or Sponsored Arrangements 30
Other Distribution Arrangements 31
PART 7: VOTING RIGHTS PAGE 32
Trust Voting Rights 32
Voting Rights of Others 32
Separate Account Voting Rights 32
Changes in Applicable Law 32
PART 8: TAX ASPECTS OF THE CERTIFICATES PAGE 33
Tax Changes 33
Taxation of Non-Qualified Annuities 33
Federal and State Income Tax
Withholding 34
Other Withholding 34
Special Rules for Certificates Issued in
Puerto Rico 35
Impact of Taxes to Equitable Life 35
Transfers Among Investment Options 35
PART 9: KEY FACTORS IN RETIREMENT PLANNING PAGE 36
Introduction 36
Inflation 36
Starting Early 37
Tax-Deferral 37
Investment Options 38
The Benefit of Annuitization 39
PART 10: INDEPENDENT ACCOUNTANTS PAGE 40
APPENDIX I: MARKET VALUE ADJUSTMENT EXAMPLE PAGE 41
APPENDIX II: GUARANTEED MINIMUM DEATH BENEFIT (GMDB)
EXAMPLE PAGE 42
APPENDIX III: GMIB EXAMPLES PAGE 43
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE 44
</TABLE>
3
<PAGE>
- -------------------------------------------------------------------------------
GENERAL TERMS
- -------------------------------------------------------------------------------
ACCUMULATION UNIT--Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE--The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT--The individual who is the measuring life for determining annuity
benefits.
ANNUITY ACCOUNT VALUE--The sum of the amounts in the Investment Options under
the Accumulator Certificate. See "Annuity Account Value" in Part 5.
ANNUITY COMMENCEMENT DATE--The date on which amounts are applied to provide
an annuity benefit.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading. For the purpose of determining the Transaction Date, our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York
Stock Exchange, if earlier.
CASH VALUE--The Annuity Account Value minus any applicable charges.
CERTIFICATE--The Certificate issued under the terms of a group annuity
contract and any individual contract, including any endorsements.
CERTIFICATE OWNER--The person who owns an Accumulator Certificate and has the
right to exercise all rights under the Certificate.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACT DATE--The date on which the Annuitant is enrolled under the group
annuity contract, or the effective date of the individual contract. This is
usually the Business Day we receive the initial contribution at our
Processing Office.
CONTRACT YEAR--The 12-month period beginning on your Contract Date and each
anniversary of that date.
EXPIRATION DATE--The date on which a Guarantee Period ends.
GUARANTEE PERIOD--Any of the periods of time ending on an Expiration Date
that are available for investment under the Certificates.
GUARANTEED PERIOD ACCOUNT--The Account that contains the Guarantee Periods.
GUARANTEED RATE--The annual interest rate established for each allocation to
a Guarantee Period.
INVESTMENT FUNDS--The funds of the Separate Account that are available under
the Certificates.
INVESTMENT OPTIONS--The choices for investment: the Investment Funds and each
available Guarantee Period.
MATURITY VALUE--The amount in a Guarantee Period on its Expiration Date.
PORTFOLIOS--The portfolios of the Trust that correspond to the Investment
Funds of the Separate Account.
PROCESSING DATE--The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on
the next succeeding Business Day. The Processing Date will be once each year
on each anniversary of the Contract Date.
PROCESSING OFFICE--The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 1.
SAI--The statement of additional information for the Separate Account under
the Accumulator.
SEPARATE ACCOUNT--Equitable Life's Separate Account No. 49.
TRANSACTION DATE--The Business Day we receive a contribution or a transaction
request providing all the information we need at our Processing Office. If
your contribution or request reaches our Processing Office on a non-Business
Day, or after the close of the Business Day, the Transaction Date will be the
next following Business Day. Transaction requests must be made in a form
acceptable to us.
TRUST--The Hudson River Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested.
VALUATION PERIOD--Each Business Day together with any preceding non-business
days.
4
<PAGE>
- ------------------------------------------------------------------------------
FEE TABLE
- ------------------------------------------------------------------------------
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them on the same basis with other similar products.
The table reflects both the charges of the Separate Account and the expenses
of the Trust. Charges for applicable taxes such as state or local premium
taxes may also apply. For a complete description of the charges under the
Certificate, see "Part 6: Deductions and Charges." For a complete description
of the Trust's charges and expenses, see the prospectus for the Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. A market value adjustment (either
positive or negative) also may be applicable as a result of a withdrawal,
transfer or surrender of amounts from a Guarantee Period. See "Part 4: The
Guaranteed Period Account."
<TABLE>
<CAPTION>
Contract
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE) Year
- --------------------------------------------------------------- --------
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (deducted upon surrender 1 ............... 7.00%
or for certain withdrawals. The applicable withdrawal charge percentage is 2 ............... 6.00
determined by the Contract Year in which the withdrawal is made or the 3 ............... 5.00
Certificate is surrendered beginning with "Contract Year 1" with respect 4 ............... 4.00
to each contribution withdrawn or surrendered. For each contribution, the 5 ............... 3.00
Contract Year in which we receive that contribution is "Contract Year 6 ............... 2.00
1")(1) 7 ............... 1.00
8+............... 0.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Combined
GMDB/GMIB GMDB Only
Benefit Benefit
-------- -------
GMDB/GMIB Charges (percentage deducted annually on each Processing Date
as a percentage of the guaranteed minimum death benefit then in effect)(2) . 0.45% 0.20%
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- --------------------------------------------- ..............................................
Mortality and Expense Risk Charge ............................................ 0.90%
Asset Based Administrative Charge(3) ......................................... 0.30%
----------------------------
Total Separate Account Annual Expenses ...................................... 1.20%
============================
</TABLE>
TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS IN EACH PORTFOLIO)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
----------------------------------------------------------------------------------
AGGRESSIVE COMMON GROWTH HIGH MONEY
STOCK STOCK INVESTORS GLOBAL YIELD MARKET
- ------------------------------- ------------ -------- ----------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.46% 0.35% 0.52% 0.53% 0.55% 0.40%
Rule 12b-1 Plan Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.03% 0.04% 0.08% 0.05% 0.04%
------------ -------- ----------- -------- ------- ---------
TOTAL TRUST ANNUAL EXPENSES(5) 0.74% 0.63% 0.81% 0.86% 0.85% 0.69%
============ ======== =========== ======== ======= =========
</TABLE>
- ------------
Notes:
(1) Deducted upon a withdrawal with respect to amounts in excess of the 15%
free corridor amount, and upon a surrender. See "Part 6: Deductions and
Charges," "Withdrawal Charge." We reserve the right to impose an
administrative charge of the lesser of $25 and 2.0% of the amount
withdrawn for each Lump Sum Withdrawal after the fifth in a Contract
Year. See "Withdrawal Processing Charge" also in Part 6.
(2) The guaranteed minimum death benefit (GMDB) is described under "Death
Benefit," "GMDB" and the guaranteed minimum income benefit (GMIB) is
described under "GMIB" both of which are in Part 5. See "Part 6:
Deductions and Charges," "Charges for Combined GMDB/GMIB Benefit" and
"Charges for GMDB Only Benefit."
(3) We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
(4) The Class IB shares of the Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Rule 12b-1 Plan provides that the Trust, on behalf of each Portfolio,
may pay annually up to 0.25% 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 the Class IB shares. The
Rule 12b-1 Plan fee, which may be waived in the discretion of Equitable
Distributors, Inc., may be increased only by action of the Board of
Trustees of the Trust up to a maximum of 0.50% per annum.
(5) Expenses shown for all Portfolios are estimated. The investment advisory
fee for each Portfolio may vary from year to year depending upon the
average daily net assets of the respective Portfolio of the Trust. The
maximum investment advisory fees, however, cannot be increased without a
vote of that Portfolio's shareholders. The other direct operating
expenses will also fluctuate from year to year depending on actual
expenses. See "Trust Charges to Portfolios" in Part 6.
5
<PAGE>
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner
would pay under the Combined GMDB/GMIB Benefit and under the GMDB Only
Benefit in the two situations noted below assuming a $1,000 contribution
invested in one of the Investment Funds listed, and a 5% annual return on
assets.(1)
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
COMBINED GMDB/GMIB BENEFIT ELECTION
- -----------------------------------------------------------------------------
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER YOUR
CERTIFICATE AT THE END OF CERTIFICATE AT THE END OF EACH
EACH PERIOD SHOWN, THE PERIOD SHOWN, THE EXPENSES
EXPENSES WOULD BE: WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 1 YEAR 3 YEARS
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Aggressive Stock $89.66 $120.30 $24.43 $75.66
Common Stock 88.56 116.99 23.33 72.35
Growth Investors 90.35 122.39 25.12 77.75
Global 90.85 123.89 25.62 79.25
High Yield 90.75 123.59 25.52 78.95
MoneyMarket 89.16 118.79 23.93 74.16
</TABLE>
GMDB ONLY BENEFIT ELECTION
- -----------------------------------------------------------------------------
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER YOUR
CERTIFICATE AT THE END OF CERTIFICATE AT THE END OF EACH
EACH PERIOD SHOWN, THE PERIOD SHOWN, THE EXPENSES
EXPENSES WOULD BE: WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 1 YEAR 3 YEARS
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Aggressive Stock $89.66 $115.01 $21.78 $67.38
Common Stock 88.56 111.68 20.68 64.07
Growth Investors 90.35 117.10 22.47 69.48
Global 90.85 118.61 22.97 70.98
High Yield 90.75 118.31 22.87 70.68
MoneyMarket 89.16 113.49 21.28 65.88
</TABLE>
- ------------
Notes:
(1) The amount accumulated could not be paid in the form of an annuity at
the end of any of the periods shown in the examples. If the amount
applied to purchase an annuity is less than $2,000, or the initial
payment is less than $20 we may pay the amount to the payee in a single
sum instead of as payments under an annuity form. See "Income Annuity
Options" in Part 5. The examples do not reflect charges for applicable
taxes such as state or local premium taxes that may also be deducted in
certain jurisdictions.
6
<PAGE>
- ------------------------------------------------------------------------------
PART 1: SUMMARY
- ------------------------------------------------------------------------------
The following Summary is qualified in its entirety by the terms of the
Certificate when issued and the more detailed information appearing elsewhere
in this prospectus (see "Prospectus Table of Contents").
WHAT IS THE ACCUMULATOR?
The Accumulator is a non-qualified deferred annuity designed to provide
retirement income at a future date through the investment of funds on an
after-tax basis. Generally, earnings will accumulate without being subject to
annual income tax, until withdrawn. The Accumulator features a combination of
Investment Options, consisting of Investment Funds providing variable returns
and Guarantee Periods providing guaranteed interest. Fixed and variable
income annuities are also available. The Accumulator may not be available in
all states.
INVESTMENT OPTIONS
The Accumulator offers the following Investment Options which permit you to
create your own strategy for retirement savings. All available Investment
Options may be selected under a Certificate.
INVESTMENT FUNDS
o Aggressive Stock
o Common Stock
o Growth Investors
o Global
o High Yield
o Money Market
GUARANTEE PERIODS
o Guarantee Periods (may not be available in all states) maturing in each
of calendar years 1997 through 2007.
CONTRIBUTIONS
o To put a Certificate into effect, you must make an initial contribution
of at least $5,000.
o Subsequent contributions may be made in an amount of at least $1,000.
TRANSFERS
You may make an unlimited number of transfers among the Investment Funds.
However, there are restrictions for transfers to and from the Guarantee
Periods. Transfers from a Guarantee Period may result in a market value
adjustment. Transfers among Investment Options are free of charge. Transfers
among the Investment Options are not taxable.
FREE LOOK PERIOD
You have the right to examine the Accumulator Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You may
cancel it by sending it to our Processing Office. Your refund will equal the
Annuity Account Value, reflecting any investment gain or loss, and any
positive or negative market value adjustment, through the date we receive
your Certificate at our Processing Office.
SERVICES WE PROVIDE
O REGULAR REPORTS
o Statement of your Certificate values as of the last day of the calendar
year;
o Three additional reports of your Certificate values each year;
o Annual and semi-annual statements of the Trust; and
o Written confirmation of financial transactions.
O TOLL-FREE TELEPHONE SERVICES
o Call 1-800-789-7771 for a recording of daily Accumulation Unit Values and
Guaranteed Rates applicable to the Guarantee Periods. Also call during our
regular business hours to speak to one of our customer service
representatives.
O PROCESSING OFFICE
o For contributions sent by Regular Mail:
Equitable Life
Income Management Group
Post Office Box 13014
Newark, NJ 07188-0014
7
<PAGE>
O FOR CONTRIBUTIONS SENT BY EXPRESS MAIL:
Equitable Life
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
O FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
O FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY EXPRESS MAIL:
Equitable Life
Income Management Group
200 Plaza Drive
Secaucus, NJ 07096
WITHDRAWAL OPTIONS
o Lump Sum Withdrawals--Before the Annuity Commencement Date while the
Certificate is in effect, you may take Lump Sum Withdrawals from your
Certificate at any time. The minimum withdrawal amount is $1,000.
o Systematic Withdrawals--You may also withdraw funds under our Systematic
Withdrawal option, where the minimum withdrawal amount is $250.
Withdrawals may be subject to a withdrawal charge and withdrawals from
Guarantee Periods prior to their Expiration Dates will result in a market
value adjustment. Withdrawals may be subject to income tax and tax penalty.
DEATH BENEFITS
If the Annuitant and successor Annuitant, if any, die before the Annuity
Commencement Date, the Accumulator provides a death benefit. The beneficiary
will be paid the greater of the Annuity Account Value in the Investment Funds
and the guaranteed minimum death benefit (GMDB), plus any death benefit
provided with respect to the Guaranteed Period Account.
There are two plans available under the Certificates for providing guaranteed
benefits, a Combined GMDB/GMIB Benefit and a GMDB Only Benefit.
GUARANTEED MINIMUM INCOME BENEFIT (GMIB)
The GMIB (available under the Combined GMDB/ GMIB Benefit) may not currently
be available in all states.
The GMIB provides a minimum guaranteed lifetime income from application of
the Annuity Account Value in the Investment Funds to purchase the Assured
Payment Plan (Life Annuity with a Period Certain). Any amounts in the
Guaranteed Period Account will be applied to increase the payments provided
under GMIB. A market value adjustment may apply.
SURRENDERING THE CERTIFICATES
You may surrender a Certificate and receive the Cash Value at any time before
the Annuity Commencement Date while the Annuitant is living. Withdrawal
charges and a market value adjustment may apply. A surrender may also be
subject to income tax and tax penalty.
INCOME ANNUITY OPTIONS
The Certificates provide income annuity options to which amounts may be
applied at the Annuity Commencement Date. The income annuity options are
offered on a fixed and variable basis.
TAXES
Generally, earnings on contributions made to the Certificate will not be
included in your taxable income until distributions are made from the
Certificate. Distributions prior to your attaining age 59 1/2 may be subject
to tax penalty.
DEDUCTIONS FROM ANNUITY
ACCOUNT VALUE
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of the initial and each
subsequent contribution if a withdrawal exceeds the 15% free corridor amount
or if the Certificate is surrendered. We determine the withdrawal charge
separately for each contribution in accordance with the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONTRACT YEAR
1 2 3 4 5 6 7 8+
------ ------ ------ ------ ------ ------ ------ -----
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
</TABLE>
8
<PAGE>
The applicable withdrawal charge percentage is determined by the Contract
Year in which the withdrawal is made or the Certificate is surrendered,
beginning with "Contract Year 1" with respect to each contribution withdrawn
or surrendered. For each contribution the Contract Year in which we receive
that contribution is "Contract Year 1."
Withdrawal Processing Charge
We reserve the right to impose an administrative charge of the lesser of $25
and 2.0% of the amount withdrawn for each Lump Sum Withdrawal after the fifth
in a Contract Year.
Charges for Combined GMDB/GMIB Benefit
We deduct a charge annually on each Processing Date for providing the
Combined GMDB/GMIB Benefit. The charge is equal to a percentage of the GMDB
in effect on the Processing Date. The percentage is equal to 0.45%.
Charges for GMDB Only Benefit
We deduct a charge annually on each Processing Date for providing the GMDB
Only Benefit. The charge is equal to a percentage of the GMDB in effect on
the Processing Date. The percentage is equal to 0.20%.
Charges for State Premium and Other Applicable Taxes
Generally, we deduct a charge for premium or other applicable taxes from the
Annuity Account Value on the Annuity Commencement Date. The current tax
charge that might be imposed varies by state and ranges from 0 to 3.5% (the
rate is 1% in Puerto Rico and 5% in the Virgin Islands).
DEDUCTIONS FROM INVESTMENT FUNDS
Mortality and Expense Risk Charge
We charge each Investment Fund a daily asset based charge for mortality and
expense risks equivalent to an annual rate of 0.90%.
Asset Based Administrative Charge
We charge each Investment Fund a daily asset based charge to cover
administrative expenses under the Certificate equivalent to an annual rate of
0.30%. We reserve the right to increase this charge to an annual rate of
0.35%, the maximum permitted under the Certificates.
TRUST CHARGES TO PORTFOLIOS
Investment advisory fees and other expenses of the Trust are charged daily
against the Trust's assets. These are reflected in the Portfolio's daily
share price and in the daily Accumulation Unit Value for the Investment
Funds.
The Trust Class IB shares held in the Investment Funds are subject to a
distribution fee under a Rule 12b-1 Plan. The Rule 12b-1 Plan fee is imposed
against the assets of each Portfolio at the annual rate of 0.25%. The fee,
which may be waived in the discretion of Equitable Distributors, Inc., may be
increased only by action of the Board of Trustees of the Trust up to a
maximum of 0.50% per annum. We offer other deferred variable annuities that
invest in Trust shares that are not subject to the Rule 12b-1 Plan fee and
that bear different charges and expenses. For more information about the
Plan, and the address for any inquiries about the Plan, see "The Trust" in
the accompanying Trust prospectus.
9
<PAGE>
- ------------------------------------------------------------------------------
PART 2: EQUITABLE LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT FUNDS
- ------------------------------------------------------------------------------
EQUITABLE LIFE
Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest
life insurance companies in the United States. Equitable Life has been
selling annuities since the turn of the century. Our home office is located
at 787 Seventh Avenue, New York, New York 10019. We are authorized to sell
life insurance and annuities in all fifty states, the District of Columbia,
Puerto Rico and the Virgin Islands. We maintain local offices throughout the
United States.
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest stockholder of the Holding
Company is AXA S.A. AXA beneficially owns 60.6% of the outstanding shares of
common stock of the Holding Company plus convertible preferred stock. Under
its investment arrangements with Equitable Life and the Holding Company, AXA
is able to exercise significant influence over the operations and capital
structure of the Holding Company and its subsidiaries, including Equitable
Life. AXA, a French company, is the holding company for an international
group of insurance and related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $217.6 billion of assets as of June 30, 1996.
SEPARATE ACCOUNT NO. 49
Separate Account No. 49 is organized as a unit investment trust, a type of
investment company, and is registered with the SEC under the Investment
Company Act of 1940 (1940 Act). This registration does not involve any
supervision by the SEC of the management or investment policies of the
Separate Account. The Separate Account has several Investment Funds, each of
which invests in shares of a corresponding Portfolio of the Trust. Because
amounts allocated to the Investment Funds are invested in a mutual fund,
investment return and principal will fluctuate and the Certificate Owner's
Accumulation Units may be worth more or less than the original cost when
redeemed.
Under the New York Insurance Law, the portion of the Separate Account's
assets equal to the reserves and other liabilities relating to the
Certificates are not chargeable with liabilities arising out of any other
business we may conduct. Income, gains or losses, whether or not realized,
from assets of the Separate Account are credited to or charged against the
Separate Account without regard to our other income gains or losses. We are
the issuer of the Certificates, and the obligations set forth in the
Certificates (other than those of Annuitants or Certificate Owners) are our
obligations.
In addition to contributions made under the Accumulator Certificates, we may
allocate to the Separate Account monies received under other contracts,
certificates, or agreements. Owners of all such contracts, certificates or
agreements will participate in the Separate Account in proportion to the
amounts they have in the Investment Funds that relate to their contracts,
certificates or agreements. We may retain in the Separate Account assets that
are in excess of the reserves and other liabilities relating to the
Accumulator Certificates or to other contracts, certificates or agreements,
or we may transfer the excess to our General Account.
We reserve the right, subject to compliance with applicable law; (1) to add
Investment Funds (or sub-funds of Investment Funds) to, or to remove
Investment Funds (or sub-funds) from, the Separate Account, or to add other
separate accounts; (2) to combine any two or more Investment Funds or
sub-funds thereof; (3) to transfer the assets we determine to be the share of
the class of contracts to which the Certificate belongs from any Investment
Fund to another Investment Fund; (4) to operate the Separate Account or any
Investment Fund as a management investment company under the 1940 Act, in
which case charges and expenses that otherwise would be assessed against an
underlying mutual fund would be assessed against the Separate Account; (5) to
deregister the Separate Account under the 1940 Act, provided that such action
conforms with the requirements of applicable law; (6) to restrict or
eliminate any voting rights as to the Separate Account; and (7) to cause one
or more Investment Funds to invest some or all of their assets in one or more
other trusts or investment companies. If any changes are made that result in
a material change in the underlying investment policy of an Investment Fund,
you will be notified as required by law.
THE TRUST
The Trust is an open-end diversified management investment company, more
commonly called a mu-
10
<PAGE>
tual fund. As a "series" type of mutual fund, it issues several different
series of stock, each of which relates to a different Portfolio of the Trust.
The Trust commenced operations in January 1976 with a predecessor of its
Common Stock Portfolio. The Trust does not impose a sales charge or "load"
for buying and selling its shares. All dividend distributions to the Trust
are reinvested in full and fractional shares of the Portfolio to which they
relate. Each Investment Fund invests in Class IB shares of a corresponding
Portfolio of the Trust. More detailed information about the Trust, its
investment objectives, policies, restrictions, risks, expenses, the Rule
12b-1 Plan relating to the Class IB shares, and all other aspects of its
operations appears in its prospectus which accompanies this prospectus or in
its statement of additional information.
THE TRUST'S INVESTMENT ADVISER
The Trust is advised by Alliance Capital Management L.P. (Alliance), which is
registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. Alliance, a publicly-traded limited partnership, is
indirectly majority-owned by Equitable Life. On June 30, 1996, Alliance was
managing over $168 billion in assets. Alliance acts as an investment adviser
to various separate accounts and general accounts of Equitable Life and other
affiliated insurance companies. Alliance also provides management and
consulting services to mutual funds, endowment funds, insurance companies,
foreign entities, qualified and non-tax qualified corporate funds, public and
private pension and profit-sharing plans, foundations and tax-exempt
organizations.
Alliance's record as an investment manager is based, in part, on its ability
to provide a diversity of investment services to domestic, international and
global markets. Alliance prides itself on its ability to attract and retain a
quality, professional work force. Alliance employs more than 188 investment
professionals, including 74 research analysts. Portfolio managers have an
average investment experience of more than 14 years.
Alliance's main office is located at 1345 Avenue of the Americas, New York,
New York 10105.
11
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF THE TRUST'S PORTFOLIOS
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of
each Portfolio will affect its return and its risks. There is no guarantee
that these objectives will be achieved.
The policies and objectives of the Trust's Portfolios are as follows:
<TABLE>
<CAPTION>
Portfolio Investment Policy Objective
- -------------------- ---------------------------------------------------- -----------------------------
<S> <C> <C>
Aggressive Stock Primarily common stocks and other equity-type Long-term growth of capital
securities issued by medium and other smaller sized
companies with strong growth potential.
Common Stock Primarily common stock and other equity-type Long-term growth of capital
instruments. and increasing income
Growth Investors Diversified mix of publicly-traded, fixed-income and High total return consistent
equity securities; asset mix and security selection with the adviser's
based upon factors expected to increase possibility determination of reasonable
of high long-term return. The Portfolio is generally risk
expected to hold approximately 70% of its assets in
equity securities and 30% in fixed income
securities.
Global Primarily equity securities of non-United States as Long-term growth of capital
well as United States companies.
High Yield Primarily a diversified mix of high yield, High return by maximizing
fixed-income securities involving greater volatility current income and, to the
of price and risk of principal and income than high extent consistent with that
quality fixed-income securities. The medium and objective, capital
lower quality debt securities in which the Portfolio appreciation
may invest are known as "junk bonds."
Money Market Primarily high quality short-term money market High level of current income
instruments. while preserving assets and
maintaining liquidity
</TABLE>
12
<PAGE>
- ------------------------------------------------------------------------------
PART 3: INVESTMENT PERFORMANCE
- ------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds
calculated by two methods. The first method, used in calculating values for
the two tables in "Performance Data for a Certificate," reflects all
applicable fees and charges other than the charge for tax such as premium
taxes. The second method, used in preparing rates of return for the three
tables in "Rate of Return Data for Investment Funds," reflects all fees and
charges other than the withdrawal charge, the GMDB/GMIB charge and the charge
for tax such as premium taxes. These additional charges would effectively
reduce the rates of return credited to a particular Certificate.
The Separate Account was recently established and has had no prior
operations, and no Certificates have been issued prior to the date of this
prospectus. The calculations of investment performance shown below are based
on the actual investment results of the Portfolios of the Trust, from which
certain fees and charges applicable under the Accumulator have been deducted.
The investment results of the Portfolios of the Trust have not been adjusted
to reflect the Rule 12b-1 Plan fee relating to the Class IB shares, which
were not available for purchase prior to the date of this prospectus. The
Rule 12b-1 Plan fee would effectively reduce the investment performance
shown. The results shown are not an estimate or guarantee of future
investment performance, and do not reflect the actual experience of amounts
invested under a particular Certificate.
See "Part 4: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
PERFORMANCE DATA FOR A CERTIFICATE
The standardized performance data in the following tables illustrate the
average annual total return of the Investment Funds over the periods shown,
assuming a single initial contribution of $1,000 and the surrender of the
Certificate at the end of each period. These tables (which reflect the first
calcu lation method described above) are prepared in a manner prescribed by
the SEC for use when we advertise the performance of the Separate Account. An
Investment Fund's average annual total return is the annual rate of growth of
the Investment Fund that would be necessary to achieve the ending value of a
contribution kept in the Investment Fund for the period specified.
Each calculation assumes that the $1,000 contribution was allocated to only
one Investment Fund, no transfers or subsequent contributions were made and
no amounts were allocated to any other Investment Option under the
Certificate.
In order to calculate annualized rates of return, we divide the Cash Value of
a Certificate which is surrendered on December 31, 1995 by the $1,000
contribution made at the beginning of each period illustrated. The result of
that calculation is the total growth rate for the period. Then we annualize
that growth rate to obtain the average annual percentage increase (decrease)
during the period shown. When we "annualize," we assume that a single rate of
return applied each year during the period will produce the ending value,
taking into account the effect of compounding.
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1995*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------------
INVESTMENT THREE FIVE TEN SINCE
FUND ONE YEAR YEARS YEARS YEARS INCEPTION**
- ---------------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Aggressive Stock $1,231 $1,363 $2,461 -- $ 5,280
Common Stock 1,239 1,498 2,108 $3,530 11,689
Growth Investors 1,179 1,299 2,018 -- 2,286
Global 1,104 1,531 1,961 -- 2,139
High Yield 1,115 1,323 1,832 -- 2,076
Money Market 975 1,032 1,120 1,525 2,235
</TABLE>
- ------------
* See footnotes on next page.
13
<PAGE>
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1995*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------------
INVESTMENT THREE FIVE TEN SINCE
FUND ONE YEAR YEARS YEARS YEARS INCEPTION**
- ---------------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Aggressive Stock 23.06% 10.88% 19.73% -- 18.10%
Common Stock 23.87 14.42 16.09 13.44% 13.08
Growth Investors 17.86 9.10 15.07 -- 12.54
Global 10.39 15.27 14.42 -- 8.82
High Yield 11.48 9.78 12.87 -- 8.45
Money Market (2.52) 1.05 2.29 4.31 5.51
</TABLE>
[FN]
- ------------
* The tables reflect charges under a Certificate with the 0.45% GMDB/GMIB
charge.
** The "Since Inception" dates are as follows: Aggressive Stock (January
27, 1986); Common Stock (January 13, 1976); Growth Investors (October
2, 1989); Global (August 27, 1987); High Yield (January 2, 1987); and
Money Market (July 13, 1981).
RATE OF RETURN DATA FOR INVESTMENT FUNDS
The following tables (which reflect the second calculation method described
above) provide you with information on rates of return on an annualized,
cumulative and year-by-year basis.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends. Cumulative rates of
return reflect performance over a stated period of time. Annualized rates of
return represent the annual rate of growth that would have produced the same
cumulative return, if performance had been constant over the entire period.
Performance data of the Money Market and Common Stock Funds for the periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which were
reorganized in unit investment trust form. The "Since Inception" figures for
these Funds are based on the date of inception of the predecessor separate
accounts. This performance data has been adjusted to reflect the maximum
investment advisory fee payable for the corresponding Portfolio of the Trust,
as well as an assumed charge of 0.06% for direct operating expenses.
Performance data for the remaining Investment Funds reflect (i) the
investment results of the corresponding Portfolios of the Trust from the date
of inception of those Portfolios and (ii) the actual investment advisory fee,
and direct operating expenses of the relevant Portfolio.
The performance data for all periods has also been adjusted to reflect the
Separate Account mortality and expense risk charge, and the asset based
administrative charge equal to a total of 1.20% relating to the Certificates,
as well as the Trust's expenses.
BENCHMARKS
Market indices are not subject to any charges for investment advisory fees,
brokerage commission or other operating expenses typically associated with a
managed portfolio. Nor do they reflect other charges such as the mortality
and expense risk charge and the asset based administrative charge under the
Certificates. Comparisons with these benchmarks, therefore, are of limited
use. We include them because they are widely known and may help you to
understand the universe of securities from which each Portfolio is likely to
select its holdings. Benchmark data reflect the reinvestment of dividend
income.
PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS:
AGGRESSIVE STOCK: January 27, 1986; 50% Standard & Poor's Mid-Cap Total
Return Index and 50% Russell 2000 Small Stock Index.
COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
GROWTH INVESTORS: October 2, 1989; 30% Lehman Government/Corporate Bond Index
and 70% Standard & Poor's 500 Index.
GLOBAL: August 27, 1987; Morgan Stanley Capital International World Index.
HIGH YIELD: January 2, 1987; Merrill Lynch High Yield Master Index.
MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill Index.
The Lipper Variable Insurance Products Performance Analysis Survey (Lipper)
records the performance of a large group of variable annuity products,
including
14
<PAGE>
managed separate accounts of insurance companies. According to Lipper
Analytical Services, Inc., the data are presented net of investment
management fees, direct operating expenses and asset-based charges applicable
under annuity contracts. Lipper data provide a more accurate picture than
market benchmarks of the Accumulator performance relative to other variable
annuity products.
ANNUALIZED RATES OF RETURN FOR PERIODS ENDING DECEMBER 31, 1995:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS INCEPTION
-------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK 30.06% 12.55% 20.29% -- -- 18.53%
Lipper Small Company Growth 28.19 15.26 25.72 -- -- 16.06
Benchmark 29.69 13.67 20.16 -- -- 13.58
COMMON STOCK 30.87 15.99 16.74 13.78% 13.00% 13.41
Lipper Growth 31.08 12.09 15.53 12.05 12.26 12.25
Benchmark 37.54 15.30 16.57 14.87 14.79 14.24
GROWTH INVESTORS 24.86 10.81 15.72 -- -- 14.64
Lipper Flexible Portfolio 21.58 9.32 11.43 -- -- 9.44
Benchmark 32.05 13.35 14.70 -- -- 11.97
GLOBAL 17.39 16.80 15.10 -- -- 10.04
Lipper Global 13.87 13.45 9.10 -- -- 2.52
Benchmark 20.72 15.83 11.74 -- -- 6.75
HIGH YIELD 18.48 11.46 13.57 -- -- 8.89
Lipper High Yield 17.36 9.80 15.79 -- -- 8.87
Benchmark 19.91 11.57 17.17 -- -- 11.28
MONEY MARKET 4.48 2.99 3.23 4.76 -- 6.16
Lipper Money Market 4.35 2.88 3.10 4.71 -- 6.27
Benchmark 5.74 4.34 4.47 5.77 -- 7.09
</TABLE>
[FN]
- ------------
* See footnote on next page.
CUMULATIVE RATES OF RETURN FOR PERIODS ENDING DECEMBER 31, 1995:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS INCEPTION
-------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK 30.06% 42.58% 151.85% -- -- 440.73%
Lipper Small Company Growth 28.19 55.24 268.67 -- -- 337.96
Benchmark 29.69 46.89 150.49 -- -- 254.09
COMMON STOCK 30.87 56.05 116.80 263.70% 525.22% 1,133.55
Lipper Growth 31.08 41.29 107.30 215.49 483.45 920.87
Benchmark 37.54 53.30 115.25 300.11 692.18 1,327.94
GROWTH INVESTORS 24.86 36.07 107.47 -- -- 134.80
Lipper Flexible Portfolio 21.58 30.92 72.73 -- -- 76.92
Benchmark 32.05 45.64 98.56 -- -- 102.72
GLOBAL 17.39 59.33 102.02 -- -- 122.13
Lipper Global 13.87 46.36 55.44 -- -- 23.09
Benchmark 20.72 55.39 74.20 -- -- 72.38
HIGH YIELD 18.48 38.47 88.94 -- -- 115.04
Lipper High Yield 17.36 32.45 108.96 -- -- 117.28
Benchmark 19.91 38.89 120.85 -- -- 161.50
MONEY MARKET 4.48 9.23 17.25 59.16 -- 137.35
Lipper Money Market 4.35 8.87 16.48 58.55 -- 140.42
Benchmark 5.74 13.58 24.45 75.23 -- 170.07
</TABLE>
[FN]
- ------------
* See footnote on next page.
15
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1983 1984 1985 1986 1987 1988
-------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK -- -- -- 33.77% 6.01% (0.08)%
COMMON STOCK** 24.60% (3.14)% 31.83% 15.96 6.15 20.97
GROWTH INVESTORS -- -- -- -- -- --
GLOBAL -- -- -- -- (13.63) 9.55
HIGH YIELD -- -- -- -- 3.44 8.42
MONEY MARKET** 7.65 9.53 7.17 5.33 5.35 6.03
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AGGRESSIVE STOCK 41.79% 6.86% 84.63% (4.33)% 15.35% (4.97)% 30.06%
COMMON STOCK** 24.09 (9.22) 36.23 1.98 23.33 (3.31) 30.87
GROWTH INVESTORS 3.52 9.33 47.12 3.64 13.89 (4.31) 24.86
GLOBAL 25.22 (7.20) 28.99 (1.70) 30.54 3.97 17.39
HIGH YIELD 3.88 (2.31) 22.97 10.96 21.67 (3.95) 18.48
MONEY MARKET** 7.88 6.93 4.91 2.32 1.73 2.77 4.48
<FN>
- ------------
</TABLE>
* Returns do not reflect the withdrawal charge, the GMDB/GMIB charge, and
any charge for tax such as premium taxes.
<TABLE>
<CAPTION>
** Prior to 1983 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982
----- ----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK 8.14% (10.33)% 6.94% 28.28% 48.32% (6.99)% 16.16%
MONEY MARKET -- -- -- -- -- 5.68 11.67
</TABLE>
COMMUNICATING PERFORMANCE DATA
In reports or other communications or in advertising material, we may
describe general economic and market conditions affecting the Separate
Account and the Trust and may compare the performance of the Investment Funds
with (1) that of other insurance company separate accounts or mutual funds
included in the rankings prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., VARDS or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2) other
appropriate indices of investment securities and averages for peer universes
of funds which are shown under "Benchmarks" and "Fund Inception Dates and
Comparative Benchmarks" in this Part 3, or (3) data developed by us derived
from such indices or averages. The Morningstar Variable Annuity/Life Report
consists of nearly 700 variable life and annuity funds, all of which report
their data net of investment management fees, direct operating expenses and
separate account charges. VARDS is a monthly reporting service that monitors
approximately 760 variable life and variable annuity funds on performance and
account information. Advertisements or other communications furnished to
present or prospective Certificate Owners may also include evaluations of an
Investment Fund or Portfolio by financial publications that are nationally
recognized such as Barron's, Morningstar's Variable Annuity Sourcebook,
Business Week, Chicago Tribune, Forbes, Fortune, Institutional Investor,
Investment Adviser, Investment Dealer's Digest, Investment Management Weekly,
Los Angeles Times, Money, Money Management Letter, Kiplinger's Personal
Finance, Financial Planning, National Underwriter, Pension & Investments, USA
Today, Investor's Daily, The New York Times, and The Wall Street Journal.
MONEY MARKET FUND YIELD
INFORMATION
The current yield and effective yield of the Money Market Fund may appear in
reports and promotional material to current or prospective Certificate
Owners.
Current yield for the Money Market Fund will be based on net changes in a
hypothetical investment over a given seven-day period, exclusive of capital
changes, and then "annualized" (assuming that the same seven-day result would
occur each week for 52 weeks). "Effective yield" is calculated in a manner
similar to that used to calculate current yield, but when annualized, any
income earned by the investment is assumed to be reinvested. The "effective
yield" will be slightly higher than the "current yield" because any earnings
are compounded weekly. Money Market Fund yields and effective yields assume
the deduction of all Certificate charges and expenses other than the
withdrawal charge, GMDB/GMIB charge and any charge for tax such as premium
tax. See "Part 4: Money Market Fund Yield Information" in the SAI.
16
<PAGE>
- -------------------------------------------------------------------------------
PART 4: THE GUARANTEED PERIOD ACCOUNT
- -------------------------------------------------------------------------------
GUARANTEE PERIODS
Each amount allocated to a Guarantee Period and held to the Period's
Expiration Date accumulates interest at a Guaranteed Rate. The Guaranteed
Rate for each allocation is the annual interest rate applicable to new
allocations to that Guarantee Period, which was in effect on the Transaction
Date for the allocation. We may establish different Guaranteed Rates under
different classes of Certificates. We use the term GUARANTEED PERIOD AMOUNT
to refer to the amount allocated to and accumulated in each Guarantee Period.
The Guaranteed Period Amount is reduced or increased by any market value
adjustment as a result of withdrawals, transfers or charges (see below).
Your Guaranteed Period Account contains the Guarantee Periods to which you
have allocated Annuity Account Value. On the Expiration Date of a Guarantee
Period, its Guaranteed Period Amount and its value in the Guaranteed Period
Account are equal. We call the Guaranteed Period Amount on an Expiration Date
the Guarantee Period's Maturity Value. We report the Annuity Account Value in
your Guaranteed Period Account to reflect any market value adjustment that
would apply if all Guaranteed Period Amounts were withdrawn as of the
calculation date. The Annuity Account Value in the Guaranteed Period Account
on any Business Day, therefore, will be the sum of the present value of the
Maturity Value in each Guarantee Period, using the Guaranteed Rate in effect
for new allocations to each such Guarantee Period on such date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1997 through 2007.
Not all Guarantee Periods will be available for Annuitant ages 76 and above.
See "Allocation of Contributions" in Part 5. Also, the Guarantee Periods may
not be available for investment in all states. As Guarantee Periods expire we
expect to add maturity years so that generally 10 are available at any time.
We will not accept allocations to a Guarantee Period if, on the Transaction
Date:
o Such Transaction Date and the Expiration Date for such Guarantee Period
fall within the same calendar year.
o The Guaranteed Rate is 3%.
o The Guarantee Period has an Expiration Date beyond the February 15th
immediately following the Annuity Commencement Date.
Guaranteed Rates and Price Per $100 of Maturity Value
Because the Maturity Value of a contribution allocated to a Guarantee Period
can be determined at the time it is made, you can determine the amount
required to be allocated to a Guarantee Period in order to produce a target
Maturity Value (assuming no transfers or withdrawals are made and no charges
are allocated to the Guarantee Period). The required amount is the present
value of that Maturity Value at the Guaranteed Rate on the Transaction Date
for the contribution, which may also be expressed as the price per $100 of
Maturity Value on such Transaction Date.
Guaranteed Rates for new allocations as of October 1, 1996 and the related
price per $100 of Maturity Value for each currently available Guarantee
Period were as follows:
<TABLE>
<CAPTION>
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE PER $100
FEBRUARY 15TH OF OCTOBER 1, OF MATURITY
MATURITY YEAR 1996 VALUE
- ---------------- ------------ --------------
<S> <C> <C>
1997 4.21% $98.46
1998 4.80 93.76
1999 5.10 88.86
2000 5.29 84.03
2001 5.41 79.40
2002 5.52 74.90
2003 5.65 70.43
2004 5.66 66.62
2005 5.80 62.34
2006 5.92 58.30
2007 6.03 54.45
</TABLE>
Allocation Among Guarantee Periods
The same approach as described above may also be used to determine the amount
which you would need to allocate to each Guarantee Period in order to create
a series of constant Maturity Values for two or more years.
For example, if you wish to have $100 mature on February 15th of each of
years 1997 through 2001, then according to the above table the lump sum
contribution you would have to make as of October 1, 1996 would be $444.51
(i.e., the sum of the price per $100 of Maturity Value for each maturity year
from 1997 through 2001).
17
<PAGE>
The above table is provided to illustrate the use of present value
calculations. It does not take into account the potential for charges to be
deducted or withdrawals or transfers from Guarantee Periods. Actual
calculations will also be based on Guaranteed Rates on each actual
Transaction Date, which may differ.
Options at Expiration Date
We will notify you on or before December 31st prior to the Expiration Date of
each Guarantee Period in which you have any Guaranteed Period Amount. You may
elect one of the following options to be effective at the Expiration Date,
subject to the restrictions set forth on the prior page and under "Allocation
of Contributions" in Part 5:
(a) to transfer the Maturity Value into any Guarantee Period we are then
offering, or into any of our Investment Funds; or
(b) to withdraw the Maturity Value (subject to any withdrawal charges
which may apply).
If we have not received your election as of the Expiration Date, the Maturity
Value in the expired Guarantee Period will be transferred into the Guarantee
Period with the earliest Expiration Date.
MARKET VALUE ADJUSTMENT FOR
TRANSFERS, WITHDRAWALS OR SURRENDER
PRIOR TO THE EXPIRATION DATE
Any withdrawal (including transfers, surrender and deductions) from a
Guarantee Period prior to its Expiration Date will cause any remaining
Guaranteed Period Amount for that Guarantee Period to be increased or
decreased by a market value adjustment. The amount of the adjustment will
depend on two factors: (a) the difference between the Guaranteed Rate
applicable to the amount being withdrawn and the Guaranteed Rate on the
Transaction Date for new allocations to a Guarantee Period with the same
Expiration Date, and (b) the length of time remaining until the Expiration
Date. In general, if interest rates have risen between the time when an
amount was originally allocated to a Guarantee Period and the time it is
withdrawn, the market value adjustment will be negative, and vice versa; and
the longer the period of time remaining until the Expiration Date, the
greater the impact of the interest rate difference. Therefore, it is possible
that a significant rise in interest rates could result in a substantial
reduction in your Annuity Account Value in the Guaranteed Period Account
related to longer term Guarantee Periods.
The market value adjustment (positive or negative) resulting from a
withdrawal of all funds from a Guarantee Period will be determined for each
contribution allocated to that Guarantee Period as follows:
(1) We determine the present value of the Maturity Value on the Transaction
Date as follows:
(a) We determine the Guaranteed Period Amount that would be payable on
the Expiration Date, using the applicable Guaranteed Rate.
(b) We determine the period remaining in your Guarantee Period (based on
the Transaction Date) and convert it to fractional years based on a
365 day year. For example three years and 12 days becomes 3.0329.
(c) We determine the current Guaranteed Rate which applies on the
Transaction Date to new allocations to the same Guarantee Period.
(d) We determine the present value of the Guaranteed Period Amount
payable at the Expiration Date, using the period determined in (b)
and the rate determined in (c).
(2) We determine the Guaranteed Period Amount as of the current date.
(3) We subtract (2) from the result in (1)(d). The result is the market
value adjustment applicable to such Guarantee Period, which may be
positive or negative.
The market value adjustment (positive or negative) resulting from a
withdrawal of a portion of the amount in a Guarantee Period will be a
percentage of the market value adjustment that would be applicable upon a
withdrawal of all funds from a Guarantee Period. This percentage is
determined by (i) dividing the amount of the withdrawal or transfer from the
Guarantee Period by (ii) the Annuity Account Value in such Guarantee Period
prior to the withdrawal or transfer. See Appendix I for an example.
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose even if new allocations to that Guarantee
Period would not be accepted at the time. This rate will not be less than 3%.
If we do not have a Guaranteed Rate in effect for a Guarantee Period to which
the "current Guaranteed Rate" in (1)(c) would apply, we will use the rate at
the next closest Expiration Date. If we are no longer offering new Guarantee
Periods, the "current Guaranteed Rate" will be determined in accordance with
our procedures then in effect. For purposes of calculating the market value
adjustment only, we reserve the right to add up to 0.25% to the current rate
in (1)(c) above.
18
<PAGE>
DEATH BENEFIT AMOUNT
The death benefit provided with respect to the Guaranteed Period Account is
equal to the Annuity Account Value in the Guaranteed Period Account or, if
greater, the sum of the Guaranteed Period Amounts in each Guarantee Period.
See "Annuity Account Value" in Part 5.
INVESTMENTS
Amounts allocated to Guarantee Periods will be held in a "nonunitized"
separate account established by Equitable Life under the laws of New York.
This separate account provides an additional measure of assurance that full
payment of amounts due under the Guarantee Periods will be made. Under the
New York Insurance Law, the portion of the separate account's assets equal to
the reserves and other contract liabilities relating to the Certificates are
not chargeable with liabilities arising out of any other business we may
conduct.
Investments purchased with amounts allocated to the Guaranteed Period Account
are the property of Equitable Life. Any favorable investment performance on
the assets held in the separate account accrues solely to Equitable Life's
benefit. Certificate Owners do not participate in the performance of the
assets held in this separate account. Equitable Life may, subject to
applicable state law, transfer all assets allocated to the separate account
to its general account. Regardless of whether assets supporting Guaranteed
Period Accounts are held in a separate account or our general account, all
benefits relating to the Annuity Account Value in the Guaranteed Period
Account are guaranteed by Equitable Life.
Equitable Life has no specific formula for establishing the Guaranteed Rates
for the Guarantee Periods. Equitable Life expects the rates to be influenced
by, but not necessarily correspond to, among other things, the yields on the
fixed income securities to be acquired with amounts that are allocated to the
Guarantee Periods at the time that the Guaranteed Rates are established. Our
current plans are to invest such amounts in fixed income obligations,
including corporate bonds, mortgage backed and asset backed securities and
government and agency issues having durations in the aggregate consistent
with those of the Guarantee Periods.
Although the foregoing generally describes Equitable Life's plans for
investing the assets supporting Equitable Life's obligations under the fixed
portion of the Certificates, Equitable Life is not obligated to invest those
assets according to any particular plan except as may be required by state
insurance laws, nor will the Guaranteed Rates Equitable Life establishes be
determined by the performance of the nonunitized separate account.
General Account
Our general account supports all of our policy and contract guarantees,
including those applicable to the Guaranteed Period Account, as well as our
general obligations.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations
of all jurisdictions where we are authorized to do business. Because of
applicable exemptions and exclusionary provisions, interests in the general
account have not been registered under the Securities Act of 1933 (1933 Act),
nor is the general account an investment company under the 1940 Act.
Accordingly, the general account is not subject to regulation under the 1933
Act or the 1940 Act. However, the market value adjustment interests under the
Certificates are registered under the 1933 Act.
We have been advised that the staff of the SEC has not made a review of the
disclosure that is included in this prospectus for your information that
relates to the general account (other than market value adjustment
interests). The disclosure, however, may be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
19
<PAGE>
- -------------------------------------------------------------------------------
PART 5: PROVISIONS OF THE CERTIFICATES AND SERVICES WE PROVIDE
- -------------------------------------------------------------------------------
The provisions of your Certificate may be restricted by applicable laws or
regulations.
AVAILABILITY OF THE CERTIFICATES
The Certificates are available for Annuitant issue ages 20 through 83. These
Certificates may not be available in all states.
CONTRIBUTIONS UNDER THE CERTIFICATES
Your initial contribution must be at least $5,000.
Subsequent contributions may be made in an amount of at least $1,000 at any
time until the Annuitant attains age 84. We may refuse to accept any
contributions if the sum of all contributions under all accumulation
Certificates with the same Annuitant would then total more than $1,000,000.
We reserve the right to limit aggregrate contributions made after the first
Contract Year to 150% of first year contributions. We may also refuse to
accept any contribution if the sum of all contributions under all Equitable
Life annuity accumulation certificates/ contracts that you own would then
total more than $2,500,000.
Contributions are credited as of the Transaction Date.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check. All
contributions made by check must be drawn on a bank or credit union in the
U.S., in U.S. dollars and made payable to Equitable Life. All checks are
accepted subject to collection. All contributions should be sent to Equitable
Life at our Processing Office address designated for contributions.
Wire Transmittals
We will accept, by agreement with broker-dealers who use wire transmittals,
transmittal of initial contributions by wire order from the broker-dealer to
the Processing Office. Such transmittals must be accompanied by essential
information we require to allocate the contribution.
Contributions accepted by wire order will be invested at the value next
determined following receipt for contributions allocated to the Investment
Funds. Contributions allocated to the Guaranteed Period Account will receive
the Guaranteed Rate(s) in effect for the applicable Guarantee Period(s) on
the date contributions are received. Wire orders not accompanied by complete
information, may be retained for a period not exceeding five Business Days
while an attempt is made to obtain the required information. If the required
information cannot be obtained within those five Business Days, the
Processing Office will inform the broker-dealer, on behalf of the applicant,
of the reasons for the delay and return the contribution immediately to the
applicant, unless the applicant specifically consents to our retaining the
contribution until the required information is received by the Processing
Office.
Notwithstanding the acceptance by us of the wire order and the essential
information, however, a Certificate generally will not be issued until the
receipt and acceptance of a properly completed application. In certain cases
we may issue a Certificate based on information forwarded electronically. In
these cases, you must sign our Acknowledgment of Receipt form.
Where a signed application is required, no financial transactions will be
permitted until such time as we receive such signed application and have
issued the Certificate. Where an Acknowledgment of Receipt is required,
financial transactions will only be permitted if requested in writing, signed
by the Certificate Owner and signature guaranteed until we receive such
signed Acknowledgment of Receipt.
After your Certificate has been issued, subsequent contributions may be
transmitted by wire.
ALLOCATION OF CONTRIBUTIONS
You have two options from which to choose for allocation of your
contributions: Self-Directed Allocation and Principal Assurance.
Self-Directed Allocation
You design your own investment program by allocating your contributions among
the Investment Options in any way you choose. Your contributions may be
allocated to one or up to all of the available Investment Options at any
time. We allocate contributions among the Investment Options according to
your allocation percentages. Allocations must be in whole percentages.
Allocation percentages can be changed at any time by writing to our
Processing Office, or by telephone. The change will be effective on the
Transaction Date and will remain in effect for future contributions unless
another change is requested. Allocation of the initial contribution is
subject to the provisions for the free look period. See "Free Look Period"
below. Allocation of any contribution to the Guaranteed Period Account is
subject to the following restrictions.
20
<PAGE>
o No more than 60% of any contribution may be allocated to the
Guaranteed Period Account.
o For Annuitant ages 76 and above, allocations may be made only to
Guarantee Periods with maturities of five years or less; however, in
no event may allocations be made to Guarantee Periods with maturities
beyond the February 15th immediately following the Annuity
Commencement Date.
Principal Assurance
This option (available for Annuitant issue ages 20 through 75) is designed to
assure that your Maturity Value in a specified Guarantee Period equals your
initial contribution, while at the same time allowing you to invest in the
Investment Funds. The maturity year you select for such specified Guaranteed
Period generally may not be later than 10 years nor earlier than seven years.
In order to accomplish this strategy, we will allocate a portion (equal to
the present value) of your initial contribution to a Guarantee Period based
on the year you select. See "Guaranteed Rates and Price Per $100 of Maturity
Value" in Part 4. You may allocate the balance of your contribution to the
Investment Funds in any way you choose. Such allocations to the Investment
Funds must be in whole percentages. Allocation of the portion of your initial
contribution to the Investment Funds is subject to the provisions for the
free look period. See "Free Look Period" below.
Principal Assurance may only be elected at issue of your Certificate and
assumes no withdrawals or transfers of the amount allocated to the specified
Guarantee Period.
Subsequent contributions must be allocated under "Self-Directed Allocation"
described above.
Allocations to the Investment Funds
A contribution allocated to an Investment Fund purchases Accumulation Units
in that Investment Fund based on the Accumulation Unit Value for that
Investment Fund computed on the Transaction Date.
Allocations to the Guaranteed Period Account
Contributions allocated to the Guaranteed Period Account will have the
Guaranteed Rate for the specified Guarantee Period offered on the Transaction
Date.
FREE LOOK PERIOD
You have the right to examine the Accumulator Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You cancel it
by sending it to our Processing Office. The free look is extended if your
state requires a refund period of longer than 10 days. This right applies
only to the initial owner of a Certificate.
Your refund will equal the Annuity Account Value reflecting any investment
gain or loss, and any positive or negative market value adjustment, through
the date we receive your Certificate at our Processing Office. Some states
may require that we calculate the refund differently. In those states that
require that we calculate the refund differently, we may require that any
portion of your initial contribution that you request to have allocated to
the Investment Funds, be allocated to the Money Market Fund until the end of
the free look period.
We follow these same procedures if you change your mind before a Certificate
has been issued, but after a contribution has been made. See "Part 8: Tax
Aspects of the Certificates" for possible consequences of canceling your
Certificate during the free look period.
If you cancel your Certificate during the free look period, we may require
that you wait six months before you may apply for a Certificate with us
again.
ANNUITY ACCOUNT VALUE
The Annuity Account Value is the sum of the Annuity Account Values in the
Investment Funds and the Guaranteed Period Account.
Annuity Account Value in Investment Funds
The Annuity Account Value in an Investment Fund on any Business Day is equal
to the number of Accumulation Units in that Investment Fund times the
Accumulation Unit Value for the Investment Fund for that date. The number of
Accumulation Units in an Investment Fund at any time is equal to the sum of
Accumulation Units purchased by contributions and transfers less the sum of
Accumulation Units redeemed for withdrawals, transfers or deductions for
charges.
The number of Accumulation Units purchased or sold in any Investment Fund
equals the dollar amount of the transaction divided by the Accumulation Unit
Value for that Investment Fund for the applicable Transaction Date.
The number of Accumulation Units will not vary because of any later change in
the Accumulation Unit Value. The Accumulation Unit Value varies with the
investment performance of the corresponding Portfolios of the Trust, which in
turn reflects the investment income and realized and unrealized capital gains
and losses of the Portfolios, as well as the Trust fees and expenses. The
Accumulation Unit
21
<PAGE>
Value is also stated after deduction of the Separate Account asset charges
relating to the Certificates. A description of the computation of the
Accumulation Unit Value is found in the SAI.
Annuity Account Value in Guaranteed Period
Account
The Annuity Account Value in the Guaranteed Period Account on any Business
Day will be the sum of the present value of the Maturity Value in each
Guarantee Period, using the Guaranteed Rate in effect for new allocations to
such Guarantee Period on such date. (This is equivalent to the Guaranteed
Period Amount increased or decreased by the full market value adjustment.)
The Annuity Account Value, therefore, may be higher or lower than the
contributions (less withdrawals) accumulated at the Guaranteed Rate. At the
Expiration Date the Annuity Account Value in the Guaranteed Period Account
will equal the Maturity Value. See "Part 4: The Guaranteed Period Account."
TRANSFERS AMONG INVESTMENT OPTIONS
At any time prior to the Annuity Commencement Date, you may transfer all or
portions of your Annuity Account Value among the Investment Options, subject
to the following restrictions.
Transfers are permitted to or from a Guarantee Period once per quarter o
during each Contract Year. Such transfers may be made at any time during each
quarter.
Transfers out of a Guarantee Period other than at the Expiration Date will o
result in a market value adjustment. See "Part 4: The Guaranteed Period
Account."
Transfers to Guarantee Periods are subject to the restrictions set forth o
under "Guarantee Periods and Expiration Dates" in Part 4 and are limited
based on the age of the Annuitant. See "Allocation of Contributions" above.
Transfer requests must be made directly to our Processing Office. Your
request for a transfer should specify your Certificate number, the amounts or
percentages to be transferred and the Investment Options to and from which
the amounts are to be transferred. Your transfer request may be in writing or
by telephone.
For telephone transfer requests, procedures have been established by
Equitable Life that are considered to be reasonable and are designed to
confirm that instructions communicated by telephone are genuine. Such
procedures include requiring certain personal identification information
prior to acting on telephone instructions and providing written confirmation.
In light of the procedures established, Equitable Life will not be liable for
following telephone instructions that it reasonably believes to be genuine.
We may restrict, in our sole discretion, the use of an agent acting under a
power of attorney, such as a market timer, on behalf of more than one
Certificate Owner to effect transfers. Any agreements to use market timing
services to effect transfers are subject to our rules then in effect and must
be on a form satisfactory to us.
A transfer request will be effective on the Transaction Date and the transfer
to or from Investment Funds will be made at the Accumulation Unit Value next
computed after the Transaction Date. All transfers will be confirmed in
writing.
DOLLAR COST AVERAGING
If you have at least $5,000 of Annuity Account Value in the Money Market
Fund, you may choose to have a specified dollar amount transferred from the
Money Market Fund to other Investment Funds on a monthly basis. The main
objective of dollar cost averaging is to attempt to shield your investment
from short term price fluctuations. Since the same dollar amount is
transferred to other Investment Funds each month, more Accumulation Units are
purchased in an Investment Fund if the value per Accumulation Unit is low and
fewer Accumulation Units are purchased if the value per Accumulation Unit is
high. Therefore, a lower average value per Accumulation Unit may be achieved
over the long term. This plan of investing allows you to take advantage of
market fluctuations but does not assure a profit or protect against a loss in
declining markets.
The dollar cost averaging option may be elected at the time you apply for the
Certificate or at a later date. The minimum amount that may be transferred
each month is $250. The maximum amount which may be transferred is equal to
the Annuity Account Value in the Money Market Fund at the time the option is
elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. If, on any transfer date, the Annuity Account Value in the Money Market
Fund is equal to or less than the amount you have elected to have
transferred, the entire amount will be transferred and the dollar cost
averaging option will end. You may change the transfer amount once each
Contract Year, or cancel this option by sending us satisfactory notice to our
Processing Office at least seven calendar days before the next transfer date.
22
<PAGE>
WITHDRAWAL OPTIONS
The Accumulator is an annuity contract, even though you may elect to receive
your benefits in a non-annuity form. You may take withdrawals from your
Certificate before the Annuity Commencement Date and while the Annuitant is
alive. Two withdrawal options are available: Lump Sum Withdrawals and
Systematic Withdrawals. Withdrawals may result in withdrawal charges. See
"Part 6: Deductions and Charges." Withdrawals may also be taxable and subject
to tax penalty. See "Part 8: Tax Aspects of the Certificates."
Amounts withdrawn from the Guaranteed Period Account, other than at the
Expiration Date, will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration
Date" in Part 4.
As a deterrent to early withdrawal (generally prior to age 59 1/2) the Code
provides certain penalties. We may also be required to withhold income taxes
from the amount distributed. These rules are outlined in "Part 8: Tax Aspects
of the Certificates."
o LUMP SUM WITHDRAWALS--You may take Lump Sum Withdrawals at any time
subject to a minimum withdrawal amount of $1,000. A request to withdraw
more than 90% of the Cash Value as of the date of the withdrawal will
result in the termination of the Certificate and will be treated as a
surrender of the Certificate for its Cash Value. See "Surrendering the
Certificates to Receive the Cash Value," below.
To make a Lump Sum Withdrawal, you must submit a request satisfactory to us
which specifies the Investment Options from which the Lump Sum Withdrawal
will be taken. If we have received the information we require, the
requested withdrawal will become effective on the Transaction Date and
proceeds will usually be mailed within seven calendar days thereafter, but
we may delay payment as described in "When Payments Are Made" below. If we
receive only partially completed information, our Processing Office will
contact you for specific instructions before your request can be processed.
o SYSTEMATIC WITHDRAWALS--Systematic Withdrawals provide level percentage
or level amount payouts. You may choose to receive Systematic
Withdrawals on a monthly, quarterly or annual frequency. You select a
dollar amount or percentage of the Annuity Account Value to be
withdrawn, subject to a maximum of 1.2% monthly, 3.6% quarterly and
15.0% annually, but in no event may any payment be less than $250. If at
the time a Systematic Withdrawal is to be made, the withdrawal amount
would be less than $250, no payment will be made and your Systematic
Withdrawal election will terminate.
You select the date of the month when the withdrawals will be made, but you
may not choose a date later than the 28th day of the month. If no date is
selected, withdrawals will be made on the same calendar day of the month as
the Contract Date. The commencement of payments under the Systematic
Withdrawal option may not be elected to start sooner than 28 days after
issue of the Certificate.
You may elect Systematic Withdrawals at any time by completing the proper
form and sending it to our Processing Office. You may change the payment
frequency of your Systematic Withdrawals once each Contract Year or cancel
this withdrawal option at any time by sending notice in a form satisfactory
to us. The notice must be received at our Processing Office at least seven
calendar days prior to the next scheduled withdrawal date. You may also
change the amount or percentage of your Systematic Withdrawals once in each
Contract Year. However, you may not change the amount or percentage in any
Contract Year where you have previously taken another withdrawal under the
Lump Sum Withdrawal option described above.
Unless you specify otherwise, Systematic Withdrawals will be withdrawn on a
pro rata basis from your Annuity Account Value in the Investment Funds. If
there is insufficient value or no value in the Investment Funds, any
additional amount of the withdrawal required or the total amount of the
withdrawal, as applicable, will be withdrawn from the Guarantee Periods in
order of the earliest Expiration Date(s) first.
Withdrawal Charges
Withdrawals in excess of the 15% free corridor amount may be subject to a
withdrawal charge. See "Withdrawal Charge" in Part 6.
DEATH BENEFIT
When the Annuitant Dies
Generally, upon receipt of proof satisfactory to us of the Annuitant's death,
prior to the Annuity Commencement Date, we will pay the death benefit to the
beneficiary named in your Certificate. You designate the beneficiary at the
time you apply for the Certificate. While the Certificate is in effect, you
may change your beneficiary by writing to our Processing Office. The change
will be effective on the
23
<PAGE>
date the written submission was signed. The death benefit payable will be
determined as of the date we receive such proof of death and any required
instructions as to the method of payment.
The death benefit is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the GMDB defined below; and
(2) the death benefit provided with respect to the Guaranteed Period
Account. See "Part 4: The Guaranteed Period Account."
There are two plans available under the Certificates for providing guaranteed
benefits, a Combined GMDB/GMIB Benefit (available for Annuitant issue ages 20
through 75), and a GMDB Only Benefit, which has a lower charge. The GMDB and
the GMIB are discussed below.
For Annuitant issue ages 20 through 75, you must elect either the Combined
GMDB/GMIB Benefit or the GMDB Only Benefit in the application. To elect the
Combined GMDB/GMIB Benefit, you must be both the Owner and the Annuitant
under the Certificate. Once elected, the plan may not be changed. For
Annuitant issue ages 76 through 83, for Certificates issued in New York and
in states where the GMIB is not currently available, the GMDB Only Benefit
will apply.
For the specific charges, see "Part 6: Deductions and Charges."
GMDB
Applicable to Certificates issued in all states except
- -----------------------------------------------------------------------------
New York
The GMDB is determined daily. On the Contract Date, the GMDB is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the GMDB is equal to (a) the GMDB determined on the immediately
preceding Business Day, plus (b) any subsequent contributions and transfers
into the Investment Funds, less (c) any transfers and withdrawals from such
Funds. In addition, interest (see below) is credited to and becomes part of
the GMDB on each Processing Date.
o 6% to Age 80 Benefit--interest will be credited at the effective annual
GMDB interest rate of 6% (3% for amounts in the Money Market Fund) through
age 80, and 0% thereafter. Contributions, transfers and withdrawals during
the Contract Year will be taken into account.
Applicable to Certificates issued in New York for
- -----------------------------------------------------------------------------
Annuitant issue ages 20 through 79
The GMDB is determined daily. On the Contract Date, the GMDB is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the GMDB is equal to (a) the GMDB calculated on the immediately
preceding Business Day, plus (b) any subsequent contributions and transfers
into the Investment Funds, less (c) any transfers and withdrawals from such
Funds. Additionally, on each Processing Date the GMDB is reset at the greater
of the current GMDB and the current Annuity Account Value in the Investment
Funds, not to exceed a cap as described below. The cap does not apply on the
seventh Processing Date. The cap is equal to (a) the portion of the initial
contribution allocated to the Investment Funds, plus (b) any subsequent
contributions and transfers into the Investment Funds, less (c) any transfers
and withdrawals from such Funds, plus (d) interest (see below) that is
credited on each Processing Date, plus (e) any amount by which the GMDB is
increased because the cap did not apply on the seventh Processing Date.
o 6% to Age 80 Cap--interest will be credited at the effective annual GMDB
interest rate of 6% (3% for amounts in the Money Market Fund) through age
80, and 0% thereafter.
Applicable to Certificates issued in New York for
- -----------------------------------------------------------------------------
Annuitant issue ages 80 through 83
The GMDB is determined daily. On the Contract Date, the GMDB is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the GMDB is equal to such portion of the initial contribution
plus (a) any subsequent contributions and transfers into the Investment
Funds, less (b) any transfers and withdrawals from such Funds.
See Appendix II for an example of the calculation of the GMDB.
How Withdrawals and Transfers Affect the GMDB
Withdrawals and transfers out of the Investment Funds will generally cause a
reduction in the GMDB on a dollar-for-dollar basis. However, if on any
Transaction Date, (i) the GMDB exceeds the Annuity Account Value and (ii) the
sum of withdrawals and transfers out of the Investment Funds is greater than
6% of the beginning of year GMDB, the GMDB will be reduced on a pro rata
basis on the Transaction Date. The amount of the reduction will be determined
by dividing the amount of the withdrawal by the Annuity Account Value on the
Transaction Date and multiplying this percentage by the then current GMDB.
24
<PAGE>
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your GMDB.
For example, assuming a beginning of year GMDB of $100,000 and a withdrawal
of $5,000, which represents 5% of the beginning of year GMDB
($5,000/$100,000), such withdrawal would cause the current GMDB to be reduced
by $5,000. If a withdrawal in the amount of $10,000, which represents 10% of
the beginning of year GMDB ($10,000/ $100,000) were to be made, assuming a
current Annuity Account Value of $50,000 the current GMDB would be reduced by
20% ($10,000/$50,000), or $20,000 ($100,0000 x .20).
How Payment is Made
We will pay the death benefit to the beneficiary in the form of the income
annuity option you have chosen under your Certificate. If no income annuity
option has been chosen at the time of the Annuitant's death, the beneficiary
will receive the death benefit in a lump sum. However, subject to certain
exceptions in the Certificate, Equitable Life's rules then in effect and any
other applicable requirements under the Code, the beneficiary may elect to
apply the death benefit to one or more income annuity options offered by
Equitable Life. See "Income Annuity Options" below. Note that if you are both
the Certificate Owner and the Annuitant, only a life annuity or an annuity
that does not extend beyond the life expectancy of the beneficiary may be
elected.
Successor Annuitant
If you are both the Certificate Owner and the Annuitant and you elect your
spouse to be both the sole primary beneficiary and the successor Annuitant/
Certificate Owner, then no death benefit is payable until your surviving
spouse's death.
On the Processing Date following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of the Certificate
and is in effect at your death, the GMDB will be reset at the greater of the
current GMDB and the current Annuity Account Value in the Investment Funds.
The GMDB interest rate will subsequently be credited based on the age (as of
the Processing Date) of the successor Annuitant/Certificate Owner. For such
Certificates, if the Combined GMDB/GMIB Benefit was elected, the GMIB
(discussed below) will continue to be available on Contract Date
anniversaries seven and later based on the Contract Date of the Accumulator
Certificate, provided the GMIB is exercised as specified under GMIB below,
based on the age of the successor Annuitant/Certificate Owner.
WHEN THE CERTIFICATE OWNER DIES
BEFORE THE ANNUITANT
When you are not the Annuitant and you die before the Annuity Commencement
Date, the beneficiary named to receive the death benefit upon the Annuitant's
death will automatically succeed as Certificate Owner (unless you name a
different person as a successor Owner in a written form acceptable to us and
send it to our Processing Office). The Certificate provides that the original
Certificate Owner's entire interest in the Certificate be completely
distributed to the named beneficiary by the fifth anniversary of such Owner's
death (unless an income annuity option is elected and payments begin within
one year after the Certificate Owner's death and are made over the
beneficiary's life or over a period not to exceed the beneficiary's life
expectancy). If an income annuity option has not been elected, as described
above, on the fifth anniversary of your death, we will pay any Annuity
Account Value remaining on such date, less any applicable withdrawal charge.
If the successor Certificate Owner is your surviving spouse, no distributions
are required as long as both the surviving spouse and the Annuitant are
living.
GMIB
The GMIB (available under the Combined GMDB/ GMIB Benefit) may not currently
be available in your state. When it becomes available it will be added to
your Certificate if you then elect the Combined GMDB/GMIB Benefit. State
availability information may be obtained from your registered representative.
The GMIB provides a minimum guaranteed lifetime income upon the application
of the Annuity Account Value in the Investment Funds to purchase the Assured
Payment Plan (Life Annuity with a Period Certain). The Assured Payment Plan
provides payments during a period certain with payments continuing for life
thereafter. On the Transaction Date the amount of the periodic lifetime
income to be purchased under the Assured Payment Plan will be based on the
greater of (i) the Annuity Account Value in the Investment Funds and (ii) an
amount equal to the GMDB described above, reduced by any remaining withdrawal
charges; each divided by "guaranteed maximum annuity purchase rates" under
the Certificate. The guaranteed maximum annuity purchase rates are based on
(i) interest at 2.5% if the GMIB is exercised within 30 days following a
Contract Date anniversary in years 7 through 9 and at 3.0% if exercised
within 30 days following the 10th or later Contract Date anniversary and (ii)
mortality based on the 1983 Individual Annuity Mortality Table "a" projected
with modified Scale G. The mortality table used in determining such annuity
purchase rates assumes that mortality will improve in the future and is more
conservative than the basis underlying current annuity purchase rates. Your
Annuity Account Value in the Investment Funds will depend on the performance
of such Funds. The amount equal to the GMDB (as discussed above) does not
have an Annuity Account Value or a Cash Value and is used solely for purposes
of calculating the GMIB.
25
<PAGE>
If you have any Annuity Account Value in the Guaranteed Period Account under
your Accumulator Certificate as of the Transaction Date that you exercise the
GMIB, such Annuity Account Value will also be applied (at current annuity
purchase rates) toward the purchase of payments under the Assured Payment
Plan. Such Annuity Account Value will increase the payments provided by the
GMIB. A market value adjustment may apply.
When you exercise the GMIB, we automatically determine whether the
application of your Annuity Account Value in the Investment Funds at current
purchase rates under the Assured Payment Plan (with a period certain as
specified below) would produce higher lifetime income, and if so, the higher
income will be provided.
In addition, you can elect any of our income annuity options discussed below.
The GMIB applies only if your election of the Assured Payment Plan meets the
following conditions:
o You are the Owner and Annuitant of the Accumulator Certificate.
o The Assured Payment Plan is purchased within 30 days following the 7th
or later Contract Date anniversary under your Accumulator Certificate;
provided it is not purchased earlier than your age 60, nor later than
age 83.
o The period certain you select is as indicated below, based on your
issue age for the Assured Payment Plan Certificate and the type of
payments selected;
LEVEL PAYMENTS
- -----------------------------------------
ISSUE AGE PERIOD CERTAIN
- ----------------- ----------------------
60 through 80 10years
81 through 83 90 less your issue age
INCREASING PAYMENTS
- -----------------------------------------
ISSUE AGE PERIOD CERTAIN
--------------- ----------------------
60 through 70 15years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
o Payments start one payment mode after the Contract Date of the Assured
Payment Plan Certificate.
Each year on your Contract Date anniversary, if you are eligible to exercise
the GMIB, we will send you a notice of how much income could be provided
under such option on the Contract Date anniversary. You may then notify us
within 30 days following the Contract Date anniversary if you want to
exercise the GMIB by submitting the proper form and returning your
Accumulator Certificate. The income to be provided under the Assured Payment
Plan Certificate will be determined on the Transaction Date that we receive
your request and the Certificate and, therefore, may differ from the notice.
It will be based on the GMIB as of such Transaction Date.
The Assured Payment Plan (Life Annuity with a Period Certain) is offered
through our Prospectus for the Assured Payment Plan dated May 1, 1996, which
may be obtained from your registered representative. You should read it
carefully before you decide to purchase such Plan.
See Appendix III for examples on the GMIB.
CASH VALUE
The Cash Value under the Certificate fluctuates daily with the investment
performance of the Investment Funds you have selected and reflects any upward
or downward market value adjustment. See "Part 4: The Guaranteed Period
Account." We do not guarantee any minimum Cash Value except for amounts in a
Guarantee Period held to the Expiration Date. On any date before the Annuity
Commencement Date while the Certificate is in effect, the Cash Value is equal
to the Annuity Account Value less any withdrawal charge. The free corridor
amount will not apply when calculating the withdrawal charge applicable upon
a surrender. See "Part 6: Deductions and Charges."
SURRENDERING THE CERTIFICATES TO
RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while
the Annuitant is living and before the Annuity Commencement Date.
For a surrender to be effective, we must receive your written request and the
Certificate at our Processing Office. The Cash Value will be determined on
the Transaction Date. All benefits under the Certificate will be terminated
as of that date. You may receive the Cash Value in a single sum payment or
apply it under one or more of the income annuity options described below. We
will usually pay the Cash Value within seven calendar days, but we may delay
payment as described in "When Payments are Made" below.
In some cases, surrenders may have adverse tax consequences. See "Part 8: Tax
Aspects of the Certificates."
INCOME ANNUITY OPTIONS
Income annuity options provide periodic payments over a specified period of
time which may be fixed or may be based on the Annuitant's life. Annuity
forms of payment are calculated as of the Annuity Commencement Date, which is
on file with our Processing Office. You can change the Annuity Commencement
Date by writing to our Processing Office any time before the Annuity
Commencement Date. However, you may not choose a date later than the 28th day
of any month. Also, based on the issue age of the
26
<PAGE>
Annuitant, the Annuity Commencement Date may not be later than the Processing
Date which follows the Annuitant's 90th birthday (may be different in some
states).
Before the Annuity Commencement Date, we will send a letter advising that
annuity benefits are available. Unless you otherwise elect, we will pay fixed
annuity benefits on the "normal form" indicated for your Certificate as of
the Annuity Commencement Date. The amount applied to provide the annuity
benefit will be (1) the Annuity Account Value for any life annuity form or
(2) the Cash Value for any period certain only annuity form except that if
the period certain is more than five years, the amount applied will be no
less than 95% of the Annuity Account Value.
Amounts in the Guarantee Periods that are applied to an income annuity option
prior to an Expiration Date will result in a market value adjustment. See
"Market Value Adjustment for Transfers, Withdrawals or Surrender Prior to the
Expiration Date" in Part 4.
ANNUITY FORMS
o Life Annuity: An annuity which guarantees payments for the rest of the
Annuitant's life. Payments end with the last monthly payment before the
Annuitant's death. Because there is no death benefit associated with
this annuity form, it provides the highest monthly payment of any of the
life income annuity options, so long as the Annuitant is living.
o Life Annuity-Period Certain: This annuity form also guarantees payments
for the rest of the Annuitant's life. In addition, if the Annuitant dies
before a specified period of time (the "certain period") has ended,
payments will continue to the beneficiary for the balance of the certain
period. Certain periods may be 5, 10, 15 or 20 years. A life annuity
with a certain period of 10 years is the normal form of annuity under
the Certificates.
o Life Annuity-Refund Certain: This annuity form guarantees payments to
you for the rest of your life. In addition, if you die before the amount
applied to purchase this annuity option has been recovered, payments
will continue to your beneficiary until that amount has been recovered.
This option is available only as a fixed annuity.
o Period Certain Annuity: This annuity form guarantees payments for a
specific period of time, usually 5, 10, 15 or 20 years, and does not
involve life contingencies.
o Joint and Survivor Life Annuity: This annuity form guarantees life
income to you and, after your death, continuation of income to the
survivor.
The life annuity-period certain and the life annuity-refund certain are
available on either a single life or joint and survivor life basis.
The income annuity options outlined above are available in both fixed and
variable form, unless otherwise indicated. Fixed annuity payments are
guaranteed by us and will be based either on the tables of guaranteed annuity
payments in your Certificate or on our then current annuity rates, whichever
is more favorable for the Annuitant. Variable income annuities may be funded
through the Common Stock Fund through the purchase of annuity units. The
amount of each variable annuity payment may fluctuate, depending upon the
performance of the Common Stock Fund. That is because the annuity unit value
rises and falls depending on whether the actual rate of net investment return
(after deduction of charges) is higher or lower than the assumed base rate.
See "Annuity Unit Values" in the SAI. Variable income annuities may also be
available by separate prospectus through the Common Stock or other Funds of
other separate accounts we offer.
For all Annuitants, the normal form of annuity provides for fixed payments.
We may offer other forms not outlined here. Your registered representative
can provide details.
For each income annuity option, we will issue a separate written agreement
putting the option into effect. Before we pay any annuity benefit, we require
the return of the Certificate.
The amount of the annuity payments will depend on the amount applied to
purchase the annuity, the type of annuity chosen and, in the case of a life
income annuity option, the Annuitant's age (or the Annuitant's and joint
Annuitant's ages) and in certain instances, the sex of the Annuitant(s). Once
an income annuity option is chosen and payments have commenced, no change can
be made.
If, at the time you elect an income annuity option, the amount to be applied
is less than $2,000 or the initial payment under the option elected is less
than $20 monthly, we reserve the right to pay the Annuity Account Value in a
single sum rather than as payments under the annuity form chosen.
ASSURED PAYMENT PLAN
If you are the Owner and the Annuitant, you may apply your Annuity Account
Value, in whole or in part, and subject to any withdrawal charges to the
extent described below, to purchase the Assured Payment Plan (Life Annuity
with a Period Certain), provided you meet the issue age and payment
restrictions for the Assured Payment Plan. If you apply a part of the Annuity
Account Value, it will be considered a withdrawal and may be subject to
withdrawal charges. See "Withdrawal Options" above. The Assured Payment Plan,
is designed to
27
<PAGE>
provide guaranteed level or increasing annual payments for your life or for
your life and the life of a joint Annuitant. If 100% of the Annuity Account
Value is applied from an Accumulator Certificate to purchase the Assured
Payment Plan at a time when the dollar amount of the withdrawal charge is
greater than 2% of remaining contributions (after withdrawals), such
withdrawal charge will not be deducted. However, a new withdrawal charge
schedule will apply under the Assured Payment Plan. For purposes of the
Assured Payment Plan withdrawal charge schedule, the year in which your
Annuity Account Value is applied under the Assured Payment Plan will be
"Contract Year 1." If 100% of the Annuity Account Value is applied from the
Accumulator when the dollar amount of the withdrawal charge is 2% or less,
such withdrawal charge will not be deducted and there will be no withdrawal
charge schedule under the Assured Payment Plan. You should consider the
timing of your purchase as it relates to the potential for withdrawal charges
under the Assured Payment Plan. No subsequent contributions will be permitted
under the Assured Payment Plan Certificate.
You may also apply your Annuity Account Value to purchase the Assured Payment
Plan (Period Certain) once withdrawal charges are no longer in effect. This
version of the Assured Payment Plan provides for annual payments for a
specified period. No withdrawal charges will apply under the Assured Payment
Plan Certificate.
The Assured Payment Plan (Life Annuity with a Period Certain) and Assured
Payment Plan (Period Certain) are described in our prospectus for the Assured
Payment Plan, dated May 1, 1996. Copies are available from your registered
representative.
To purchase this annuity form we also require the return of your Certificate.
An Assured Payment Plan Certificate will be issued putting this annuity form
into effect.
Depending upon your circumstances, this may be accomplished on a tax-free
basis. Consult your tax adviser.
WHEN PAYMENTS ARE MADE
Under applicable law, application of proceeds from the Investment Funds to a
variable annuity, payment of a death benefit from the Investment Funds,
payment of any portion of the Annuity Account Value (less any applicable
withdrawal charge) from the Investment Funds, and, upon surrender, payment of
the Cash Value from the Investment Funds will be made within seven calendar
days after the Transaction Date. Payments or application of proceeds from the
Investment Funds can be deferred for any period during which (1) the New York
Stock Exchange is closed or trading on it is restricted, (2) sales of
securities or determination of the fair value of an Investment Fund's assets
is not reasonably practicable because of an emergency, or (3) the SEC, by
order, permits us to defer payment in order to protect persons with interest
in the Investment Funds.
We can defer payment of any portion of the Annuity Account Value in the
Guaranteed Period Account (other than for death benefits) for up to six
months while you are living. We may also defer payments for any amount
attributable to a contribution made in the form of a check for a reasonable
amount of time (not to exceed 15 days) to permit the check to clear.
ASSIGNMENT
The Certificates may be assigned at any time before the Annuity Commencement
Date and for any purpose other than as collateral or security for a loan.
Equitable Life will not be bound by an assignment unless it is in writing and
we have received it at our Processing Office. In some cases, an assignment
may have adverse tax consequences. See "Part 8: Tax Aspects of the
Certificates."
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates, Equitable Distributors, Inc. (EDI),
an indirect wholly owned subsidiary of Equitable Life, has responsibility for
sales and marketing functions for the Certificates. EDI also serves as the
principal underwriter of the Separate Account under the 1940 Act. EDI is
registered with the SEC as a broker-dealer under the Exchange Act and is a
member of the National Association of Securities Dealers, Inc. EDI's
principal business address is 787 Seventh Avenue, New York, New York 10019.
The Certificates will be sold by registered representatives of EDI, as well
as by unaffiliated broker-dealers with which EDI has entered into selling
agreements. Broker-dealer sales compensation will generally not exceed six
percent of total contributions made under a Certificate. EDI may also receive
compensation and reimbursement for its marketing services under the terms of
its distribution agreement with Equitable Life. Broker-dealers receiving
sales compensation will generally pay a portion thereof to their registered
representatives as commission related to sales of the Certificates. The
offering of the Certificates is intended to be continuous.
28
<PAGE>
- -------------------------------------------------------------------------------
PART 6: DEDUCTIONS AND CHARGES
- -------------------------------------------------------------------------------
CHARGES DEDUCTED FROM THE
ANNUITY ACCOUNT VALUE
We allocate the entire amount of each contribution to the Investment Options
you select, subject to certain restrictions. We then periodically deduct
certain amounts from your Annuity Account Value. Unless otherwise indicated,
the charges described below and under "Charges Deducted from the Investment
Funds" below will not be increased by us for the life of the Certificates. We
may reduce certain charges under group or sponsored arrangements. See "Group
or Sponsored Arrangements" below. Charges are deducted proportionately from
all the Investment Funds in which your Annuity Account Value is invested on a
pro rata basis, except as noted below.
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of each contribution made
to the extent that a withdrawal exceeds the free corridor amount, or if the
Certificate is surrendered to receive its Cash Value. We determine the
withdrawal charge separately for each contribution in accordance with the
table below.
<TABLE>
<CAPTION>
CONTRACT YEAR
1 2 3 4 5 6 7 8+
------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
</TABLE>
The applicable withdrawal charge percentage is determined by the Contract
Year in which the withdrawal is made or the Certificate is surrendered,
beginning with "Contract Year 1" with respect to each contribution withdrawn
or surrendered. For each contribution, the Contract Year in which we receive
that contribution is "Contract Year 1."
The withdrawal charge is deducted from the Investment Options from which each
such withdrawal is made in proportion to the amount being withdrawn from each
Investment Option.
Free Corridor Amount
The free corridor amount is 15% of the Annuity Account Value at the
beginning of the Contract Year minus any amount previously withdrawn
during that Contract Year.
Any withdrawal requested that exceeds the free corridor amount will be
subject to the withdrawal charge. The 15% free corridor amount is not
applicable to a surrender.
For purposes of calculating the withdrawal charge, (1) we treat contributions
as being withdrawn on a first-in first-out basis, and (2) amounts withdrawn
up to the free corridor amount are not considered a withdrawal of any
contributions. Although we treat contributions as withdrawn before earnings
for purposes of calculating the withdrawal charge, the Federal income tax law
treats earnings as withdrawn first. See "Part 8: Tax Aspects of the
Certificates."
The withdrawal charge is to help cover sales expenses.
Withdrawal Processing Charge
We reserve the right to impose a charge of the lesser of $25 and 2.0% of the
amount withdrawn for each Lump Sum Withdrawal after the fifth in a Contract
Year. This charge, if made, is to cover our administrative expenses in
processing Lump Sum Withdrawals. See "Asset Based Administrative Charge"
below.
Charges for Combined GMDB/GMIB Benefit
We deduct a charge annually on each Processing Date for providing the
Combined GMDB/GMIB Benefit. The charge is equal to a percentage of the GMDB
in effect on the Processing Date. The percentage is equal to 0.45%.
Charges for GMDB Only Benefit
We deduct a charge annually on each Processing Date for providing the GMDB
Only Benefit. The charge is equal to a percentage of the GMDB in effect on
the Processing Date. The percentage is equal to 0.20%.
If the amount collected from this charge exceeds the cost of providing the
benefits, it will be to our profit, and may be used to pay distribution
expenses not recovered from sales charges under the Certificates.
Charges for State Premium and Other Applicable Taxes
We deduct a charge for applicable taxes, such as state or local premium
taxes, that might be imposed in your state. Generally we deduct this charge
from the amount applied to provide an income annuity option. In certain
states, however, we may deduct the charge for taxes from contributions. The
current
29
<PAGE>
tax charge that might be imposed varies by state and ranges from 0% to 3.5%
(the rate is 1% in Puerto Rico and 5% in the Virgin Islands).
CHARGES DEDUCTED FROM THE
INVESTMENT FUNDS
Mortality and Expense Risk Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality and expense risks. The daily charge is at the
rate of 0.002477%, which is equivalent to an annual rate of 0.90%, on the
assets in each Investment Fund. Approximately 0.60% of this annual charge is
allocated to the mortality risk and 0.30% is allocated to the expense risk.
We will realize a gain from this charge to the extent it is not needed to
provide for benefits and expenses under the Certificate. We will use any gain
for any lawful purpose including payment of distribution expenses not
recovered from sales charges under the Certificate.
The mortality risk assumed is the risk that Annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. We also assume a risk that the
mortality assumptions reflected in our guaranteed annuity payment tables,
shown in each Certificate, will differ from actual mortality experience.
Lastly, we assume a mortality risk to the extent that the guaranteed minimum
death benefit charge is insufficient to pay any amount by which such death
benefit exceeds the Cash Value of the Certificate.
The expense risk assumed is the risk that it will cost us more to issue and
administer the Certificates than we expect.
Asset Based Administrative Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for administrative expenses under the Certificates. The daily
charge is at a rate of 0.000831% (equivalent to an annual rate of 0.30%) on
the assets in each Investment Fund. We reserve the right to increase this
charge to an annual rate of 0.35%, the maximum permitted under the
Certificates. The withdrawal processing charge and the asset based
administrative charge are not designed to produce a profit for Equitable
Life.
TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against the Trust's assets, the Rule
12b-1 Plan fee, direct operating expenses of the Trust (such as trustees'
fees, expenses of independent auditors and legal counsel, bank and custodian
charges and liability insurance), and certain investment-related expenses of
the Trust (such as brokerage commissions and other expenses related to the
purchase and sale of securities), are reflected in each Portfolio's daily
share price. The maximum investment advisory fees paid annually by the
Portfolios cannot be changed without a vote by shareholders. They are as
follows:
<TABLE>
<CAPTION>
DAILY AVERAGE NET ASSETS
-------------------------------
FIRST
$350 NEXT $400 OVER $750
MILLION MILLION MILLION
--------- --------- ---------
<S> <C> <C> <C>
Aggressive Stock ........ .500% .475% .450%
Common Stock and Money
Market .................. .400% .375% .350%
Growth Investors, Global
and High Yield ......... .550% .525% .500%
</TABLE>
Investment advisory fees are established under the Trust's investment
advisory agreements between the Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that the Trust, on behalf of each Portfolio may
pay annually up to 0.25% 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 the Class IB shares. The Rule 12b-1 Plan
fee, which may be waived in the discretion of EDI, may be increased only by
action of the Board of Trustees of the Trust up to a maximum of 0.50% per
annum.
All of these fees and expenses are described more fully in the Trust
prospectus.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the withdrawal
charge or change the minimum initial contribution requirements. We may also
change the guaranteed minimum death benefit and the guaranteed minimum income
benefit. Group arrangements include those in which a trustee or an employer,
for example, purchases contracts covering a group of individuals on a group
basis. Sponsored arrangements include those in which an employer allows us to
sell Certificates to its employees or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these
factors into account when reducing charges. To qualify for reduced charges, a
group or sponsored arrangement must meet certain requirements, including our
requirements for size and number of years in exist-
30
<PAGE>
ence. Group or sponsored arrangements that have been set up solely to buy
Certificates or that have been in existence less than six months will not
qualify for reduced charges.
We may also establish different Guaranteed Rates for the Guarantee Periods
under different classes of Certificates for group or sponsored arrangements.
We will make these and any similar reductions according to our rules in
effect when a Certificate is approved for issue. We may change these rules
from time to time. Any variation in the withdrawal charge will reflect
differences in costs or services and will not be unfairly discriminatory.
Group and sponsored arrangements may be governed by the Code, the Employee
Retirement Income Security Act of 1974 (ERISA), or both. We make no
representations as to the impact of those and other applicable laws on such
programs. WE RECOMMEND THAT EMPLOYERS, TRUSTEES, AND OTHERS PURCHASING OR
MAKING CERTIFICATES AVAILABLE FOR PURCHASE UNDER SUCH PROGRAMS SEEK THE
ADVICE OF THEIR OWN LEGAL AND BENEFITS ADVISERS.
OTHER DISTRIBUTION ARRANGEMENTS
The withdrawal charge may be reduced or eliminated when sales are made in a
manner that results in savings of sales and administrative expenses, such as
sales through persons who are compensated by clients for recommending
investments and receive no commission or reduced commissions in connection
with the sale of the Certificates. In no event will a reduction or
elimination of the withdrawal charge be permitted where it would be unfairly
discriminatory.
31
<PAGE>
- ------------------------------------------------------------------------------
PART 7: VOTING RIGHTS
- ------------------------------------------------------------------------------
TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of the Trust. Since we own
the assets of the Separate Account, we are the legal owner of the shares and,
as such, have the right to vote on certain matters. Among other things, we
may vote:
o to elect the Trust's Board of Trustees,
o to ratify the selection of independent auditors for the Trust, and
o on any other matters described in the Trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because the Trust is a Massachusetts business trust, annual meetings are not
required. Whenever a shareholder vote is taken, we will give Certificate
Owners the opportunity to instruct us how to vote the number of shares
attributable to their Certificates. If we do not receive instructions in time
from all Certificate Owners, we will vote the shares of a Portfolio for which
no instructions have been received in the same proportion as we vote shares
of that Portfolio for which we have received instructions. We will also vote
any shares that we are entitled to vote directly because of amounts we have
in an Investment Fund in the same proportions that Certificate Owners vote.
Each Trust share is entitled to one vote. Fractional shares will be counted.
Voting generally is on a Portfolio-by-Portfolio basis except that shares will
be voted on an aggregate basis when universal matters, such as election of
Trustees and ratification of independent auditors, are voted upon. However,
if the Trustees determine that shareholders in a Portfolio are not affected
by a particular matter, then such shareholders generally would not be
entitled to vote on that matter.
VOTING RIGHTS OF OTHERS
Currently, we control the Trust. Trust shares are held by other separate
accounts of ours and by separate accounts of insurance companies affiliated
and unaffiliated with us. Shares held by these separate accounts will
probably be voted according to the instructions of the owners of insurance
policies and contracts issued by those insurance companies. While this will
dilute the effect of the voting instructions of the Accumulator Certificate
Owners, we currently do not foresee any disadvantages arising out of this.
The Trust's Board of Trustees intends to monitor events in order to identify
any material irreconcilable conflicts that possibly may arise and to
determine what action, if any, should be taken in response. If we believe
that the Trust's response to any of those events insufficiently protects our
Certificate Owners, we will see to it that appropriate action is taken to
protect our Certificate Owners.
SEPARATE ACCOUNT VOTING RIGHTS
If actions relating to the Separate Account require Certificate Owner
approval, Certificate Owners will be entitled to one vote for each
Accumulation Unit they have in the Investment Funds. Each Certificate Owner
who has elected a variable annuity payout may cast the number of votes equal
to the dollar amount of reserves we are holding for that annuity in the
Common Stock Fund divided by the Accumulation Unit Value for the Common Stock
Fund. We will cast votes attributable to any amounts we have in the
Investment Funds in the same proportion as votes cast by Certificate Owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
Federal securities laws. To the extent that those laws or the regulations
promulgated under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
32
<PAGE>
- -------------------------------------------------------------------------------
PART 8: TAX ASPECTS OF THE CERTIFICATES
- -------------------------------------------------------------------------------
This prospectus generally covers our understanding of the current Federal
income tax rules that apply to an annuity purchased with after-tax dollars
(non-qualified annuity).
This prospectus does not provide detailed tax information and does not
address issues such as state income and other taxes or Federal gift and
estate taxes. Please consult a tax adviser when considering the tax aspects
of the Accumulator Certificates.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities. In addition, the Treasury Department may amend
existing regulations, issue new regulations, or adopt new interpretations of
existing laws. State tax laws or, if you are not a United States resident,
foreign tax laws, may affect the tax consequences to you or the beneficiary.
These laws may change from time to time without notice and, as a result, the
tax consequences may be altered. There is no way of predicting whether, when
or in what form any such change would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
TAXATION OF NON-QUALIFIED ANNUITIES
Equitable Life has designed the Accumulator Certificate to qualify as an
"annuity" for purposes of Federal income tax law. Gains in the Annuity
Account Value of the Certificate generally will not be taxable to an
individual until a distribution occurs, either by a withdrawal of part or all
of its value or as a series of periodic payments. However, there are some
exceptions to this rule: (1) if a Certificate fails the investment
diversification requirements; (2) if an individual transfers a Certificate as
a gift to someone other than a spouse (or divorced spouse), any gain in its
Annuity Account Value will be taxed at the time of transfer; (3) the
assignment or pledge of any portion of the value of a Certificate will be
treated as a distribution of that portion of the Certificate; and (4) when an
insurance company (or its affiliate) issues more than one non-qualified
deferred annuity certificate or contract during any calendar year to the same
taxpayer, the certificates or contracts are required to be aggregated in
computing the taxable amount of any distribution.
Corporations, partnerships, trusts and other non-natural persons generally
cannot defer the taxation of current income credited to the Certificate
unless an exception under the Code applies.
Prior to the Annuity Commencement Date, any withdrawals which do not
terminate your total interest in the Certificate are taxable to you as
ordinary income to the extent there has been a gain in the Annuity Account
Value. The balance of the distribution is treated as a return of the
"investment" or "basis" in the Certificate and is not taxable. Generally, the
investment or basis in the Certificate equals the contributions made, less
any amounts previously withdrawn which were not taxable. Special rules may
apply if contributions made to another annuity certificate or contract prior
to August 14, 1982 are transferred to a Certificate in a tax-free exchange.
To take advantage of these rules, you should notify us prior to such an
exchange.
If you surrender or cancel the Certificate, the distribution is taxable to
the extent it exceeds the investment in the Certificate.
Once annuity payments begin, a portion of each payment is considered to be a
tax-free recovery of investment based on the ratio of the investment to the
expected return under the Certificate. The remainder of each payment will be
taxable. In the case of a variable annuity, special rules apply if the
payments received in a year are less than the amount permitted to be
recovered tax-free. In the case of a life annuity, after the total investment
has been recovered, future payments are fully taxable. If payments cease as a
result of death, a deduction for any unrecovered investment will be allowed.
The taxable portion of a distribution is treated as ordinary income and is
subject to income tax withholding. See "Federal and State Income Tax
Withholding" below. In addition, a penalty tax of 10% applies to the taxable
portion of a distribution unless the distribution is (1) made on or after the
date the taxpayer attains age 59 1/2, (2) made on or after your death, (3)
attributable to the disability of the taxpayer, (4) part of a series of
substantially equal installments as an annuity for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of the taxpayer and a beneficiary, or (5) with respect to income allocable to
amounts contributed to an annuity certificate or contract prior to August 14,
1982 which are transferred to the Certificate in a tax-free exchange.
33
<PAGE>
If, as a result of the Annuitant's death, the beneficiary is entitled to
receive the death benefit described in Part 5, the beneficiary is generally
subject to the same tax treatment as would apply to you, had you surrendered
the Certificate (discussed above).
If the beneficiary elects to take the death benefit in the form of a life
income or installment option, the election should be made within 60 days
after the day on which a lump sum death benefit first becomes payable and
before any benefit is actually paid. The tax computation will reflect your
investment in the Certificate.
The Certificate provides a minimum guaranteed death benefit that in certain
circumstances may be greater than either the contributions made or the
Annuity Account Value. This provision provides investment protection against
an untimely termination of a Certificate on the death of an Annuitant at a
time when the Certificate's Annuity Account Value might otherwise have
provided a lower benefit. Although we do not believe that the provision of
this benefit should have any adverse tax effect, it is possible that the IRS
could take a contrary position and could assert that some portion of the
charges for the minimum guaranteed death benefit should be treated for
Federal income tax purposes as a partial withdrawal from the Certificate. If
this were so, such a deemed withdrawal could be taxable, and for Certificate
Owners under age 59 1/2, also subject to tax penalty.
FEDERAL AND STATE INCOME TAX
WITHHOLDING
Equitable Life is required to withhold Federal income tax on the taxable
portion of annuity payments, unless the recipient elects not to be subject to
income tax withholding. The rate of withholding will depend on the type of
distribution and, in certain cases, the amount of the distribution. Special
withholding rules apply to foreign recipients and United States citizens
residing outside the United States. If a recipient does not have sufficient
income tax withheld or does not make sufficient estimated income tax
payments, however, the recipient may incur penalties under the estimated
income tax rules. Recipients should consult their tax advisers to determine
whether they should elect out of withholding. Requests not to withhold
Federal income tax must be made in writing prior to receiving benefits under
the Certificate. Our Processing Office will provide forms for this purpose.
No election out of withholding is valid unless the recipient provides us with
the correct taxpayer identification number and a United States residence
address.
Certain states have indicated that income tax withholding will apply to
payments made from the Certificate to residents. In some states, a recipient
may elect out of state withholding. Generally, an election out of Federal
withholding will also be considered an election out of state withholding. If
you need more information concerning a particular state or any required
forms, call our Processing Office at the toll-free number and consult your
tax adviser.
Periodic payments are generally subject to wage-bracket type withholding (as
if such payments were payments of wages by an employer to an employee) unless
the recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and
claiming three withholding exemptions. There is an annual threshold of
taxable income from periodic annuity payments which is exempt from
withholding based on this assumption. For 1996, a recipient of periodic
payments (e.g., monthly or annual payments) which total less than a $14,075
taxable amount will generally be exempt from Federal income tax withholding,
unless the recipient specifies a different choice of withholding exemption. A
withholding election may be revoked at any time and remains effective until
revoked. If a recipient fails to provide a correct taxpayer identification
number, withholding is made as if the recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally
be subject to withholding at a flat 10% rate. A recipient who provides a
United States residence address and a correct taxpayer identification number
will generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make
withholding elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than you, a Federal generation skipping tax may be
payable with respect to the benefit at rates similar to the maximum estate
tax rate in effect at the time. The generation skipping tax provisions
generally apply to transfers which would also be subject to the gift and
estate tax rules. Individuals are generally allowed an aggregate generation
skipping tax exemption of $1 million. Because these rules are complex, you
should consult with your tax adviser for specific information, especially
where benefits are passing to younger generations, as opposed to a spouse or
child.
34
<PAGE>
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
SPECIAL RULES FOR CERTIFICATES ISSUED IN PUERTO RICO
Under current law Equitable Life treats income from Accumulator Certificates
as U.S.-source. A Puerto Rico resident is subject to U.S. taxation on such
U.S.-source income. Only Puerto Rico-source income of Puerto Rico residents
is excludable from U.S. taxation. Income from Accumulator Certificates is
also subject to Puerto Rico tax. The computation of the taxable portion of
amounts distributed from a Certificate may differ in the two jurisdictions.
Therefore, an individual might have to file both U.S. and Puerto Rico tax
returns, showing different amounts of income for each. Puerto Rico generally
provides a credit against Puerto Rico tax for U.S. tax paid. Depending on an
individual's personal situation and the timing of the different tax
liabilities, an individual may not be able to take full advantage of this
credit.
Please consult your tax adviser to determine the applicability of these rules
to your own tax situation.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account
for taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
35
<PAGE>
- -------------------------------------------------------------------------------
PART 9: KEY FACTORS IN RETIREMENT PLANNING
- -------------------------------------------------------------------------------
INTRODUCTION
The Accumulator is available to help meet the retirement income and
investment needs of individuals. In assessing these retirement needs, some
key factors need to be addressed: (1) the impact of inflation on fixed
retirement incomes; (2) the importance of planning early for retirement; (3)
the benefits of tax-deferral; (4) the selection of an appropriate investment
strategy; and (5) the benefit of annuitization. Each of these factors is
addressed below.
Unless otherwise noted, all of the following presentations use an assumed
annual rate of return of 7.5% compounded annually. This rate of return is for
illustrative purposes only and is not intended to represent an expected or
guaranteed rate of return for any investment vehicle, including the
Accumulator. In addition, unless otherwise noted, none of the illustrations
reflect any charges that may be applied under a particular investment
vehicle, including the Accumulator. Such charges would effectively reduce the
actual return under any investment vehicle.
All earnings in these presentations are assumed to accumulate tax-deferred
unless otherwise noted. Most programs designed for retirement savings offer
tax-deferral. Monies are taxed upon withdrawal and a 10% penalty tax may
apply to premature withdrawals. Certain retirement programs prohibit early
withdrawals. See "Part 8: Tax Aspects of the Certificates." Where taxes are
taken into consideration in these presentations, a 28% tax rate is assumed.
The source of the data used by us to compile the charts which appear in this
Part 9 (other than charts 1, 2, 3, 4 and 7) is Ibbotson Associates, Inc.
Chicago. Stocks, Bonds, Bills and Inflation 1996 Yearbook (TM). All rights
reserved.
In reports or other communications or in advertising material we may make use
of these or other graphic or numerical illustrations that we prepare showing
the impact of inflation, planning early for retirement, tax-deferral,
diversification and other concepts important to retirement planning.
INFLATION
Inflation erodes purchasing power. This means that, in an inflationary
period, the dollar is worth less as time passes. Because many people live on
a fixed income during retirement, inflation is of particular concern to them.
The charts that follow illustrate the detrimental impact of inflation over an
extended period of time. Between 1965 and 1995, the average annual inflation
rate was 5.39%. As demonstrated in Chart 1, this 5.39% annual rate of
inflation would cause the purchasing power of $35,000 to decrease to only
$7,246 after 30 years.
In Chart 2, the impact of inflation is examined from another perspective.
Specifically, the chart illustrates the additional income needed to maintain
the purchasing power of $35,000 over a thirty year period. Again, the
1965-1995 historical inflation rate of 5.39% is used. In this case, an
additional $134,064 would be required to maintain the purchasing power of
$35,000 after 30 years.
CHART 1
[THE FOLLOWING TABLE WAS REPRESENTED AS A
3-D BAR GRAPH IN THE PROSPECTUS]
Today -- $35,000
10 years -- $20,705
20 years -- $12,248
30 years -- $ 7,246
[END OF GRAPHICALLY REPRESENTED DATA]
CHART 2
ANNUAL INCOME NEEDED
[THE FOLLOWING TABLE WAS REPRESENTED AS A
3-D BAR GRAPH IN THE PROSPECTUS]
Today -- $ 35,000
10 years -- $ 59,165
20 years -- $100,013
30 years -- $169,064
Increase Needed: $24,165 $65,013 $134,064
[END OF GRAPHICALLY REPRESENTED DATA]
36
<PAGE>
STARTING EARLY
The impact of inflation accentuates the need to begin a retirement program
early. The value of starting early is illustrated in the following charts.
As shown in Chart 3, if an individual makes annual contributions of $2,500 to
his or her retirement program beginning at age 30, he or she would accumulate
$414,551 by age 65 under the assumptions described earlier. If that
individual waited until age 50, he or she would only accumulate $70,193 by
age 65 under the same assumptions.
CHART 3
[THE FOLLOWING TABLE WAS REPRESENTED AS
A STACKED AREA GRAPH IN THE PROSPECTUS:]
30 ................. $414,551
40 ................. $182,691
50 ................. $ 70,193
BLACK - Age 30 GRAY - Age 40 DOTTED - Age 50
[END OF GRAPHICALLY REPRESENTED DATA]
In Table 1, the impact of starting early is demonstrated in another format.
For example, if an individual invests $300 monthly, he or she would
accumulate $387,193 in thirty years under our assumptions. In contrast, if
that individual invested the same $300 per month for 15 years, he or she
would accumulate only $97,804 under our assumptions.
TABLE 1
<TABLE>
<CAPTION>
MONTHLY
CONTRIBUTION YEAR 10 YEAR 15 YEAR 20 YEAR 25 YEAR 30
- -------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 20 $ 3,532 $ 6,520 $ 10,811 $ 16,970 $ 25,813
50 8,829 16,301 27,027 42,425 64,532
100 17,659 32,601 54,053 84,851 129,064
200 35,317 65,202 108,107 169,701 258,129
300 52,969 97,804 162,160 254,552 387,193
</TABLE>
Chart 4 presents an additional way to demonstrate the significant impact of
starting to make contributions to a retirement program earlier rather than
later. It assumes that an individual had a goal to accumulate $250,000
(pre-tax) by age 65. If he or she starts at age 30, under our assumptions he
or she could reach the goal by making a monthly pre-tax contribution of $130
(equivalent to $93 after taxes). The total net cost for the 30 year old in
this hypothetical example would be $39,265. If the individual in this
hypothetical example waited until age 50, he or she would have to make a
monthly pre-tax contribution of $767 (equivalent to $552 after taxes) to
attain the goal, illustrating the importance of starting early.
CHART 4
GOAL: $250,000 BY AGE 65
[THE FOLLOWING TABLE WAS REPRESENTED
AS A BAR GRAPH IN THE PROSPECTUS:]
B W
$ 93 a Month ............. 30 $39,265 $210,735
$212 a Month ............. 40 $63,641 $186,359
$552 a Month ............. 50 $99,383 $150,617
BLACK - Net Cost
WHITE - Tax-Deferred Earnings at 7.5%
[END OF GRAPHICALLY REPRESENTED DATA]
TAX-DEFERRAL
Contributing to a retirement plan early is part of an effective strategy for
addressing the impact of inflation. Another part of such a strategy is to
carefully select the types of retirement programs in which to invest. In
deciding where to invest retirement contributions, there are three basic
types of programs.
The first type offers the most tax benefits, and therefore is potentially the
most beneficial for accumulating funds for retirement. Contributions are made
with pre-tax dollars or are tax-deductible and earnings grow income
tax-deferred. An example of this type of program is the deductible Individual
Retirement Annuity (IRA).
The second type of program also provides for tax deferred earnings growth;
however, contributions are made with after-tax dollars. Examples of this type
of program are non-deductible IRAs and non-qualified annuities.
The third approach to retirement savings is fully taxable. Contributions are
made with after-tax dollars and earnings are taxed each year. Examples of
this type of program include certificates of deposit, savings accounts, and
taxable stock, bond or mutual fund investments.
37
<PAGE>
Consider an example. For the type of retirement program that offers both
pre-tax contributions and tax-deferral, assume that a $2,000 annual pre-tax
contribution is made for thirty years. In this example, the retirement funds
would be $177,224 after thirty years (assuming a 7.5% rate of return, no
withdrawals and assuming the deduction of the 1.20% Separate Account daily
asset charge--but no withdrawal charge or other charges under the
Certificate, or Trust charges to Portfolios), and such funds would be
$222,309 without the effect of any charges. Assuming a lump sum withdrawal
was made in year thirty and a 28% tax bracket, these amounts would be
$127,601 and $160,062, respectively.
For the type of program that offers only tax-deferral, assume an after-tax
annual contribution of $1,440 for thirty years and the same rate of return.
The after-tax contribution is derived by taxing the $2,000 pre-tax
contribution again assuming a 28% tax bracket. In this example, the
retirement funds would be $127,601 after thirty years assuming the deduction
of charges and no withdrawals, and $160,062 without the effect of charges.
Assuming a lump sum withdrawal in year thirty, the total after-tax amount
would be $103,969 with charges deducted and $127,341 without charges as
described above.
For the fully taxable investment, assume an after-tax contribution of $1,440
for thirty years. Earnings are taxed annually. After thirty years, the amount
of this fully taxable investment is $108,046.
Keep in mind that taxable investments have fees and charges too (investment
advisory fees, administrative charges, 12b-1 fees, sales loads, brokerage
commissions, etc.). We have not attempted to apply these fees and charges to
the fully taxable amounts since this is intended merely as an example of tax
deferral.
Again, it must be emphasized that the assumed rate of return of 7.5%
compounded annually used in these examples is for illustrative purposes only
and is not intended to represent a guaranteed or expected rate of return on
any investment vehicle. Moreover, early withdrawals of tax-deferred
investments are generally subject to a 10% penalty tax.
INVESTMENT OPTIONS
Selecting an appropriate retirement program is clearly an important part of
an effective retirement planning strategy. Carefully choosing among
Investment Options is another essential component.
During the 1965-1995 period, common stock average annual returns outperformed
the average annual returns of fixed investments such as long-term government
bonds and Treasury Bills (T-Bills). See "Notes" below. Common stocks earned
an average annual return of 10.68% over this period, in contrast to 6.72% and
7.92% for the other two investment categories. Significantly, common stock
returns also outpaced inflation which grew at 5.39% over this period.
Although common stock returns have historically outpaced returns of fixed
investments, people often allocate a significant percentage of their
retirement funds to fixed return investments. Their primary concern is the
preservation of principal. Given this concern, Chart 5 illustrates the impact
of exposing only the interest generated by a fixed investment to the stock
market. In this illustration, the fixed investment is represented by a
Treasury Bill return and the stock investment is represented by the Standard
& Poor's 500 ("S&P 500").
The chart assumes that a $20,000 fixed investment was made on January 1,
1980. If the interest on that investment were to accumulate based upon the
return of the S&P 500, the total investment would have been worth $131,033 in
1995. Had the interest been reinvested in the fixed investment, the fixed
investment would have grown to $62,379. As illustrated in Chart 5,
significant opportunities for growth exist while preserving principal. See
"Notes" below.
CHART 5
$131,033 with Interest Exposed to Stock Market (S&P 500)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PROSPECTUS]
Market Value Market Value
Month of S&P 500 If 100% in
Ending & Fixed Acct 3 Mo. T-Bill
1980 J 20,160 20,160
F 20,338 20,339
M 20,547 20,586
A 20,823 20,845
M 21,031 21,014
J 21,183 21,142
J 21,369 21,254
A 21,515 21,390
S 21,708 21,550
O 21,930 21,755
N 22,333 21,964
D 22,522 22,252
1981 J 22,619 22,483
F 22,888 22,724
M 23,239 22,999
A 23,386 23,247
M 23,637 23,514
J 23,878 23,832
J 24,129 24,127
A 24,156 24,436
S 24,196 24,739
O 24,659 25,039
N 25,079 25,306
D 25,118 25,527
1982 J 25,195 25,731
F 25,113 25,968
M 25,278 26,222
A 25,722 26,518
M 25,770 26,799
J 25,861 27,057
J 25,945 27,341
A 26,850 27,549
S 27,028 27,689
O 27,937 27,852
N 28,411 28,028
D 28,690 28,216
1983 J 29,131 28,410
F 29,492 28,587
M 29,965 28,767
A 30,862 28,971
M 30,943 29,171
J 31,495 29,366
J 31,284 29,584
A 31,627 29,808
S 31,938 30,035
O 31,930 30,263
N 32,348 30,475
D 32,418 30,698
1984 J 32,490 30,931
F 32,222 31,150
M 32,577 31,378
A 32,826 31,632
M 32,297 31,879
J 32,719 32,118
J 32,701 32,381
A 34,295 32,650
S 34,470 32,931
O 34,708 33,260
N 34,705 33,503
D 35,205 33,717
1985 J 36,503 33,936
F 36,845 34,133
M 37,000 34,345
A 37,089 34,592
M 38,272 34,820
J 38,673 35,012
J 38,748 35,229
A 38,744 35,423
S 38,262 35,635
O 39,208 35,867
N 40,706 36,086
D 41,803 36,320
1986 J 42,011 36,524
F 43,792 36,717
M 45,230 36,938
A 45,021 37,130
M 46,493 37,312
J 47,036 37,506
J 45,602 37,701
A 47,609 37,874
S 45,430 38,045
O 46,935 38,220
N 47,703 38,369
D 47,070 38,557
1987 J 50,789 38,719
F 52,147 38,885
M 53,115 39,068
A 52,912 39,240
M 53,327 39,389
J 55,086 39,578
J 56,925 39,760
A 58,441 39,947
S 57,685 40,127
O 49,695 40,367
N 47,333 40,509
D 49,428 40,667
1988 J 50,743 40,785
F 52,280 40,972
M 51,393 41,152
A 51,824 41,342
M 52,174 41,553
J 53,765 41,756
J 53,732 41,969
A 52,733 42,217
S 54,245 42,478
O 55,302 42,738
N 54,915 42,981
D 55,673 43,252
1989 J 58,362 43,490
F 57,529 43,755
M 58,548 44,048
A 60,672 44,343
M 62,465 44,694
J 62,377 45,011
J 66,323 45,326
A 67,365 45,662
S 67,310 45,958
O 66,344 46,271
N 67,446 46,590
D 68,687 46,874
1990 J 65,533 47,142
F 66,234 47,410
M 67,578 47,714
A 66,541 48,043
M 71,214 48,370
J 70,982 48,674
J 70,955 49,005
A 66,481 49,329
S 64,314 49,625
O 64,286 49,962
N 67,252 50,247
D 68,667 50,548
1991 J 70,922 50,811
F 74,664 51,055
M 76,053 51,280
A 76,316 51,552
M 78,820 51,794
J 76,216 52,011
J 78,945 52,266
A 80,422 52,507
S 79,523 52,748
O 80,405 52,970
N 78,042 53,176
D 84,752 53,378
1992 J 83,616 53,560
F 84,486 53,710
M 83,290 53,892
A 85,196 54,065
M 85,604 54,216
J 84,717 54,390
J 87,387 54,558
A 86,078 54,700
S 86,890 54,842
O 87,176 54,969
N 89,486 55,095
D 90,453 55,249
1993 J 91,013 55,376
F 92,016 55,498
M 93,614 55,637
A 91,858 55,770
M 93,843 55,893
J 94,136 56,033
J 93,836 56,167
A 96,699 56,308
S 96,183 56,454
O 97,774 56,578
N 97,093 56,720
D 98,087 56,850
1994 J 100,753 56,992
F 98,615 57,112
M 95,249 57,266
A 96,281 57,421
M 97,589 57,605
J 95,734 57,783
J 98,297 57,945
A 101,558 58,159
S 99,666 58,375
O 101,566 58,596
N 98,647 58,813
D 99,883 59,072
1995 J 102,044 59,320
F 105,307 59,557
M 107,925 59,831
A 110,571 60,095
M 114,257 60,419
J 116,566 60,703
J 119,871 60,976
A 120,235 61,263
S 124,521 61,526
O 124,249 61,816
N 128,920 62,075
D 131,033 63,379
$62,379 Without Interest Exposed to Stock Market
(S&P 500)
[END OF GRAPHICALLY REPRESENTED DATA]
Another variation of the example in Chart 5 is to gradually transfer
principal from a fixed investment into the stock market. Chart 6 assumes that
a $20,000 fixed investment was made on January 1, 1980. For the next two
years, $540 is transferred monthly into the stock market (represented by the
S&P 500). The total investment, given this strategy, would have grown to
$139,695 in 1995. In contrast, had the principal not been transferred, the
fixed investment would have grown to $62,379. See "Notes" below.
38
<PAGE>
CHART 6
$139,695 with Principal Transfer
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PROSPECTUS]
Market Value Market Value
Month of S&P 500 If 100% in
Ending & Fixed Acct 3 Mo. T-Bil
1980 J 20540 20160
F 20702 20339
M 20770 20586
A 21068 20845
M 21425 21014
J 21659 21142
J 22000 21254
A 22149 21390
S 22394 21550
O 22623 21755
N 23446 21964
D 23372 22252
1981 J 23246 22483
F 23569 22724
M 24053 22999
A 24031 23247
M 24246 23514
J 24324 23832
J 24514 24127
A 24051 24436
S 23651 24739
O 24397 25039
N 25087 25306
D 24857 25527
1982 J 24193 25731
F 23594 25968
M 23618 26222
A 24248 26518
M 23995 26799
J 23892 27057
J 23731 27341
A 25407 27549
S 25647 27689
O 27281 27852
N 28031 28028
D 28386 28216
1983 J 29041 28410
F 29568 28587
M 30282 28767
A 31737 28971
M 31721 29171
J 32549 29366
J 32000 29584
A 32424 29808
S 32790 30035
O 32616 30263
N 33176 30475
D 33142 30698
1984 J 33104 30931
F 32544 31150
M 32969 31378
A 33202 31632
M 32246 31879
J 32767 32118
J 32593 32381
A 34841 32650
S 34959 32931
O 35133 33260
N 35058 33503
D 35692 33717
1985 J 37434 33936
F 37844 34133
M 37970 34345
A 37984 34592
M 39531 34820
J 40023 35012
J 40038 35229
A 39976 35423
S 39254 35635
O 40428 35867
N 42341 36086
D 43701 36320
1986 J 43926 36524
F 46184 36717
M 47968 36938
A 47659 37130
M 49498 37312
J 50136 37506
J 48265 37701
A 50769 37874
S 47982 38045
O 49830 38220
N 50767 38369
D 49918 38557
1987 J 54519 38719
F 56165 38885
M 57317 39068
A 57035 39240
M 57525 39389
J 59630 39578
J 61849 39760
A 63662 39947
S 62711 40127
O 52932 40367
N 50090 40509
D 52585 40667
1988 J 54165 40785
F 55951 40972
M 54862 41152
A 55344 41342
M 55720 41553
J 57582 41756
J 57509 41969
A 56280 42217
S 58018 42478
O 59225 42738
N 58749 42981
D 59588 43252
1989 J 62695 43490
F 61691 43755
M 62824 44048
A 65234 44343
M 67232 44694
J 67118 45011
J 71581 45326
A 72728 45662
S 72661 45958
O 71544 46271
N 72760 46590
D 74150 46874
1990 J 70617 47142
F 71385 47410
M 72851 47714
A 71676 48043
M 76833 48370
J 76576 48674
J 76526 49005
A 71611 49329
S 69246 49625
O 69192 49962
N 72438 50247
D 73964 50548
1991 J 76420 50811
F 80470 51055
M 81977 51280
A 82241 51552
M 84947 51794
J 82165 52011
J 85076 52266
A 86666 52507
S 85709 52748
O 86662 52970
N 84157 53176
D 91300 53378
1992 J 90106 53560
F 91047 53710
M 89770 53892
A 91798 54065
M 92244 54216
J 91302 54390
J 94130 54558
A 92765 54700
S 93626 54842
O 93940 54969
N 96377 55095
D 97388 55249
1993 J 97994 55376
F 99055 55498
M 100732 55637
A 98899 55770
M 100989 55893
J 101297 56033
J 100991 56167
A 103992 56308
S 103458 56454
O 105136 56578
N 104425 56720
D 105474 56850
1994 J 108259 56992
F 106046 57112
M 102533 57266
A 103617 57421
M 104976 57605
J 103062 57783
J 105741 57945
A 109118 58159
S 107170 58375
O 109151 58596
N 106146 58813
D 107426 59072
1995 J 109681 59320
F 113071 59557
M 115775 59831
A 118526 60095
M 122319 60419
J 124733 60703
J 128155 60976
A 128547 61263
S 132973 61526
O 132710 61816
N 137525 62075
D 139695 62379
$62,379 Without Principal Transfer
[END OF GRAPHICALLY REPRESENTED DATA]
NOTES
1. Common Stocks: Standard & Poor's (S&P) Composite Index is an unmanaged
weighted index of the stock performance of 500 industrial,
transportation, utility and financial companies. Results shown assume
reinvestment of dividends. Both market value and return on common stock
will vary.
2. U.S. Government Securities: Long-term Government Bonds are measured
using a one-bond portfolio constructed each year containing a bond with
approximately a 20-year maturity and a reasonably current coupon. U.S.
Treasury Bills are measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having
the shortest maturity not less than one month. U.S. Government
securities are guaranteed as to principal and interest, and if held to
maturity, offer a fixed rate of return. However, market value and
return on such securities will fluctuate prior to maturity.
The Accumulator can be an effective program for diversifying ongoing
investments between various asset categories. In addition, the Accumulator
offers special features which help address the risk associated with timing
the equity markets, such as dollar cost averaging. By transferring the same
dollar amount each month from the Money Market Fund to other Investment
Funds, dollar cost averaging attempts to shield your investment from short
term price fluctuations. This, however, does not assure a profit or protect
against a loss in declining markets.
THE BENEFIT OF ANNUITIZATION
An individual may shift the risk of outliving his or her principal by
electing a lifetime income annuity. See "Income Annuity Options," in Part 5.
Chart 7 below shows the monthly income that can be generated under various
forms of life annuities, as compared to receiving level payments of interest
only or principal and interest from the investment. Calculations in the Chart
are based on the following assumption: a $100,000 contribution was made at
one of the ages shown, annuity payments begin immediately, and a 5%
annuitization interest rate is used. For purposes of this example, principal
and interest are paid out on a level basis over 15 years. In the case of the
interest only scenario, the principal is always available and may be left to
other individuals at death. Under the principal and interest scenario, a
portion of the principal will be left at death, assuming the individual dies
within the 15 year period. In contrast, under the life annuity scenarios,
there is no residual amount left.
CHART 7
MONTHLY INCOME
($100,000 CONTRIBUTION)
<TABLE>
<CAPTION>
JOINT AND SURVIVOR*
-----------------------------------
INTEREST PRINCIPAL AND
ONLY FOR INTEREST FOR SINGLE 50% TO 66.67% TO 100% TO
ANNUITANT LIFE 15 YEARS LIFE SURVIVOR SURVIVOR SURVIVOR
- ----------- ---------- -------------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Male 65 $401 $785 $ 617 $560 $544 $513
Male 70 401 785 685 609 588 549
Male 75 401 785 771 674 646 598
Male 80 401 785 888 760 726 665
Male 85 401 785 1,045 878 834 757
</TABLE>
- ------------
The numbers are based on 5% interest compounded annually and the 1983
Individual Annuity Mortality Table "a" projected with modified Scale G.
Annuity purchase rates available at annuitization may vary, depending
primarily on the annuitization interest rate, which may not be less than an
annual rate of 2.5%.
* The Joint and Survivor Annuity Forms are based on male and female
Annuitants of the same age.
39
<PAGE>
- -----------------------------------------------------------------------------
PART 10: INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995 included in Equitable
Life's Annual Report on Form 10-K, incorporated by reference in the prospec
tus, have been examined by Price Waterhouse LLP, independent accountants,
whose reports thereon are incorporated herein by reference. Such consolidated
financial statements and consolidated financial statement schedules have been
incorporated herein by reference in reliance upon the reports of Price
Waterhouse LLP given upon their authority as experts in accounting and
auditing.
40
<PAGE>
APPENDIX I: MARKET VALUE ADJUSTMENT EXAMPLE
- -----------------------------------------------------------------------------
The example below shows how the market value adjustment would be determined
and how it would be applied to a withdrawal, assuming that $100,000 were
allocated on February 15, 1997 to a Guarantee Period with an Expiration Date
of February 15, 2006 at a Guaranteed Rate of 7.00% resulting in a Maturity
Value at the Expiration Date of $183,846, and further assuming that a
withdrawal of $50,000 were made on February 15, 2001.
<TABLE>
<CAPTION>
ASSUMED
GUARANTEED RATE ON
FEBRUARY 15, 2001
----------------------
5.00% 9.00%
---------- ----------
<S> <C> <C>
As of February 15, 2001 (Before Withdrawal)
- -------------------------------------------
(1) Present Value of Maturity Value, also
Annuity Account Value .................. $144,048 $119,487
(2) Guaranteed Period Amount ............... 131,080 131,080
(3) Market Value Adjustment: (1)-(2) ...... 12,968 (11,593)
February 15, 2001 (After Withdrawal)
- -------------------------------------------
(4) Portion of (3) Associated
with Withdrawal: (3) x [$50,000 / (1)] $ 4,501 $ (4,851)
(5) Reduction in Guaranteed
Period Amount: [$50,000-(4)] ........... 45,499 54,851
(6) Guaranteed Period Amount: (2)-(5) ..... 85,581 76,229
(7) Maturity Value ......................... 120,032 106,915
(8) Present Value of (7), also
Annuity Account Value .................. 94,048 69,487
</TABLE>
You should note that under this example if a withdrawal is made when rates
have increased (from 7.00% to 9.00% in the example), a portion of a negative
market value adjustment is realized. On the other hand, if a withdrawal is
made when rates have decreased (from 7.00% to 5.00% in the example), a
portion of a positive market value adjustment is realized.
41
<PAGE>
APPENDIX II: GUARANTEED MINIMUM DEATH BENEFIT (GMDB) EXAMPLE
- -----------------------------------------------------------------------------
Under the Certificates the death benefit is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the GMDB (see "GMDB" in Part 5); and
(2) the death benefit provided with respect to the Guaranteed Period
Account (see "Death Benefit Amount" in Part 4).
The following is an example illustrating the calculation of the GMDB.
Assuming $100,000 is allocated to the Investment Funds (with no allocation to
the Money Market Fund), no subsequent contributions, no transfers and no
withdrawals, the GMDB for an Annuitant age 45 would be calculated as follows:
<TABLE>
<CAPTION>
END OF
CONTRACT ANNUITY ACCOUNT NON-NEW YORK
YEAR VALUE GMDB(1) NEW YORK GMDB
- ---------- --------------- -------------- -------------
<S> <C> <C> <C>
1 $105,000 $106,000 $105,000(2)
2 $108,675 $112,360 $108,675(2)
3 $124,976 $119,102 $119,102(3)
4 $135,912 $126,248 $126,248(3)
5 $149,503 $133,823 $133,823(3)
6 $149,503 $141,852 $141,852(3)
7 $161,463 $150,363 $161,463(3)
8 $161,463 $159,385 $161,463(2)
</TABLE>
The Annuity Account Values for Contract Years 1 through 8 are determined
based on hypothetical rates of return of 5.00%, 3.50%, 15.00%, 8.75%, 10.00%,
0.00%, 8.00% and 0.00%, respectively.
NON-NEW YORK
(1) For Contract Years 1 through 8, the GMDB equals the initial contribution
increased by 6%.
NEW YORK
(2) At the end of Contract Years 1 and 2, and again at the end of Contract
Year 8, the GMDB is equal to the Annuity Account Value.
(3) At the end of Contract Years 3 through 6, the GMDB is equal to the
contribution increased by 6% instead of the Annuity Account Value, since
the GMDB cannot be greater than this amount. However, at the end of the
seventh Contract Year the GMDB is equal to the Annuity Account Value of
$161,463 even though it is greater than the contribution increased at 6%
($150,363) because the cap does not apply on the seventh Processing
Date.
42
<PAGE>
APPENDIX III: GMIB EXAMPLES
- -----------------------------------------------------------------------------
The GMIB is equal to:
(A) the greater of
(i) the Annuity Account Value in the Investment Funds, and
(ii) an amount equal to the GMDB (reduced by any remaining withdrawal
charges);
divided by
(B) the guaranteed maximum annuity purchase rates.
The examples below assume a male age 60 has purchased an Accumulator
Certificate with an initial contribution of $100,000 that is allocated 100%
to the Investment Funds (excluding the Money Market Fund). The GMDB in the
10th Contract Year is $179,085 at 6% interest. Assuming hypothetical rates of
return (after deduction of charges) in the Investment Funds of 0% in Example
1 and 8% in Example 2 during the 10 Contract Years, the GMIB in the 10th
Contract Year (assuming level payments under the Assured Payment Plan) would
be as follows:
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
----------- -----------
<S> <C> <C>
(1) Hypothetical Rate of Return .... 0% 8%
(2) Annuity Account Value as of the
Contract Date ................... $100,000 $100,000
(3) The greater of (i) the GMDB and
(ii) the Annuity Account Value
as of the 10th Contract Date
anniversary ..................... $179,085 $215,892
(4) Guaranteed Maximum Annuity
Purchase Rates for level
payments under the Assured
Payment Plan .................... $ 14.73 $ 14.73
(5) GMIB as of 10th Contract Date
anniversary ((3)/(4)) ........... $ 12,160 $ 14,659
</TABLE>
In Example 1, the GMDB which is higher than the Annuity Account Value would
provide a GMIB of $12,160. In Example 2, the Annuity Account Value, which at
this point is higher than the GMDB, would provide a GMIB of $14,659.
The rates of return discussed above are for illustrative purposes only and
are not intended to represent an expected or guaranteed rate or return. Your
investment results will vary. The level of GMIB under the Assured Payment
Plan will also depend on the guaranteed maximum annuity purchase rates as of
the Transaction Date and the type of payments selected. The examples assume
no transfers or withdrawals, which would affect the GMDB and, thus, the GMIB.
43
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
--------
Part 1: Accumulation Unit Values 2
Part 2: Annuity Unit Values 2
Part 3: Custodian and Independent Accountants 3
Part 4: Money Market Fund Yield Information 3
Part 5: Long-Term Market Trends 3
Part 6: Financial Statements 5
</TABLE>
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 49
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI:
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
44
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No: 333-05593
ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 16, 1996
------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 49
O AGGRESSIVE STOCK
O COMMON STOCK
O GROWTH INVESTORS
O GLOBAL
O HIGH YIELD
O MONEY MARKET
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
- -------------------------------------------------------------------------------
Home Office: 787 Seventh Avenue, New York, NY 10019
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
- -------------------------------------------------------------------------------
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 49 prospectus for the
Rollover IRA, dated October 16, 1996. Definitions of special terms used in
the SAI are found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------ --------
<S> <C>
Part 1 Minimum Distribution Withdrawals 2
- ------------------------------------------------ --------
Part 2 Accumulation Unit Values 2
- ------------------------------------------------ --------
Part 3 Annuity Unit Values 2
- ------------------------------------------------ --------
Part 4 Custodian and Independent Accountants 3
- ------------------------------------------------ --------
Part 5 Money Market Fund Yield Information 3
- ------------------------------------------------ --------
Part 6 Long-Term Market Trends 4
- ------------------------------------------------ --------
Part 7 Financial Statements 6
- ------------------------------------------------ --------
</TABLE>
Copyright 1996
The Equitable Life Assurance Society of the United States, New York, New York
10019.
All rights reserved.
<PAGE>
- --------------------------------------------------------------------------------
PART 1 -MINIMUM DISTRIBUTION WITHDRAWALS
If you elect Minimum Distribution Withdrawals described in Part 6 of the
prospectus, each year we calculate the Minimum Distribution Withdrawal amount
by using the value of your IRA as of December 31 of the prior calendar year.
We then calculate the minimum distribution amount based on the various
choices you make. This calculation takes into account withdrawals made during
the current calendar year but prior to the date we determine your Minimum
Distribution Withdrawal amount, except that when Minimum Distribution
Withdrawals are elected in the year in which you attain age 71 1/2, no
adjustment will be made for any withdrawals made between January 1 and April
1 in satisfaction of the minimum distribution requirement for the prior year.
An election can also be made (1) to have us recalculate your life expectancy,
or joint life expectancies, each year or (2) to have us determine your life
expectancy, or joint life expectancies, once and then subtract one year, each
year, from that amount. The joint life options are only available if the
spouse is the beneficiary. However, if you first elect Minimum Distribution
Withdrawals after April 1 of the year following the calendar year in which
you attain age 70 1/2, option (1) will apply.
- ------------------------------------------------------------------------------
PART 2 -ACCUMULATION
UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Rollover IRA.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
---
b
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by the Trust.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
asset based administrative charge relating to the Certificates, times
the number of calendar days in the Valuation Period. These daily
charges are at an effective annual rate not to exceed a total of 1.20%.
- -------------------------------------------------------------------------------
PART 3 -ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on October 1, 1996 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
2
<PAGE>
- -------------------------------------------------------------------------------
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Common Stock Fund. Each monthly payment will be
calculated by multiplying the number of annuity units credited by the average
annuity unit value for the second calendar month immediately preceding the
due date of the payment. The number of units is calculated by dividing the
first monthly payment by the annuity unit value for the Valuation Period
which includes the due date of the first monthly payment. The average annuity
unit value is the average of the annuity unit values for the Valuation
Periods ending in that month. Variable income annuities may also be available
by separate prospectus through the Common Stock or other Funds of other
separate accounts we offer.
Illustration of Changes in Annuity Unit Values. To show how we determine
variable annuity payments from month to month, assume that the Annuity
Account Value on an Annuity Commencement Date is enough to fund an annuity
with a monthly payment of $363 and that the annuity unit value for the
Valuation Period that includes the due date of the first annuity payment is
$1.05. The number of annuity units credited under the contract would be
345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
- ------------------------------------------------------------------------------
PART 4 -CUSTODIAN AND
INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of the Trust owned by the Separate
Account.
The consolidated financial statements of Equitable Life for the years ended
December 31, 1995 and 1994 included in the SAI have been audited by Price
Waterhouse LLP.
The consolidated financial statements of Equitable Life for the years ended
December 31, 1995 and 1994 included in this SAI have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of such firm as experts in accounting and auditing.
- -------------------------------------------------------------------------------
PART 5 -MONEY MARKET
FUND YIELD INFORMATION
The Money Market Fund calculates yield information for seven-day periods. The
seven-day current yield calculation is based on a hypothetical Certificate
with one Accumulation Unit at the beginning of the period. To determine the
seven-day rate of return, the net change in the Accumulation Unit Value is
computed by subtracting the Accumulation Unit Value at the beginning of the
period from an Accumulation Unit Value, exclusive of capital changes, at the
end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Money
Market Fund but do not reflect the withdrawal charge, the GMDB/GMIB charge or
charges for applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Money Market Fund's investments, as follows:
the unannualized adjusted base period return is compounded by adding
3
<PAGE>
- ------------------------------------------------------------------------------
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 --1. The Money Market Fund yields will
fluctuate daily. Accordingly, yields for any given period are not necessarily
representative of future results. In addition, the value of Accumulation
Units of the Money Market Fund will fluctuate and not remain constant.
The Money Market Fund yields reflect charges that are not normally reflected
in the yields of other investments and therefore may be lower when compared
with yields of other investments. Money Market Fund yields should not be
compared to the return on fixed rate investments which guarantee rates of
interest for specified periods, such as the Guarantee Periods. Nor should the
yield be compared to the yield of money market funds made available to the
general public.
Because the Rollover IRA Certificates described in the prospectus are being
offered for the first time in 1996, no yield information is presented.
- ------------------------------------------------------------------------------
PART 6 -LONG-TERM MARKET
TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
your own financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Rollover IRA Investment
Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1955
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED AREA
GRAPH IN THE PROSPECTUS]
S&P 500
TOTAL U.S.
RETURN INFLATION
------ ---------
INDEX VALUE
------ ---------
Dec 1954 1.00 1.00
Dec 1955 1.32 1.00
Dec 1956 1.40 1.03
Dec 1957 1.25 1.06
Dec 1958 1.79 1.08
Dec 1959 2.01 1.10
Dec 1960 2.02 1.11
Dec 1961 2.56 1.12
Dec 1962 2.34 1.14
Dec 1963 2.87 1.15
Dec 1964 3.34 1.17
Dec 1965 3.76 1.19
Dec 1966 3.38 1.23
Dec 1967 4.19 1.27
Dec 1968 4.65 1.33
Dec 1969 4.26 1.41
Dec 1970 4.43 1.49
Dec 1971 5.06 1.54
Dec 1972 6.02 1.59
Dec 1973 5.14 1.73
Dec 1974 3.78 1.94
Dec 1975 5.18 2.08
Dec 1976 6.42 2.18
Dec 1977 5.96 2.32
Dec 1978 6.35 2.53
Dec 1979 7.52 2.87
Dec 1980 9.96 3.23
Dec 1981 9.47 3.51
Dec 1982 11.50 3.65
Dec 1983 14.09 3.79
Dec 1984 14.97 3.94
Dec 1985 19.78 4.09
Dec 1986 23.44 4.13
Dec 1987 24.66 4.32
Dec 1988 28.81 4.51
Dec 1989 37.88 4.72
Dec 1990 36.68 5.00
Dec 1991 47.89 5.16
Dec 1992 51.56 5.31
Dec 1993 56.71 5.45
Dec 1994 57.45 5.60
Dec 1995 78.95 5.75
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart on next page.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1995.
Growth of $1 Invested on January 1, 1990
(Values are as of last business date)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
S&P 500
U.S. IT TOTAL
GVT TR RETURN
------ ---------
INDEX INDEX
------ ---------
Dec 1989 1.00 1.00
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
4
<PAGE>
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1995 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term govern-ment bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate nor guarantee of
future performance. Any invest ment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the Trust and Separate Account charges), see "Part 3:
Investment Performance" in the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM GOVT. U.S. TREASURY CONSUMER
ENDING 12/31/95 STOCKS GOVT. BONDS BONDS BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 37.43% 31.67% 26.39% 16.80% 5.60% 2.74%
3 Years 15.26 12.82 10.47 7.22 4.13 2.72
5 Years 16.57 13.10 12.07 8.81 4.29 2.83
10 Years 14.84 11.92 11.25 9.08 5.55 3.48
20 Years 14.59 10.45 10.54 9.69 7.28 5.23
30 Years 10.68 7.92 8.17 8.36 6.72 5.39
40 Years 10.78 6.38 6.75 7.02 5.73 4.46
50 Years 11.94 5.35 5.75 5.87 4.80 4.36
60 Years 11.34 5.20 5.46 5.34 4.01 4.10
Since 12/31/26 10.54 5.17 5.69 5.25 3.72 3.12
Inflation adjusted since 1926 7.20 1.99 2.49 2.07 0.58 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1996
Yearbook(Trademark), Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1995, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1995; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
5
<PAGE>
- -----------------------------------------------------------------------------
PART 7 -FINANCIAL
STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered
only as bearing upon the ability of Equitable Life to meet its obligations
under the Certificates. There are no financial statements for the Separate
Account as it had not commenced operations as of the date of the prospectus
and SAI.
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for loan impairments in 1995, for
postemployment benefits in 1994 and for investment securities in 1993.
PRICE WATERHOUSE LLP
New York, New York
February 7, 1996
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 15,899.9 $ 7,586.0
Held to maturity, at amortized cost..................................... - 5,223.0
Mortgage loans on real estate............................................. 3,638.3 4,018.0
Equity real estate........................................................ 3,916.2 4,446.4
Policy loans.............................................................. 1,976.4 1,731.2
Other equity investments.................................................. 621.1 678.5
Investment in and loans to affiliates..................................... 636.6 560.2
Other invested assets..................................................... 706.1 489.3
----------------- -----------------
Total investments..................................................... 27,394.6 24,732.6
Cash and cash equivalents................................................... 774.7 693.6
Deferred policy acquisition costs........................................... 3,083.3 3,221.1
Amounts due from discontinued GIC Segment................................... 2,097.1 2,108.6
Other assets................................................................ 2,713.1 2,078.6
Closed Block assets......................................................... 8,612.8 8,105.5
Separate Accounts assets.................................................... 24,566.6 20,469.5
----------------- -----------------
TOTAL ASSETS................................................................ $ 69,242.2 $ 61,409.5
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,752.6 $ 21,238.0
Future policy benefits and other policyholders' liabilities................. 4,171.8 3,840.8
Short-term and long-term debt............................................... 1,899.3 1,337.4
Other liabilities........................................................... 3,379.5 2,300.1
Closed Block liabilities.................................................... 9,507.2 9,069.5
Separate Accounts liabilities............................................... 24,531.0 20,429.3
----------------- -----------------
Total liabilities..................................................... 65,241.4 58,215.1
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 2,913.6 2,913.6
Retained earnings........................................................... 781.6 484.0
Net unrealized investment gains (losses).................................... 338.2 (203.0)
Minimum pension liability................................................... (35.1) (2.7)
----------------- -----------------
Total shareholder's equity............................................ 4,000.8 3,194.4
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................. $ 69,242.2 $ 61,409.5
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 771.0 $ 715.0 $ 644.5
Premiums...................................................... 606.8 625.6 599.1
Net investment income......................................... 2,127.7 2,030.9 2,599.3
Investment gains, net......................................... 5.3 91.8 533.4
Commissions, fees and other income............................ 886.8 845.4 1,717.2
Contribution from the Closed Block............................ 124.4 151.0 128.3
----------------- ----------------- -----------------
Total revenues.......................................... 4,522.0 4,459.7 6,221.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,244.2 1,201.3 1,330.0
Policyholders' benefits....................................... 1,011.3 920.6 1,003.9
Other operating costs and expenses............................ 1,856.5 1,943.1 3,584.2
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,112.0 4,065.0 5,918.1
----------------- ----------------- -----------------
Earnings before Federal income taxes and cumulative
effect of accounting change................................. 410.0 394.7 303.7
Federal income taxes.......................................... 112.4 101.2 91.3
----------------- ----------------- -----------------
Earnings before cumulative effect of accounting change........ 297.6 293.5 212.4
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (27.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 297.6 $ 266.4 $ 212.4
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning of year................. $ 2.5 $ 2.5 $ 2.0
Increase in par value......................................... - - .5
----------------- ----------------- -----------------
Common stock, at par value, end of year....................... 2.5 2.5 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 2,913.6 2,613.6 2,273.9
Additional capital in excess of par value..................... - 300.0 340.2
Increase in par value......................................... - - (.5)
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 2,913.6 2,913.6 2,613.6
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 484.0 217.6 5.2
Net earnings.................................................. 297.6 266.4 212.4
----------------- ----------------- -----------------
Retained earnings, end of year................................ 781.6 484.0 217.6
----------------- ----------------- -----------------
Net unrealized investment (losses) gains, beginning of year... (203.0) 131.9 78.8
Change in unrealized investment gains (losses)................ 541.2 (334.9) (9.5)
Effect of adopting new accounting standard.................... - - 62.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 338.2 (203.0) 131.9
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (2.7) (15.0) -
Change in minimum pension liability........................... (32.4) 12.3 (15.0)
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (35.1) (2.7) (15.0)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,000.8 $ 3,194.4 $ 2,950.6
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 297.6 $ 266.4 $ 212.4
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Net change in trading activities and broker-dealer
related receivables/payables.............................. - - (4,177.8)
Increase in matched resale agreements....................... - - (2,900.5)
Increase in matched repurchase agreements................... - - 2,900.5
Investment gains, net of dealer and trading gains........... (5.3) (91.8) (160.8)
Change in amounts due from discontinued GIC Segment......... - 57.3 47.8
General Account policy charges.............................. (769.7) (711.9) (623.4)
Interest credited to policyholders' account balances........ 1,244.2 1,201.3 1,330.0
Changes in Closed Block assets and liabilities, net......... (69.6) (95.1) (73.3)
Other, net.................................................. 627.1 7.8 (416.1)
----------------- ----------------- -----------------
Net cash provided (used) by operating activities.............. 1,324.3 634.0 (3,861.2)
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 1,863.1 2,319.7 3,479.6
Sales....................................................... 8,901.4 5,661.9 7,399.2
Return of capital from joint ventures and limited
partnerships.............................................. 65.2 39.0 119.5
Purchases................................................... (11,675.5) (7,417.6) (11,184.2)
Decrease (increase) in loans to discontinued GIC Segment.... 1,226.9 (40.0) (880.0)
Cash received on sale of 61% interest in DLJ................ - - 346.7
Other, net.................................................. (625.5) (371.1) (317.0)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (244.4) 191.9 (1,036.2)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 2,414.9 2,082.7 2,410.7
Withdrawals............................................... (2,692.7) (2,887.4) (2,433.5)
Net (decrease) increase in short-term financings............ (16.4) (173.0) 4,717.2
Additions to long-term debt................................. 599.7 51.8 97.7
Repayments of long-term debt................................ (40.7) (199.8) (64.4)
Proceeds from issuance of Alliance units.................... - 100.0 -
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. (1,215.4) - -
Capital contribution from the Holding Company............... - 300.0 -
Other, net.................................................. (48.2) - -
----------------- ----------------- -----------------
Net cash (used) provided by financing activities.............. (998.8) (725.7) 4,727.7
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 81.1 100.2 (169.7)
Cash and cash equivalents, beginning of year.................. 693.6 593.4 763.1
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 774.7 $ 693.6 $ 593.4
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 89.6 $ 34.9 $ 1,437.2
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (82.7) $ 49.2 $ 41.0
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business, which is
comprised of an Individual Insurance and Annuities segment and a Group
Pension segment is conducted principally by Equitable Life and its
wholly owned life insurance subsidiary, Equitable Variable Life
Insurance Company ("EVLICO"). Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance"), Equitable
Real Estate Investment Management, Inc. ("EREIM") and Donaldson, Lufkin
and Jenrette, Inc. ("DLJ"), an investment banking and brokerage
affiliate. AXA, a French holding company for an international group of
insurance and related financial services companies is the Holding
Company's largest shareholder, owning approximately 60.6% at December
31, 1995 (63.5% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.2% if all securities convertible into, or
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary and EREIM, a
real estate investment management subsidiary; and those partnerships and
joint ventures in which the Company has control and a majority economic
interest (collectively, including its consolidated subsidiaries, the
"Company"). The consolidated statement of earnings and cash flow for the
year ended December 31, 1993 include the results of operations and cash
flow of DLJ, an investment banking and brokerage affiliate, on a
consolidated basis through December 15, 1993 (see Note 20). Subsequent
to that date, DLJ is accounted for on the equity basis. The Closed Block
assets and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1995 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance.
Closed Block assets and liabilities are carried on the same basis as
similar assets and liabilities held in the General Account.
The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force. If the actual
contribution from the Closed Block in any given period equals or exceeds
the expected contribution for such period as determined at the
establishment of the Closed Block, the expected contribution would be
recognized in income for that period. Any excess of the actual
contribution over the expected contribution would also be recognized in
income to the extent that the aggregate expected contribution for all
prior periods exceeded the aggregate actual contribution. Any remaining
excess of actual contribution over expected contributions would be
accrued in the Closed Block as a liability for future dividends to be
paid to the Closed Block policyholders. If, over the period the policies
and contracts in the Closed Block remain in force, the actual
contribution from the Closed Block is less than the expected
contribution from the Closed Block, only such actual contribution would
be recognized in income.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Guaranteed
Interest Contract and Group Non-Participating Wind-Up Annuities lines of
business. The Company established a pre-tax provision for the estimated
future losses of the GIC line of business and a premium deficiency
reserve for the Group Non-Participating Wind-Up Annuities. Subsequent
losses incurred have been charged to the allowance for future losses and
the premium deficiency reserve. Total allowances are based upon
management's best judgment and there is no assurance that the ultimate
losses will not differ.
Accounting Changes
------------------
In the first quarter of 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan". This statement applies to all loans, including
loans restructured in a troubled debt restructuring involving a
modification of terms. This statement addresses the accounting for
impairment of a loan by specifying how allowances for credit losses
should be determined. Impaired loans within the scope of this statement
are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, at the loan's
observable market price or the fair value of the collateral if the loan
is collateral dependent. The Company provides for impairment of loans
through an allowance for possible losses. The adoption of this statement
did not have a material effect on the level of these allowances or on
the Company's consolidated statements of earnings and shareholder's
equity.
F-7
<PAGE>
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
At December 31, 1993, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which expanded the
use of fair value accounting for those securities that a company does
not have positive intent and ability to hold to maturity. Implementation
of this statement increased consolidated shareholder's equity by $62.6
million, net of deferred policy acquisition costs, amounts attributable
to participating group annuity contracts and deferred Federal income
tax. Beginning coincident with issuance of SFAS No. 115 implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result consolidated
shareholder's equity increased by $126.2 million, net of deferred policy
acquisition costs, amounts attributable to participating group annuity
contracts and deferred Federal income tax.
New Accounting Pronouncements
-----------------------------
In January 1995, the FASB issued SFAS No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," which permits, but does
not require, stock life insurance companies with participating life
contracts to account for those contracts in accordance with Statement of
Position No. 95-1, "Accounting for Certain Insurance Activities of
Mutual Life Insurance Enterprises". The Company has decided to retain
the existing methodology to account for traditional participating
policies and, therefore, will not adopt this statement.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. The Company will implement this statement as of January 1,
1996. The cumulative effect of this accounting change will be a charge
of $23.4 million, net of a Federal income tax benefit of $12.1 million,
due to the writedown to fair value of building improvements relating to
facilities being vacated beginning in 1996. The Company currently
provides allowances for possible losses for other assets under the scope
of this statement. Management has not yet determined the impact of this
statement on assets to be held and used.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires a mortgage banking enterprise to
recognize rights to service mortgage loans for others as separate assets
however those servicing rights are acquired. It further requires
capitalized mortgage servicing rights be assessed for impairment based
on the fair value of those rights. The Company will implement this
statement as of January 1, 1996. Implementation of this statement will
not have a material effect on the Company's consolidated financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement defines a fair value based
method of accounting for stock-based employee compensation plans while
continuing to allow an entity to measure compensation cost for such
plans using the intrinsic value based method of accounting. Management
has decided to retain the current compensation cost methodology
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees".
F-8
<PAGE>
Valuation of Investments
------------------------
Fixed maturities, which the Company has both the ability and the intent
to hold to maturity, are stated principally at amortized cost. Fixed
maturities identified as available for sale are reported at estimated
fair value. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Valuation
allowances on real estate held for the production of income are computed
using the forecasted cash flows of the respective properties discounted
at a rate equal to the Company's cost of funds; valuation allowances on
real estate available for sale are computed using the lower of current
estimated fair value, net of disposition costs, or depreciated cost.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts are passed through to the contractholders as
interest credited to policyholders' account balances.
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, Closed Block, participating group annuity contracts and
deferred policy acquisition costs related to universal life and
investment-type products.
F-9
<PAGE>
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from traditional life and annuity policies with life
contingencies generally are recognized as income when due. Benefits and
expenses are matched with such income so as to result in the recognition
of profits over the life of the contracts. This match is accomplished by
means of the provision for liabilities for future policy benefits and
the deferral and subsequent amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. Deferred policy acquisition costs are subject to
recoverability testing at the time of policy issue and loss recognition
testing at the end of each accounting period.
For universal life products and investment-type products, deferred
policy acquisition costs are amortized over the expected average life of
the contracts (periods ranging from 15 to 35 years and 5 to 17 years,
respectively) as a constant percentage of estimated gross profits
arising principally from investment results, mortality and expense
margins and surrender charges based on historical and anticipated future
experience, updated at the end of each accounting period. The effect on
the amortization of deferred policy acquisition costs of revisions to
estimated gross profits is reflected in earnings in the period such
estimated gross profits are revised. The effect on the deferred policy
acquisition cost asset that would result from realization of unrealized
gains (losses) is recognized with an offset to unrealized gains (losses)
in consolidated shareholder's equity as of the balance sheet date.
For traditional life and annuity policies with life contingencies,
deferred policy acquisition costs are amortized in proportion to
anticipated premiums. Assumptions as to anticipated premiums are
estimated at the date of policy issue and are consistently applied
during the life of the contracts. Deviations from estimated experience
are reflected in earnings in the period such deviations occur. For these
contracts, the amortization periods generally are for the estimated life
of the policy.
For individual health benefit insurance, deferred policy acquisition
costs are amortized over the expected average life of the contracts (10
years for major medical policies and 20 years for disability income
products) in proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
For traditional life insurance policies, future policy benefit and
dividend liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
provide a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, deferred policy acquisition
costs are written off and thereafter, if required, a premium deficiency
reserve is established by a charge to earnings. Benefit liabilities for
traditional annuities during the accumulation period are equal to
accumulated contractholders' fund balances and after annuitization are
equal to the present value of expected future payments. Interest rates
used in establishing such liabilities range from 2.25% to 11.5% for life
insurance liabilities and from 2.25% to 13.5% for annuity liabilities.
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest which provide a margin for adverse
deviation. Benefit liabilities for disabled lives are estimated using
the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $639.6 million, $570.6 million at
December 31, 1995 and 1994, respectively. Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
disability income and major medical policies are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 176.0 $ 188.6 $ 193.1
Incurred benefits related to prior years........... 67.8 28.7 106.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 243.8 $ 217.3 $ 299.2
================= ================ =================
Benefits paid related to current year.............. $ 37.0 $ 43.7 $ 48.9
Benefits paid related to prior years............... 137.8 132.3 123.1
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 174.8 $ 176.0 $ 172.0
================= ================ =================
</TABLE>
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations are accrued as policyholders'
dividends.
At December 31, 1995, participating policies including those in the
Closed Block represent approximately 27.2% ($58.4 billion) of directly
written life insurance in force, net of amounts ceded. Participating
policies represent primarily all of the premium income as reflected in
the consolidated statements of earnings and in the results of the Closed
Block.
F-11
<PAGE>
Federal Income Taxes
--------------------
Equitable Life and its life insurance and non-life insurance
subsidiaries file a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For the years ended December 31, 1995, 1994 and
1993, investment results of such Separate Accounts were $1,956.3
million, $676.3 million and $1,676.5 million, respectively.
Deposits to all Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-12
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
December 31, 1994
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 5,663.4 $ 34.6 $ 368.0 $ 5,330.0
Mortgage-backed.................... 686.0 2.9 44.8 644.1
U.S. Treasury securities and
U.S. government and
agency securities................ 1,519.3 6.7 71.9 1,454.1
States and political subdivisions.. 23.4 .1 .7 22.8
Foreign governments................ 43.8 .3 4.2 39.9
Redeemable preferred stock......... 108.4 .4 13.7 95.1
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 8,044.3 $ 45.0 $ 503.3 $ 7,586.0
================= ================= ================ ===============
Held to Maturity:
Corporate.......................... $ 4,661.0 $ 67.9 $ 233.8 $ 4,495.1
U.S. Treasury securities and
U.S. government and
agency securities................ 428.9 4.6 44.2 389.3
States and political subdivisions.. 63.4 .9 3.7 60.6
Foreign governments................ 69.7 4.2 2.0 71.9
================= ================= ================ ===============
Total Held to Maturity................. $ 5,223.0 $ 77.6 $ 283.7 $ 5,016.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 126.4 $ 31.2 $ 23.5 $ 134.1
================= ================= ================ ===============
</TABLE>
F-13
<PAGE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption that such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1995 and 1994, securities
without a readily ascertainable market value having an amortized cost of
$3,748.9 million and $3,980.4 million, respectively, had estimated fair
values of $3,981.8 million and $3,858.7 million, respectively.
The contractual maturity of bonds at December 31, 1995 is shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less................................................ $ 357.9 $ 360.0
Due in years two through five.......................................... 3,773.1 3,847.1
Due in years six through ten........................................... 4,709.8 4,821.8
Due after ten years.................................................... 4,497.1 4,898.2
Mortgage-backed securities............................................. 1,838.0 1,868.0
---------------- -----------------
Total.................................................................. $ 15,175.9 $ 15,795.1
================ =================
</TABLE>
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 284.9 $ 355.6 $ 512.0
Additions charged to income........................ 136.0 51.0 92.8
Deductions for writedowns and asset dispositions... (95.6) (121.7) (249.2)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 325.3 $ 284.9 $ 355.6
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 65.5 $ 64.2 $ 144.4
Equity real estate............................... 259.8 220.7 211.2
----------------- ---------------- -----------------
Total.............................................. $ 325.3 $ 284.9 $ 355.6
================= ================ =================
</TABLE>
Deductions for writedowns and asset dispositions for 1993 include an
$87.1 million writedown of fixed maturity investments at December 31,
1993 as a result of adopting a new accounting statement for the
valuation of these investments that requires specific writedowns instead
of valuation allowances.
At December 31, 1995, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $37.2 million
of fixed maturities and $84.7 million of mortgage loans on real estate.
F-14
<PAGE>
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1995, approximately 15.57% of the $15,139.9 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio, based on amortized
cost, includes $15.9 million and $30.5 million at December 31, 1995 and
1994, respectively, of such restructured securities. These amounts
include fixed maturities which are in default as to principal and/or
interest payments, are to be restructured pursuant to commenced
negotiations or where the borrowers went into bankruptcy subsequent to
acquisition (collectively, "problem fixed maturities") of $1.6 million
and $9.7 million as of December 31, 1995 and 1994, respectively. Gross
interest income that would have been recorded in accordance with the
original terms of restructured fixed maturities amounted to $3.0
million, $7.5 million and $11.7 million in 1995, 1994 and 1993,
respectively. Gross interest income on these fixed maturities included
in net investment income aggregated $2.9 million, $6.8 million and $9.7
million in 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $87.7 million (2.4% of total
mortgage loans on real estate) and $96.9 million (2.3% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $531.5
million and $447.9 million at December 31, 1995 and 1994, respectively.
These amounts include $3.8 million and $1.0 million of problem mortgage
loans on real estate at December 31, 1995 and 1994, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $52.1 million, $44.9 million and $51.8 million in 1995, 1994
and 1993, respectively. Gross interest income on these loans included in
net investment income aggregated $37.4 million, $32.8 million and $46.0
million in 1995, 1994 and 1993, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31, 1995
-------------------
(IN MILLIONS)
<S> <C>
Impaired mortgage loans with provision for losses....................................... $ 310.1
Impaired mortgage loans with no provision for losses.................................... 160.8
-------------------
Recorded investment in impaired mortgage loans.......................................... 470.9
Provision for losses.................................................................... 62.7
-------------------
Net Impaired Mortgage Loans............................................................. $ 408.2
===================
</TABLE>
F-15
<PAGE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the loan equals
or exceeds the recorded investment. Interest income earned on loans
where the collateral value is used to measure impairment is recorded on
a cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During the year ended December 31, 1995, the Company's average recorded
investment in impaired mortgage loans was $429.0 million. Interest
income recognized on these impaired mortgage loans totaled $27.9 million
for the year ended December 31, 1995, including $13.4 million recognized
on a cash basis.
At December 31, 1995, investments owned of any one issuer, including its
affiliates, for which the aggregate carrying values are 10% or more of
total shareholders' equity, were $508.3 million relating to Trammell
Crow and affiliates (including holdings of the Closed Block and the
discontinued GIC Segment). The amount includes restructured mortgage
loans on real estate with an amortized cost of $152.4 million. A $294.0
million commercial loan package which was in bankruptcy at the beginning
of the year was resolved in 1995, with part of the package reclassified
as restructured and the remainder reclassified as equity real estate.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1995 and 1994, the carrying value of equity real estate
available for sale amounted to $255.5 million and $447.8 million,
respectively. For the years ended December 31, 1995, 1994 and 1993,
respectively, real estate of $35.3 million, $189.8 million and $261.8
million was acquired in satisfaction of debt. At December 31, 1995 and
1994, the Company owned $862.7 million and $1,086.9 million,
respectively, of real estate acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $662.4
million and $703.1 million at December 31, 1995 and 1994, respectively.
Depreciation expense on real estate totaled $121.7 million, $117.0
million and $115.3 million for the years ended December 31, 1995, 1994
and 1993, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(38 and 47 individual ventures as of December 31, 1995 and 1994,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 2,684.1 $ 2,786.7
Investments in securities, generally at estimated fair value........... 2,459.8 3,071.2
Cash and cash equivalents.............................................. 489.1 359.8
Other assets........................................................... 270.8 398.7
---------------- -----------------
Total assets........................................................... 5,903.8 6,616.4
---------------- -----------------
Borrowed funds - third party........................................... 1,782.3 1,759.6
Borrowed funds - the Company........................................... 220.5 238.0
Other liabilities...................................................... 593.9 987.7
---------------- -----------------
Total liabilities...................................................... 2,596.7 2,985.3
---------------- -----------------
Partners' Capital...................................................... $ 3,307.1 $ 3,631.1
================ =================
Equity in partners' capital included above............................. $ 902.2 $ 964.2
Equity in limited partnership interests not included above............. 212.8 224.6
Excess (deficit) of equity in partners' capital over investment cost
and equity earnings.................................................. 3.6 (1.8)
Notes receivable from joint venture.................................... 5.3 6.1
---------------- -----------------
Carrying Value......................................................... $ 1,123.9 $ 1,193.1
================ =================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 463.5 $ 537.7 $ 602.7
Revenues of other limited partnership interests.... 242.3 103.4 319.1
Interest expense - third party..................... (135.3) (114.9) (118.8)
Interest expense - the Company..................... (41.0) (36.9) (52.1)
Other expenses..................................... (397.7) (430.9) (531.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 131.8 $ 58.4 $ 219.2
================= ================ =================
Equity in net earnings included above.............. $ 49.1 $ 18.9 $ 71.6
Equity in net earnings of limited partnerships
interests not included above..................... 44.8 25.3 46.3
Excess of earnings in joint ventures over equity
ownership percentage and amortization of
differences in bases............................. .9 1.8 9.2
Interest on notes receivable....................... .1 - .5
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 94.9 $ 46.0 $ 127.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,151.0 $ 1,024.5 $ 981.7
Trading account securities......................... - - 709.3
Securities purchased under resale agreements....... - - 533.8
Mortgage loans on real estate...................... 329.0 384.3 457.4
Equity real estate................................. 560.4 561.8 539.1
Other equity investments........................... 76.9 35.7 110.4
Policy loans....................................... 144.4 122.7 117.0
Broker-dealer related receivables.................. - - 292.2
Other investment income............................ 279.7 336.3 304.9
----------------- ---------------- -----------------
Gross investment income.......................... 2,541.4 2,465.3 4,045.8
----------------- ---------------- -----------------
Interest expense to finance short-term trading
instruments...................................... - - 983.4
Other investment expenses.......................... 413.7 434.4 463.1
----------------- ---------------- -----------------
Investment expenses.............................. 413.7 434.4 1,446.5
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,127.7 $ 2,030.9 $ 2,599.3
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 119.9 $ (14.1) $ 123.1
Mortgage loans on real estate...................... (40.2) (43.1) (65.1)
Equity real estate................................. (86.6) 20.6 (18.5)
Other equity investments........................... 12.8 76.0 119.5
Dealer and trading gains........................... - - 372.5
Sales of newly issued Alliance Units............... - 52.4 -
Other.............................................. (.6) - 1.9
----------------- ---------------- -----------------
Investment Gains, Net.............................. $ 5.3 $ 91.8 $ 533.4
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $46.7 million, $30.8 million
and $5.4 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
For the years ended December 31, 1995 and 1994, respectively, proceeds
received on sales of fixed maturities classified as available for sale
amounted to $8,206.0 million and $5,253.9 million. Gross gains of $211.4
million and $65.2 million and gross losses of $64.2 million and $50.8
million, respectively, were realized on these sales. The change in
unrealized investment gains (losses) related to fixed maturities
classified as available for sale for the years ended December 31, 1995
and 1994 amounted to $1,077.2 million and $(742.2) million,
respectively.
Gross gains of $188.5 million and gross losses of $145.0 million were
realized on sales of investments in fixed maturities held for investment
and available for sale for the year ended December 31, 1993.
F-18
<PAGE>
During each of the years ended December 31, 1995 and 1994, one security
classified as held to maturity was sold and during the eleven months
ended November 30, 1995 and the year ended December 31, 1994,
respectively, twelve and six securities so classified were transferred
to the available for sale portfolio. All actions were taken as a result
of a significant deterioration in creditworthiness. The aggregate
amortized cost of the securities sold were $1.0 million and $19.9
million with a related investment gain of $-0- million and $.8 million
recognized in 1995 and 1994, respectively; the aggregate amortized cost
of the securities transferred was $116.0 million and $42.8 million with
gross unrealized investment losses of $3.2 million and $3.1 million
charged to consolidated shareholders' equity for the eleven months ended
November 30, 1995 and the year ended December 31, 1994, respectively. On
December 1, 1995, the Company transferred $4,794.9 million of securities
classified as held to maturity to the available for sale portfolio. As a
result, unrealized gains on fixed maturities increased $307.0 million,
offset by deferred policy acquisition costs of $73.7 million, amounts
attributable to participating group annuity contracts of $39.2 million
and deferred Federal income tax of $67.9 million.
Investment gains from other equity investments for the year ended
December 31, 1993, included $79.9 million generated by DLJ's involvement
in long-term corporate development investments.
For the years ended December 31, 1995, 1994 and 1993, investment results
passed through to certain participating group annuity contracts as
interest credited to policyholders' account balances amounted to $131.2
million, $175.8 million and $243.2 million, respectively.
During 1995, Alliance entered into an agreement to acquire the business
of Cursitor-Eaton Asset Management Company and Cursitor Holdings Limited
(collectively, "Cursitor") for approximately $141.5 million consisting
of $84.9 million in cash, 1,764,115 of Alliance's publicly traded units
("Alliance Units"), 6% notes aggregating $21.5 million payable ratably
over four years, and substantial additional consideration which will be
determined at a later date. The transaction, which is expected to be
completed during the first quarter of 1996, is subject to the receipt of
consents, regulatory approvals, and certain other closing conditions,
including client approval of the transfer of Cursitor accounts. Upon
completion of this transaction, the Company's ownership percentage of
Alliance will be reduced.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The sales decreased the Company's
ownership of Alliance's Units from 63.2% to 59.2%. In addition, the
Company continues to hold its 1% general partnership interest in
Alliance. The Company recognized an investment gain of $52.4 million as
a result of these transactions.
The Company's ownership interest in Alliance will be further reduced
upon the exercise of options granted to certain Alliance employees. At
December 31, 1995, Alliance had options outstanding to purchase an
aggregate of 4.8 million Alliance Units at a price ranging from $6.0625
to $22.25 per unit. Options are exercisable at a rate of 20% on each of
the first five anniversary dates from the date of grant.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year......................... $ (203.0) $ 131.9 $ 78.8
Changes in unrealized investment (losses) gains.... 1,117.7 (823.8) (14.1)
Effect of adopting SFAS No. 115.................... - - 283.9
Changes in unrealized investment (gains)
losses attributable to:
Participating group annuity contracts.......... (78.1) 40.8 (36.2)
Deferred policy acquisition costs.............. (208.4) 269.5 (150.5)
Deferred Federal income taxes.................. (290.0) 178.6 (30.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 338.2 $ (203.0) $ 131.9
================= ================ =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, end of year comprises:
Unrealized investment (losses) gains on:
Fixed maturities............................... $ 615.9 $ (461.3) $ 283.9
Other equity investments....................... 31.1 7.7 75.8
Other.......................................... 31.6 14.5 25.0
----------------- ---------------- -----------------
Total........................................ 678.6 (439.1) 384.7
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) 5.9 (34.9)
Deferred policy acquisition costs............ (89.4) 119.0 (150.5)
Deferred Federal income taxes................ (178.8) 111.2 (67.4)
----------------- ---------------- -----------------
Total.............................................. $ 338.2 $ (203.0) $ 131.9
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,662.8 and $1,270.3)........................................... $ 3,896.2 $ 1,197.0
Held to maturity, at amortized cost (estimated fair value of
$1,785.0 in 1994)................................................ - 1,927.8
Mortgage loans on real estate........................................ 1,368.8 1,543.7
Policy loans......................................................... 1,797.2 1,827.9
Cash and other invested assets....................................... 440.9 442.5
Deferred policy acquisition costs.................................... 823.6 878.1
Other assets......................................................... 286.1 288.5
----------------- -----------------
Total Assets......................................................... $ 8,612.8 $ 8,105.5
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,346.7 $ 8,965.3
Other liabilities.................................................... 160.5 104.2
----------------- -----------------
Total Liabilities.................................................... $ 9,507.2 $ 9,069.5
================= =================
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 753.4 $ 798.1 $ 860.2
Investment income (net of investment
expenses of $26.7, $19.0 and $17.3).............. 538.9 523.0 526.5
Investment losses, net............................. (20.2) (24.0) (15.0)
----------------- ---------------- -----------------
Total revenues............................... 1,272.1 1,297.1 1,371.7
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,085.1 1,075.6 1,141.4
Other operating costs and expenses................. 62.6 70.5 102.0
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,147.7 1,146.1 1,243.4
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 124.4 $ 151.0 $ 128.3
================= ================ =================
</TABLE>
The fixed maturity portfolio, based on amortized cost, includes $4.3
million and $23.8 million at December 31, 1995 and 1994, respectively,
of restructured securities which includes problem fixed maturities of
$1.9 million and $6.4 million, respectively.
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from a significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized and offset by an increase to
the deferred dividend liability. Implementation of SFAS No. 115 for the
valuation of fixed maturities at December 31, 1993 resulted in the
recognition of a deferred dividend liability of $49.6 million.
At December 31, 1995 and 1994, problem mortgage loans on real estate had
an amortized cost of $36.5 million and $27.6 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $137.7 million and $179.2 million,
respectively. At December 31, 1995 and 1994, the restructured mortgage
loans on real estate amount included $8.8 million and $.7 million,
respectively, of problem mortgage loans on real estate.
Valuation allowances amounted to $18.4 million and $46.2 million on
mortgage loans on real estate and $4.3 million and $2.6 million on
equity real estate at December 31, 1995 and 1994, respectively.
Writedowns of fixed maturities amounted to $16.8 million and $15.9
million and $1.7 million for the years ended December 31, 1995, 1994 and
1993, respectively.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-21
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 1,485.8 $ 1,730.5
Equity real estate................................................... 1,122.1 1,194.8
Other invested assets................................................ 665.2 978.8
Other assets......................................................... 579.3 529.5
----------------- -----------------
Total Assets......................................................... $ 3,852.4 $ 4,433.6
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,399.8 $ 1,924.0
Allowance for future losses.......................................... 164.2 185.6
Amounts due to continuing operations................................. 2,097.1 2,108.6
Other liabilities.................................................... 191.3 215.4
----------------- -----------------
Total Liabilities.................................................... $ 3,852.4 $ 4,433.6
================= =================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $143.8, $174.0 and $175.8).................... $ 325.1 $ 395.0 $ 535.1
Investment (losses) gains, net..................... (22.9) 26.8 (22.6)
Policy fees, premiums and other income............. .7 .3 8.7
----------------- ---------------- -----------------
Total revenues..................................... 302.9 422.1 521.2
Benefits and other deductions...................... 328.0 443.8 545.9
----------------- ---------------- -----------------
Losses Charged to Allowance for Future Losses...... $ (25.1) $ (21.7) $ (24.7)
================= ================ =================
</TABLE>
In 1991, the Company established a pre-tax provision of $396.7 million
for the estimated future losses of the GIC Segment. At December 31,
1993, implementation of SFAS No. 115 for the valuation of fixed
maturities resulted in a benefit of $13.1 million, offset by a
corresponding addition to the allowance for future losses.
The amounts due to continuing operations at December 31, 1994 consisted
of $3,324.0 million borrowed by the GIC Segment from continuing
operations, offset by $1,215.4 million representing an obligation of
continuing operations to provide assets to fund the accumulated deficit
of the GIC Segment. In January 1995, continuing operations transferred
$1,215.4 million in cash to the GIC Segment in settlement of its
obligation. Subsequently, the GIC Segment remitted $1,155.4 million in
cash to continuing operations in partial repayment of borrowings by the
GIC Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1995, consisted of
$2,097.1 million borrowed by the discontinued GIC Segment.
F-22
<PAGE>
Investment income included $88.2 million and $97.7 million of interest
income for the years ended December 31, 1994 and 1993, respectively, on
amounts due from continuing operations. Benefits and other deductions
includes $154.6 million, $219.7 million and $197.1 million of interest
expense related to amounts borrowed from continuing operations in 1995,
1994 and 1993, respectively.
Valuation allowances amounted to $19.2 million and $50.2 million on
mortgage loans on real estate and $77.9 million and $74.7 million on
equity real estate at December 31, 1995 and 1994, respectively.
Writedowns of fixed maturities amounted to $8.1 million, $17.8 million
and $1.1 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
The fixed maturity portfolio, based on amortized cost, includes $15.1
million and $43.3 million at December 31, 1995 and 1994, respectively,
of restructured securities. These amounts include problem fixed
maturities of $6.1 million and $9.7 million at December 31, 1995 and
1994, respectively.
At December 31, 1995 and 1994, problem mortgage loans on real estate had
amortized costs of $35.4 million and $14.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $289.3 million and $371.2 million,
respectively.
At December 31, 1995 and 1994, the GIC Segment had $310.9 million and
$312.2 million, respectively, of real estate acquired in satisfaction of
debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt...................................................... $ - $ 20.0
----------------- -----------------
Long-term debt:
Equitable Life:
Surplus notes, 6.95%, scheduled to mature 2005..................... 399.3 -
Surplus notes, 7.70%, scheduled to mature 2015..................... 199.6 -
Eurodollar notes, 10.375% due 1995................................. - 34.6
Eurodollar notes, 10.5% due 1997................................... 76.2 76.2
Zero coupon note, 11.25% due 1997.................................. 120.1 107.8
Other.............................................................. 16.3 14.3
----------------- -----------------
Total Equitable Life........................................... 811.5 232.9
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.98% - 12.75% due through 2019.................... 1,084.4 1,080.6
----------------- -----------------
Alliance:
Other.............................................................. 3.4 3.9
----------------- -----------------
Total long-term debt................................................. 1,899.3 1,317.4
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,899.3 $ 1,337.4
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1995 range from 5.8% (the London Interbank Offering Rate
plus 22.5 basis points) to 8.5% (the prime rate). There were no
borrowings outstanding under this bank credit facility at December 31,
1995.
F-23
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1995.
In 1994, Alliance established a $100.0 million revolving credit facility
with several banks. On March 31, 1997, the revolving credit facility
converts into a term loan payable in quarterly installments through
March 31, 1999. Outstanding borrowings generally bear interest at the
Eurodollar rate plus .875% per annum through March 31, 1997 and at the
Eurodollar rate plus 1.125% per annum after conversion through March 31,
1999. In addition, a quarterly commitment fee of .25% per annum is paid
on the average daily unused amount. At December 31, 1995, there were no
amounts outstanding under the facility.
In 1994, Alliance also established a $100.0 million commercial paper
program and entered into a three-year $100.0 million revolving credit
facility with a group of commercial banks to support commercial paper to
be issued under the program and for general corporate purposes. Amounts
outstanding under the facility bear interest at an annual rate ranging
from the Eurodollar rate plus .225% to the Eurodollar rate plus .2875%.
A fee of .125% per annum is paid quarterly on the entire facility. At
December 31, 1995, Alliance had not issued any commercial paper and
there were no amounts outstanding under the revolving credit facility.
During 1994, EREIM established two bank lines of credit totaling $30.0
million of which $20.0 million was outstanding at December 31, 1994.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015. Proceeds from the issuance of the surplus notes were
$596.6 million, net of related issuance costs. The unamortized discount
on the surplus notes was $1.1 million at December 31, 1995. Payments of
interest on or principal of the surplus notes are subject to prior
approval by the New York Insurance Department.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,629.7 million and $1,744.4 million at December 31, 1995
and 1994, respectively, as collateral for certain long-term debt.
At December 31, 1995, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1996 and the succeeding
four years are $124.0 million, $466.6 million, $309.5 million, $15.8
million, respectively, and $1,015.0 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ (11.7) $ 4.0 $ 115.8
Deferred......................................... 124.1 97.2 (24.5)
----------------- ---------------- -----------------
Total.............................................. $ 112.4 $ 101.2 $ 91.3
================= ================ =================
</TABLE>
F-24
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and cumulative effect of accounting change by the
expected Federal income tax rate of 35%. The sources of the difference
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 143.5 $ 138.1 $ 106.3
Differential earnings amount....................... - (16.8) (23.2)
Adjustment of tax audit reserves................... 4.1 (4.6) 22.9
Tax rate adjustment................................ - - (5.0)
Other.............................................. (35.2) (15.5) (9.7)
----------------- --------------- -----------------
Federal Income Tax Expense......................... $ 112.4 $ 101.2 $ 91.3
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life is no longer required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994 and
1993.
The components of the net deferred Federal income tax asset are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 December 31, 1994
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Deferred policy acquisition costs,
reserves and reinsurance............. $ - $ 303.2 $ - $ 220.3
Investments............................ - 326.9 - 18.7
Compensation and related benefits...... 293.0 - 307.3 -
Other.................................. - 32.3 - 5.8
--------------- ---------------- --------------- ---------------
Total.................................. $ 293.0 $ 662.4 $ 307.3 $ 244.8
=============== ================ =============== ===============
</TABLE>
The deferred Federal income tax expense (benefit) impacting operations
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The sources of
these temporary differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Deferred policy acquisition costs, reserves
and reinsurance.................................. $ 55.1 $ 13.0 $ (46.7)
Investments........................................ 13.0 89.3 60.4
Compensation and related benefits.................. 30.8 10.0 (50.1)
Other.............................................. 25.2 (15.1) 11.9
----------------- ---------------- -----------------
Deferred Federal Income Tax Expense (Benefit)...... $ 124.1 $ 97.2 $ (24.5)
================= ================ =================
</TABLE>
F-25
<PAGE>
The Internal Revenue Service completed its audit of the Company's
Federal income tax returns for the years 1984 through 1988. There was no
material effect on the Company's consolidated results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 474.2 $ 476.7 $ 458.8
Reinsurance assumed................................ 171.3 180.5 169.9
Reinsurance ceded.................................. (38.7) (31.6) (29.6)
----------------- ---------------- -----------------
Premiums........................................... $ 606.8 $ 625.6 $ 599.1
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 38.9 $ 27.5 $ 33.7
================= ================ =================
Policyholders' Benefits Ceded...................... $ 48.2 $ 20.7 $ 72.3
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 28.5 $ 25.4 $ 24.1
================= ================ =================
</TABLE>
In February 1993, management established a practice limiting the risk
retention on new policies issued by the Insurance Group to a maximum of
$5.0 million. In addition, effective January 1, 1994, all in force
business above $5.0 million was reinsured. The Insurance Group also
reinsures the entire risk on certain substandard underwriting risks as
well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $260.6 million,
$241.0 million and $895.1 million for the years ended December 31, 1995,
1994 and 1993, respectively. Ceded death and disability benefits totaled
$188.1 million, $235.5 million and $787.8 million for the years ended
December 31, 1995, 1994 and 1993, respectively. Insurance liabilities
ceded totaled $724.2 million and $833.4 million at December 31, 1995 and
1994, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory and benefits are based on a cash balance formula or
years of service and final average earnings, if greater, under certain
grandfathering rules in the plans. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974.
Components of net periodic pension (credit) cost for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 30.0 $ 30.3 $ 29.8
Interest cost on projected benefit obligations..... 122.0 111.0 108.0
Actual return on assets............................ (309.2) 24.4 (178.6)
Net amortization and deferrals..................... 155.6 (142.5) 55.3
----------------- ---------------- -----------------
Net Periodic Pension (Credit) Cost................. $ (1.6) $ 23.2 $ 14.5
================= ================ =================
</TABLE>
F-26
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,642.4 $ 1,295.5
Non-vested........................................................... 10.9 8.7
--------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,653.3 $ 1,304.2
================ =================
Plan assets at fair value.............................................. $ 1,503.8 $ 1,193.5
Projected benefit obligation........................................... 1,743.0 1,403.4
---------------- -----------------
Projected benefit obligation in excess of plan assets.................. (239.2) (209.9)
Unrecognized prior service cost........................................ (25.5) (33.2)
Unrecognized net loss from past experience different from that
assumed.............................................................. 368.2 298.9
Unrecognized net asset at transition................................... (7.3) (20.8)
Additional minimum liability........................................... (51.9) (37.8)
---------------- -----------------
Prepaid (Accrued) Pension Cost......................................... $ 44.3 $ (2.8)
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.50%, respectively, at December 31, 1995 and
8.75% and 4.88%, respectively, at December 31, 1994. As of January 1,
1995 and 1994, the expected long-term rate of return on assets for the
retirement plan was 11% and 10%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $35.1 million and $2.7 million,
net of Federal income taxes, at December 31, 1995 and 1994,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
As of December 31, 1993, the Company changed the method of determining
the market-related value of plan assets from fair value to a calculated
value. This change in estimate had no material effect on the Company's
consolidated statements of earnings.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $36.4 million,
$38.1 million and $39.9 million for the years ended December 31, 1995,
1994 and 1993, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for the years ended December 31, 1995, 1994 and
1993, the Company made estimated postretirement benefits payments of
$31.1 million, $29.8 million and $29.7 million, respectively.
F-27
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 4.0 $ 3.9 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 28.6 29.2
Unrecognized prior service cost.................... (2.3) (3.9) (6.9)
Net amortization and deferrals..................... - - 1.5
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 36.4 $ 28.6 $ 29.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 391.8 $ 300.4
Fully eligible active plan participants.............................. 50.4 33.0
Other active plan participants....................................... 64.2 44.0
---------------- -----------------
506.4 377.4
Unrecognized benefit of plan amendments................................ - 3.2
Unrecognized prior service cost........................................ 56.3 61.9
Unrecognized net loss from past experience different from that
assumed and from changes in assumptions.............................. (181.3) (64.7)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 381.4 $ 377.8
================ =================
</TABLE>
In 1993, the Company amended the cost sharing provisions of
postretirement medical benefits. At January 1, 1994, medical benefits
available to retirees under age 65 are the same as those offered to
active employees and medical benefits will be limited to 200% of 1993
costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 10% in 1995,
gradually declining to 3.5% in the year 2008 and in 1994 was 10%,
gradually declining to 5% in the year 2004. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 8.75% at December 31, 1995 and 1994, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1995
would be increased 6.5%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 6.7%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income
except for hedging transactions related to insurance liabilities. The
notional amount of matched interest rate swaps outstanding at December
31, 1995 was $1,120.8 million. The average unexpired terms at December
31, 1995 range from 2.5 to 3.0 years. At December 31, 1995, the cost of
terminating outstanding matched swaps in a loss position was $15.9
million and the unrealized gain on
F-28
<PAGE>
outstanding matched swaps in a gain position was $19.0 million. The
Company has no intention of terminating these contracts prior to
maturity. During 1995, 1994 and 1993, net gains (losses) of $1.4
million, $(.2) million and $-0- million, respectively, were recorded in
connection with interest rate swap activity. Equitable Life has
implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1995 of contracts purchased
and sold were $2,625.0 million and $300.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $12.5 million and
is being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related derivatives is by its nature
trading activities which are primarily for the purpose of customer
accommodations. DLJ's derivative activities consist of option writing
and trading in forward and futures contracts. Derivative financial
instruments have both on-and-off balance sheet implications depending on
the nature of the contracts. DLJ's involvement in swap contracts is not
significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains
or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1995 and 1994.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as investment contracts are measured at the estimated fair
value of the underlying assets. Deposit administration contracts
(included with group annuity contracts) classified as insurance
contracts are measured at estimated fair value of the underlying assets.
The estimated fair values for single premium deferred annuities ("SPDA")
are estimated using projected cash flows discounted at current offering
rates. The estimated fair values for supplementary contracts not
involving life contingencies ("SCNILC") and annuities certain are
derived using discounted cash flows based upon the estimated current
offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-29
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,638.3 $ 3,973.6 $ 4,018.0 $ 3,919.4
Other joint ventures................... 492.7 492.7 544.4 544.4
Policy loans........................... 1,976.4 2,057.5 1,731.2 1,676.6
Policyholders' account balances:
Association plans.................... 101.0 100.0 141.0 141.0
Group annuity contracts.............. 2,335.0 2,395.0 2,450.0 2,469.0
SPDA................................. 1,265.8 1,272.0 1,744.3 1,732.7
Annuities certain and SCNILC......... 649.1 680.7 599.1 624.7
Long-term debt......................... 1,899.3 1,962.9 1,317.4 1,249.2
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,368.8 1,461.4 1,543.7 1,477.8
Other equity investments............... 151.6 151.6 179.5 179.5
Policy loans........................... 1,797.2 1,891.4 1,827.9 1,721.9
SCNILC liability....................... 34.8 34.5 39.5 37.0
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,485.8 1,666.1 1,730.5 1,743.7
Fixed maturities....................... 107.4 107.4 219.3 219.3
Other equity investments............... 455.9 455.9 591.8 591.8
Guaranteed interest contracts.......... 329.0 352.0 835.0 855.0
Long-term debt......................... 135.1 136.0 134.8 127.9
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
liquidity advances to cover delinquent principal and interest and
property protection expenses with respect to loan servicing agreements
for securitized mortgage loans which at December 31, 1995 totaled $2.8
billion (as of December 31, 1995, $4.0 million have been advanced under
these commitments); to make capital contributions of up to $246.7
million to affiliated real estate joint ventures; to provide equity
financing to certain limited partnerships of $129.4 million at December
31, 1995, under existing loan or loan commitment agreements; and to
provide short-term financing loans which at December 31, 1995 totaled
$45.8 million. Management believes the Company will not incur any
material losses as a result of these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1995, the Insurance Group had $29.0 million of letters
of credit outstanding.
F-30
<PAGE>
14) LITIGATION
A number of lawsuits have been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states juries have substantial
discretion in awarding punitive damages. Equitable Life and its
insurance subsidiaries, like other life and health insurers, from time
to time are involved in such litigation. To date, no such lawsuit has
resulted in an award or settlement of any material amount against the
Company. Among litigations pending against Equitable Life and its
insurance subsidiaries of the type referred to in this paragraph are the
litigations described in the following two paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the insurance policies, and that statements in the
policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that they
will seek damages in an unspecified amount. Equitable Life has moved to
dismiss the complaint in its entirety on the grounds that it fails to
state a claim and that uncontroverted documentary evidence establishes a
complete defense to the claims. That motion is awaiting decision by the
court. In January 1996, separate actions were filed in Pennsylvania and
Texas state courts (entitled, respectively, Malvin et al. v. The
Equitable Life Assurance Society of the United States and Bowler et al.
v. The Equitable Life Assurance Society of the United States), making
claims similar to those in the New York action described above. These
new actions are asserted on behalf of proposed classes of Pennsylvania
issued or renewed policyholders and Texas issued or renewed
policyholders, insured under the policies. The Pennsylvania and Texas
actions seek compensatory and punitive damages and injunctive relief
restricting the methods by which Equitable Life increases premiums in
the future based on the common law and statutes of those states.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, Equitable
Life's management believes that the ultimate resolution of those
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigation,
Equitable Life's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on the Company's results of operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, The Equitable of Colorado, Inc. ("EOC"), in New
York State Court, entitled Sidney C. Cole et al. v. The Equitable Life
Assurance Society of the United States and The Equitable of Colorado,
Inc., No. 95/108611 (N.Y. County). The action is brought by the holders
of a joint survivorship whole life policy issued by EOC. The action
purports to be on behalf of a class consisting of all persons who from
January 1, 1984 purchased life insurance policies sold by Equitable Life
and EOC based upon their allegedly uniform sales presentations and
policy illustrations. The complaint puts in issue various alleged sales
practices that plaintiffs assert, among other things, misrepresented the
stated number of years that the annual premium would need to be paid.
Plaintiffs seek damages in an unspecified amount, imposition of a
constructive trust, and seek to enjoin Equitable Life and EOC from
engaging in the challenged sales practices. Equitable Life and EOC
intend to defend vigorously and believe that they have meritorious
defenses which, if successful, would dispose of the action completely.
Equitable Life and EOC further do not believe that this case is an
appropriate class action. Although the outcome of any litigation cannot
be predicted with certainty, particularly in the early stages of an
action, Equitable Life's management believes that the ultimate
F-31
<PAGE>
resolution of this litigation should not have a material adverse effect
on the financial position of the Company. Due to the early stage of such
litigation, the Company's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on the Company's results of operations in any particular
period.
Equitable Casualty Insurance Company ("Casualty"), a captive property
and casualty insurance company organized under the laws of Vermont,
which is an indirect wholly owned subsidiary of Equitable Life, is a
party to an arbitration proceeding that commenced in August 1995 with
the selection of three arbitrators. The arbitration will resolve a
dispute among Casualty, Houston General Insurance Company ("Houston
General"), and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement that was entered
into as part of a 1980 transaction whereby Equitable General Insurance
Company ("Equitable General"), formerly an indirect subsidiary of
Equitable Life and the predecessor of GEICO General, sold its commercial
lines business along with the stock of Houston General to subsidiaries
of Tokio Marine & Fire Insurance Company, Ltd. ("Tokio Marine").
Casualty and GEICO General maintain that, under the reinsurance
agreement, Houston General assumed liability for all losses insured
under commercial lines policies written by Equitable General and its
predecessors in order to effect the transfer of that business to Tokio
Marine's subsidiaries. Houston General contends that it did not assume
reinsurance liability for losses insured under certain of those
commercial lines policies. The arbitration panel determined to begin
hearing evidence in the arbitration in June 1996. The result of the
arbitration is expected to resolve two litigations that were commenced
by Houston General and that have been stayed by the presiding courts
pending the completion of the arbitration (in one case, Houston General
named as a defendant only GEICO General but Casualty intervened as a
defendant with GEICO General, and in the other case, Houston General
named GEICO General and Equitable Life). The arbitration is expected to
be completed during the second half of 1996. While the ultimate outcome
of the arbitration cannot be predicted with certainty, the Company's
management believes that the arbitrators will recognize that Houston
General's position is without merit and contrary to the way in which the
reinsurance industry operates and therefore the ultimate resolution of
this matter should not have a material adverse effect on the Company's
financial position or results of operations.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. A similar complaint was filed on November 7, 1995 and was
subsequently consolidated with the Complaint. The Complaint, which seeks
certification of a plaintiff class of persons who purchased or owned
Class A, B or C shares of the Fund from March 27, 1992 through December
23, 1994, seeks an unspecified amount of damages, costs, attorneys' fees
and punitive damages. The principal allegations of the Complaint are
that the Fund purchased debt securities issued by the Mexican and
Argentine governments in amounts that were not permitted by the Funds'
investment objective, and that there was no shareholder vote to change
the investment objective to permit purchases in such amounts. The
Complaint further alleges that the decline in the value of the Mexican
and Argentine securities held by the Fund caused the Fund's net asset
value to decline to the detriment of the Fund's shareholders. On
September 26, 1995, the defendants jointly filed a motion to dismiss the
Complaint which has not yet been decided by the Court. Alliance believes
that the allegations in the Complaint are without merit and intends to
vigorously defend against these claims. While the ultimate results of
this action cannot be determined, management of Alliance does not expect
that this action will have a material adverse effect on Alliance's
business.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC"), a wholly owned subsidiary of
DLJ, and certain other defendants for unspecified compensatory and
punitive damages in the United States District Court for the Southern
District of New York. The suit was brought on behalf of the purchasers
of 126,457 units consisting of $126,457,000 aggregate principal amount
of 13 1/2% senior notes due 2001 and 126,457 warrants to purchase shares
of common stock of Rickel (the "Units") issued by Rickel in October
1994. The complaint alleges violations of Federal securities laws and
common law fraud against DLJSC, as the underwriter of
F-32
<PAGE>
the Units and as an owner of 7.3% of the common stock of Rickel, Eos
Partners, L.P., and General Electric Capital Corporation, each as owners
of 44.2% of the common stock of Rickel, and members of the Board of
Directors of Rickel, including a DLJSC Managing Director. The complaint
seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in
connection with the offering of the Units, alleging that the defendants
knew of financial losses and a decline in value of Rickel in the months
prior to the offering and did not disclose such information. The
complaint also alleges that Rickel failed to pay its semi-annual
interest payment due on the Units on December 15, 1995 and that Rickel
filed a voluntary petition for reorganization pursuant to Chapter 11 of
the United States Bankruptcy Code on January 10, 1996. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe the
outcome of this litigation will have a material adverse effect on its
financial condition. Due to the early stage of this litigation, based on
the information currently available to it, DLJ's management cannot make
an estimate of loss or predict whether or not such litigation will have
a material adverse effect on DLJ's results of operations in any
particular period.
On June 12, 1995, a purported purchaser of certain securities issued by
Spectravision, Inc. ("Spectravision") filed a class action complaint
against DLJSC and certain other defendants for unspecified damages in
the U.S. District Court for the Northern District of Texas. The suit was
brought on behalf of the purchasers of $260,795,000 of securities issued
by Spectravision in November 1992, and alleges violations of the Federal
securities laws and the Texas Securities Act, common law fraud and
negligent misrepresentation. The securities were issued by Spectravision
pursuant to a prepackaged bankruptcy reorganization plan. DLJSC served
as financial advisor to Spectravision in its reorganization and as
Dealer Manager for Spectravision's 1992 issuance of the securities.
DLJSC is also being sued as a seller of certain notes of Spectravision
acquired and resold by DLJSC. The complaint seeks to hold DLJSC liable
for various alleged misstatements and omissions contained in
prospectuses and other materials issued between July 1992 and June 1994.
DLJSC intends to defend itself vigorously against all of the allegations
contained in the complaint. On June 8, 1995, Spectravision filed a
Chapter 11 petition in the United States Bankruptcy Court for the
District of Delaware. On January 5, 1996, the district court in the
litigation involving DLJSC ordered a partial stay of discovery until
Spectravision has emerged from bankruptcy or six months from the date of
the stipulated stay (whichever comes first). Accordingly, discovery of
DLJSC has not yet occurred. Although there can be no assurance, DLJ does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on its financial condition. Due to the early
stage of such litigation, based upon information currently available to
it, DLJ's management cannot make an estimate of loss or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period. Plaintiff's counsel in
the class action against DLJSC described above has also filed another
securities class action based on similar factual allegations. Such suit
names as defendants Spectravision and its directors, and was brought on
behalf of a class of purchasers of $209.0 million of stock and $77.0
million of notes issued by Spectravision in October 1993. DLJSC served
as the managing underwriter for both of these issuances. DLJSC has not
been named as a defendant in this suit, although it has been reported to
DLJSC that plaintiff's counsel is contemplating seeking to amend the
complaint to add DLJSC as a defendant in that action.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State
F-33
<PAGE>
Court action has subsequently been removed to the Bankruptcy Court,
which removal is being opposed by the plaintiff. DLJSC intends to defend
itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe that
the ultimate outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of such
litigation, based upon the information currently available to it, DLJ's
management cannot make an estimate of loss or predict whether or not
such litigation will have a material adverse effect on DLJ's results of
operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1996 and the succeeding four years are $114.8 million, $101.8
million, $90.0 million, $73.6 million, $57.7 million and $487.0 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1996 and the succeeding four years are $11.0 million, $8.7
million, $6.9 million, $4.6 million, $2.9 million and $1.1 million
thereafter.
At December 31, 1995, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1996
and the succeeding four years are $292.9 million, $271.2 million, $248.1
million, $226.4 million, $195.5 million and $1,018.8 million thereafter.
F-34
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 595.9 $ 690.0 $ 1,452.3
Commissions........................................ 314.3 313.0 551.1
Short-term debt interest expense................... 11.4 19.0 317.1
Long-term debt interest expense.................... 108.1 98.3 86.0
Amortization of policy acquisition costs........... 320.4 318.1 275.9
Capitalization of policy acquisition costs......... (391.0) (410.9) (397.8)
Rent expense, net of sub-lease income.............. 124.8 128.9 159.5
Other.............................................. 772.6 786.7 1,140.1
----------------- ---------------- -----------------
Total.............................................. $ 1,856.5 $ 1,943.1 $ 3,584.2
================= ================ =================
</TABLE>
During the years ended December 31, 1995, 1994 and 1993, the Company
restructured certain operations in connection with cost reduction
programs and recorded pre-tax provisions of $32.0 million, $20.4 million
and $96.4 million, respectively. The amounts paid during 1995,
associated with the 1995 and 1994 cost reduction programs, totaled $24.0
million. At December 31, 1995, the liabilities associated with the 1995
and 1994 cost reduction programs amounted to $37.8 million. The 1995
cost reduction program included relocation expenses, including the
accelerated amortization of building improvements associated with the
relocation of the home office. The 1994 cost reduction program included
costs associated with the termination of operating leases and employee
severance benefits in connection with the consolidation of 16 insurance
agencies. The 1993 cost reduction program primarily reflected severance
benefits of terminated employees in connection with the combination of a
wholly owned subsidiary of the Company with Alliance.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the New York
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For the years ended December 31, 1995,
1994 and 1993, statutory (loss) earnings totaled $(352.4) million, $67.5
million and $324.0 million, respectively. No amounts are expected to be
available for dividends from Equitable Life to the Holding Company in
1996.
At December 31, 1995, the Insurance Group, in accordance with various
government and state regulations, had $18.9 million of securities
deposited with such government or state agencies.
F-35
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Company's statutory
change in surplus and capital stock and statutory surplus and capital
stock determined in accordance with accounting practices prescribed by
the New York Insurance Department with net earnings and equity on a GAAP
basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 78.1 $ 292.4 $ 190.8
Change in asset valuation reserves................. 365.7 (285.2) 639.1
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 443.8 7.2 829.9
Adjustments:
Future policy benefits and policyholders'
account balances............................... (67.9) (11.0) (171.0)
Deferred policy acquisition costs................ 70.6 92.8 121.8
Deferred Federal income taxes.................... (150.0) (59.7) (57.5)
Valuation of investments......................... 189.1 45.2 202.3
Valuation of investment subsidiary............... (188.6) 396.6 (464.9)
Limited risk reinsurance......................... 416.9 74.9 85.2
Issuance of surplus notes........................ (538.9) - -
Sale of subsidiary and joint venture............. - - (366.5)
Contribution from the Holding Company............ - (300.0) -
Postretirement benefits.......................... (26.7) 17.1 23.8
Other, net....................................... 115.1 (44.0) 60.3
GAAP adjustments of Closed Block................. (3.1) 4.5 (16.0)
GAAP adjustments of discontinued GIC
Segment........................................ 37.3 42.8 (35.0)
----------------- ---------------- -----------------
Net Earnings....................................... $ 297.6 $ 266.4 $ 212.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,202.9 $ 2,124.8 $ 1,832.4
Asset valuation reserves........................... 1,345.9 980.2 1,265.4
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,548.8 3,105.0 3,097.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,017.4) (949.5) (938.5)
Deferred policy acquisition costs................ 3,083.3 3,221.1 2,858.8
Deferred Federal income taxes.................... (450.8) (26.8) (137.8)
Valuation of investments......................... 417.7 (794.1) (29.8)
Valuation of investment subsidiary............... (665.1) (476.5) (873.1)
Limited risk reinsurance......................... (429.0) (845.9) (920.8)
Issuance of surplus notes........................ (538.9) - -
Postretirement benefits.......................... (343.3) (316.6) (333.7)
Other, net....................................... 4.4 (79.2) (81.9)
GAAP adjustments of Closed Block................. 575.7 578.8 574.2
GAAP adjustments of discontinued GIC
Segment........................................ (184.6) (221.9) (264.6)
----------------- ---------------- -----------------
Total Shareholder's Equity......................... $ 4,000.8 $ 3,194.4 $ 2,950.6
================= ================ =================
</TABLE>
F-36
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has three major business segments: Individual Insurance and
Annuities; Investment Services and Group Pension.
Consolidation/elimination principally includes debt not specific to any
business segment. Attributed Insurance Capital represents net assets and
related revenues and earnings of the Insurance Group not assigned to the
insurance segments. Interest expense related to debt not specific to any
business segment is presented within Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Individual Insurance and Annuities segment offers a variety of
traditional, variable and interest-sensitive life insurance products,
disability income, annuity products and mutual fund and other investment
products to individuals and small groups. This segment includes Separate
Accounts for certain individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes Separate
Accounts which provide various investment options for group clients
through pooled or single group accounts.
Intersegment investment advisory and other fees of approximately $124.1
million, $135.3 million and $128.6 million for 1995, 1994 and 1993,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $14.7 million, $27.4 million and $17.0 million for 1995, 1994
and 1993, respectively, are eliminated in consolidation.
The Group Pension segment administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Individual insurance and annuities................. $ 3,254.6 $ 3,110.7 $ 2,981.5
Group pension...................................... 292.0 359.1 426.6
Attributed insurance capital....................... 61.2 79.4 61.6
----------------- ---------------- -----------------
Insurance operations............................. 3,607.8 3,549.2 3,469.7
Investment services................................ 949.1 935.2 2,792.6
Consolidation/elimination.......................... (34.9) (24.7) (40.5)
----------------- ---------------- -----------------
Total.............................................. $ 4,522.0 $ 4,459.7 $ 6,221.8
================= ================ =================
Earnings (loss) before Federal income taxes
and cumulative effect of accounting change
Individual insurance and annuities................. $ 274.4 $ 245.5 $ 76.2
Group pension...................................... (13.3) 15.8 2.0
Attributed insurance capital....................... 18.7 69.8 49.0
----------------- ---------------- -----------------
Insurance operations............................. 279.8 331.1 127.2
Investment services................................ 161.2 177.5 302.1
Consolidation/elimination.......................... (3.1) .3 .5
----------------- ---------------- -----------------
Subtotal..................................... 437.9 508.9 429.8
Corporate interest expense......................... (27.9) (114.2) (126.1)
----------------- ---------------- -----------------
Total.............................................. $ 410.0 $ 394.7 $ 303.7
================= ================ =================
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Individual insurance and annuities..................................... $ 50,328.8 $ 44,063.4
Group pension.......................................................... 4,033.3 4,222.8
Attributed insurance capital........................................... 2,391.6 2,609.8
---------------- -----------------
Insurance operations................................................. 56,753.7 50,896.0
Investment services.................................................... 12,842.9 12,127.9
Consolidation/elimination.............................................. (354.4) (1,614.4)
---------------- -----------------
Total.................................................................. $ 69,242.2 $ 61,409.5
================ =================
</TABLE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for the years ended December 31,
1995, 1994 and 1993, are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1995
----
Total Revenues................ $ 1,074.7 $ 1,158.4 $ 1,127.1 $ 1,161.8
================= ================= ================== ==================
Net Earnings.................. $ 59.0 $ 94.3 $ 91.2 $ 53.1
================= ================= ================== ==================
1994
----
Total Revenues................ $ 1,107.4 $ 1,075.0 $ 1,153.8 $ 1,123.5
================= ================= ================== ==================
Earnings before Cumulative
Effect of Accounting
Change...................... $ 64.0 $ 68.4 $ 89.1 $ 72.0
================= ================= ================== ==================
Net Earnings.................. $ 36.9 $ 68.4 $ 89.1 $ 72.0
================= ================= ================== ==================
1993
----
Total Revenues................ $ 1,502.2 $ 1,539.7 $ 1,679.4 $ 1,500.5
================= ================= ================== ==================
Net Earnings.................. $ 32.3 $ 47.1 $ 68.8 $ 64.2
================= ================= ================== ==================
</TABLE>
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess of
the proceeds over the book value in DLJ at the date of sale of $340.2
million has been reflected as a capital contribution. In 1995, DLJ
completed the initial public offering ("IPO") of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27 per share. Concurrent with the IPO, the
Company contributed equity securities to DLJ having a market value of
$21.2 million. Upon completion of the IPO, the Company's ownership
percentage was reduced to 36.1%. The Company's ownership interest will
be further reduced upon the issuance of common stock after the vesting
of forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. At December 31, 1995, DLJ had
options
F-38
<PAGE>
outstanding to purchase approximately 9.2 million shares of DLJ common
stock at $27.00 per share. Options are exercisable over a period of up
to ten years. DLJ restricted stock units represents forfeitable rights
to receive approximately 5.2 million shares of DLJ common stock through
February 2000.
The results of operations and cash flows of DLJ through the date of sale
are included in the consolidated statements of earnings and cash flow
for the year ended December 31, 1993. For the period subsequent to the
date of sale, the results of operations of DLJ are accounted for on the
equity basis and are included in commissions, fees and other income in
the consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 10,911.4 $ 8,970.0
Securities purchased under resale agreements........................... 18,748.2 10,476.4
Broker-dealer related receivables...................................... 13,023.7 11,784.8
Other assets........................................................... 1,893.2 2,030.4
---------------- -----------------
Total Assets........................................................... $ 44,576.5 $ 33,261.6
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 26,744.8 $ 18,356.7
Broker-dealer related payables......................................... 12,915.5 10,618.0
Short-term and long-term debt.......................................... 1,717.5 1,956.5
Other liabilities...................................................... 1,775.0 1,285.1
---------------- -----------------
Total liabilities...................................................... 43,152.8 32,216.3
Cumulative exchangeable preferred stock................................ 225.0 225.0
Total shareholders' equity............................................. 1,198.7 820.3
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 44,576.5 $ 33,261.6
================ =================
DLJ's equity as reported............................................... $ 1,198.7 $ 820.3
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 40.5 50.8
The Holding Company's equity ownership in DLJ.......................... (499.0) (532.1)
Minority interest in DLJ............................................... (324.3) -
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 415.9 $ 339.0
================ =================
</TABLE>
F-39
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,325.9 $ 953.5
Net investment income.................................................. 904.1 791.9
Dealer, trading and investment gains, net.............................. 528.6 263.3
---------------- -----------------
Total Revenues......................................................... 2,758.6 2,008.7
Total expenses including income taxes.................................. 2,579.5 1,885.7
---------------- -----------------
Net earnings........................................................... 179.1 123.0
Dividends on preferred stock........................................... 19.9 20.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 159.2 $ 102.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 159.2 $ 102.1
Amortization of cost in excess of net assets acquired in 1985.......... (3.9) (3.1)
The Holding Company's equity in DLJ's earnings......................... (90.4) (60.9)
Minority interest in DLJ............................................... (6.5) -
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 58.4 $ 38.1
================ =================
</TABLE>
21) RELATED PARTY TRANSACTIONS
On August 31, 1993, the Company sold $661.0 million of primarily
privately placed below investment grade fixed maturities to EQ Asset
Trust 1993, a limited purpose business trust, wholly owned by the
Holding Company. The Company recognized a $4.1 million gain net of
related deferred policy acquisition costs, deferred Federal income tax
and amounts attributable to participating group annuity contracts. In
conjunction with this transaction, the Company received $200.0 million
of Class B Notes issued by EQ Asset Trust 1993. These notes have
interest rates ranging from 6.85% to 9.45%. The Class B Notes are
reflected in investments in and loans to affiliates on the consolidated
balance sheets.
F-40
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No: 333-05593
ACCUMULATOR
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 16, 1996
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 49
O AGGRESSIVE STOCK
O COMMON STOCK
O GROWTH INVESTORS
O GLOBAL
O HIGH YIELD
O MONEY MARKET
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 787 Seventh Avenue, New York, NY 10019
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 49 prospectus for the
Accumulator, dated October 16, 1996. Definitions of special terms used in the
SAI are found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------ --------
<S> <C>
Part 1 Accumulation Unit Values 2
- ------------------------------------------------ --------
Part 2 Annuity Unit Values 2
- ------------------------------------------------ --------
Part 3 Custodian and Independent Accountants 3
- ------------------------------------------------ --------
Part 4 Money Market Fund Yield Information 3
- ------------------------------------------------ --------
Part 5 Long-Term Market Trends 3
- ------------------------------------------------ --------
Part 6 Financial Statements 5
- ------------------------------------------------ --------
</TABLE>
- -------------------------------------------------------------------------
Copyright 1996
The Equitable Life Assurance Society of the United States, New York, New York
10019.
All rights reserved.
<PAGE>
PART 1 -ACCUMULATION
UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Accumulator.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
b
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by the Trust.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
asset based administrative charge relating to the Certificates, times
the number of calendar days in the Valuation Period. These daily
charges are at an effective annual rate not to exceed a total of 1.20%.
PART 2 -ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on October 1, 1996 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Common Stock Fund. Each monthly payment will be
calculated by multiplying the number of annuity units credited by the average
annuity unit value for the second calendar month immediately preceding the
due date of the payment. The number of units is calculated by dividing the
first monthly payment by the annuity unit value for the Valuation Period
which includes the due date of the first monthly payment. The average annuity
unit value is the average of the annuity unit values for the Valuation
Periods ending in that month. Variable income annuities may also be available
by separate prospectus through the Common Stock or other Funds of other
separate accounts we offer.
Illustration of Changes in Annuity Unit Values.
To show how we determine variable annuity payments from month to month,
assume that the Annuity Account Value on an Annuity Commencement Date is
enough to fund an annuity with a monthly payment of $363 and that the annuity
unit value for the Valuation Period
2
<PAGE>
that includes the due date of the first annuity payment is $1.05. The number
of annuity units credited under the contract would be 345.71 (363 divided by
1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 3 -CUSTODIAN AND
INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of the Trust owned by the Separate
Account.
The consolidated financial statements of Equitable Life for the years ended
December 31, 1995 and 1994 included in the SAI have been audited by Price
Waterhouse LLP.
The consolidated financial statements of Equitable Life for the years ended
December 31, 1995 and 1994 included in this SAI have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of such firm as experts in accounting and auditing.
PART 4 -MONEY MARKET
FUND YIELD INFORMATION
The Money Market Fund calculates yield information for seven-day periods. The
seven-day current yield calculation is based on a hypothetical Certificate
with one Accumulation Unit at the beginning of the period. To determine the
seven-day rate of return, the net change in the Accumulation Unit Value is
computed by subtracting the Accumulation Unit Value at the beginning of the
period from an Accumulation Unit Value, exclusive of capital changes, at the
end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Money
Market Fund but do not reflect the withdrawal charge, the GMDB/GMIB charge or
charges for applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Money Market Fund's investments, as follows:
the unannualized adjusted base period return is compounded by adding one to
the adjusted base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result, i.e., effective yield =
(base period return + 1 ) 365/7 -1. The Money Market Fund yields will
fluctuate daily. Accordingly, yields for any given period are not necessarily
representative of future results. In addition, the value of Accumulation
Units of the Money Market Fund will fluctuate and not remain constant.
Money Market Fund yields reflect charges that are not normally reflected in
the yields of other investments and therefore may be lower when compared with
yields of other investments. Money Market Fund yields should not be compared
to the return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds made available to the general
public.
Because the Accumulator Certificates described in the prospectus are being
offered for the first time in 1996, no yield information is presented.
PART 5 -LONG-TERM MARKET
TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
personal financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Accumulator Investment
Funds.
Historically, the long-term investment performance of common stocks has
generally been
3
<PAGE>
superior to that of long-or short-term debt securities. For those investors
who have many years until retirement, or whose primary focus is on long-term
growth potential and protection against inflation, there may be advantages to
allocating some or all of their Annuity Account Value to those Investment
Funds that invest in stocks.
Growth of $1 Invested on January 1, 1955
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED
AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
TOTAL U.S.
RETURN INFLATION
- ------------------------------------------
INDEX VALUE
- ------------------------------------------
Dec 1955 1.32 1.00
Dec 1956 1.40 1.03
Dec 1957 1.25 1.06
Dec 1958 1.79 1.08
Dec 1959 2.01 1.10
Dec 1960 2.02 1.11
Dec 1961 2.56 1.12
Dec 1962 2.34 1.14
Dec 1963 2.87 1.15
Dec 1964 3.34 1.17
Dec 1965 3.76 1.19
Dec 1966 3.38 1.23
Dec 1967 4.19 1.27
Dec 1968 4.65 1.33
Dec 1969 4.26 1.41
Dec 1970 4.43 1.49
Dec 1971 5.06 1.54
Dec 1972 6.02 1.59
Dec 1973 5.14 1.73
Dec 1974 3.78 1.94
Dec 1975 5.18 2.08
Dec 1976 6.42 2.18
Dec 1977 5.96 2.32
Dec 1978 6.35 2.53
Dec 1979 7.52 2.87
Dec 1980 9.96 3.23
Dec 1981 9.47 3.51
Dec 1982 11.50 3.65
Dec 1983 14.09 3.79
Dec 1984 14.97 3.94
Dec 1985 19.78 4.09
Dec 1986 23.44 4.13
Dec 1987 24.66 4.32
Dec 1988 28.81 4.51
Dec 1989 37.88 4.72
Dec 1990 36.68 5.00
Dec 1991 47.89 5.16
Dec 1992 51.56 5.31
Dec 1993 56.71 5.45
Dec 1994 57.45 5.60
Dec 1995 78.95 5.75
- ------------------------------------------
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1995.
Growth of $1 Invested on January 1, 1990
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Dec 1989 1.00 1.00
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1995 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term government bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate or guarantee of
future performance. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
4
<PAGE>
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the Trust and Separate Account charges), see "Part 3:
Investment Performance" in the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM GOVT. U.S. TREASURY CONSUMER
ENDING 12/31/95 STOCKS GOVT. BONDS BONDS BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 37.43% 31.67% 26.39% 16.80% 5.60% 2.74%
3 Years 15.26 12.82 10.47 7.22 4.13 2.72
5 Years 16.57 13.10 12.07 8.81 4.29 2.83
10 Years 14.84 11.92 11.25 9.08 5.55 3.48
20 Years 14.59 10.45 10.54 9.69 7.28 5.23
30 Years 10.68 7.92 8.17 8.36 6.72 5.39
40 Years 10.78 6.38 6.75 7.02 5.73 4.46
50 Years 11.94 5.35 5.75 5.87 4.80 4.36
60 Years 11.34 5.20 5.46 5.34 4.01 4.10
Since 12/31/26 10.54 5.17 5.69 5.25 3.72 3.12
Inflation adjusted since 1926 7.20 1.99 2.49 2.07 0.58 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1996
Yearbook(Trademark), Ibbotson Associates Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1995, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1995; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
- -----------------------------------------------------------------------------
PART 6 -FINANCIAL
STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only
- -----------------------------------------------------------------------------
as bearing upon the ability of Equitable Life to meet its obligations under
the Certificates. There are no financial statements for the Separate Account
as it had not commenced operations as of the date of the prospectus and SAI.
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for loan impairments in 1995, for
postemployment benefits in 1994 and for investment securities in 1993.
PRICE WATERHOUSE LLP
New York, New York
February 7, 1996
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 15,899.9 $ 7,586.0
Held to maturity, at amortized cost..................................... - 5,223.0
Mortgage loans on real estate............................................. 3,638.3 4,018.0
Equity real estate........................................................ 3,916.2 4,446.4
Policy loans.............................................................. 1,976.4 1,731.2
Other equity investments.................................................. 621.1 678.5
Investment in and loans to affiliates..................................... 636.6 560.2
Other invested assets..................................................... 706.1 489.3
----------------- -----------------
Total investments..................................................... 27,394.6 24,732.6
Cash and cash equivalents................................................... 774.7 693.6
Deferred policy acquisition costs........................................... 3,083.3 3,221.1
Amounts due from discontinued GIC Segment................................... 2,097.1 2,108.6
Other assets................................................................ 2,713.1 2,078.6
Closed Block assets......................................................... 8,612.8 8,105.5
Separate Accounts assets.................................................... 24,566.6 20,469.5
----------------- -----------------
TOTAL ASSETS................................................................ $ 69,242.2 $ 61,409.5
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,752.6 $ 21,238.0
Future policy benefits and other policyholders' liabilities................. 4,171.8 3,840.8
Short-term and long-term debt............................................... 1,899.3 1,337.4
Other liabilities........................................................... 3,379.5 2,300.1
Closed Block liabilities.................................................... 9,507.2 9,069.5
Separate Accounts liabilities............................................... 24,531.0 20,429.3
----------------- -----------------
Total liabilities..................................................... 65,241.4 58,215.1
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 2,913.6 2,913.6
Retained earnings........................................................... 781.6 484.0
Net unrealized investment gains (losses).................................... 338.2 (203.0)
Minimum pension liability................................................... (35.1) (2.7)
----------------- -----------------
Total shareholder's equity............................................ 4,000.8 3,194.4
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................. $ 69,242.2 $ 61,409.5
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 771.0 $ 715.0 $ 644.5
Premiums...................................................... 606.8 625.6 599.1
Net investment income......................................... 2,127.7 2,030.9 2,599.3
Investment gains, net......................................... 5.3 91.8 533.4
Commissions, fees and other income............................ 886.8 845.4 1,717.2
Contribution from the Closed Block............................ 124.4 151.0 128.3
----------------- ----------------- -----------------
Total revenues.......................................... 4,522.0 4,459.7 6,221.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,244.2 1,201.3 1,330.0
Policyholders' benefits....................................... 1,011.3 920.6 1,003.9
Other operating costs and expenses............................ 1,856.5 1,943.1 3,584.2
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,112.0 4,065.0 5,918.1
----------------- ----------------- -----------------
Earnings before Federal income taxes and cumulative
effect of accounting change................................. 410.0 394.7 303.7
Federal income taxes.......................................... 112.4 101.2 91.3
----------------- ----------------- -----------------
Earnings before cumulative effect of accounting change........ 297.6 293.5 212.4
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (27.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 297.6 $ 266.4 $ 212.4
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning of year................. $ 2.5 $ 2.5 $ 2.0
Increase in par value......................................... - - .5
----------------- ----------------- -----------------
Common stock, at par value, end of year....................... 2.5 2.5 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 2,913.6 2,613.6 2,273.9
Additional capital in excess of par value..................... - 300.0 340.2
Increase in par value......................................... - - (.5)
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 2,913.6 2,913.6 2,613.6
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 484.0 217.6 5.2
Net earnings.................................................. 297.6 266.4 212.4
----------------- ----------------- -----------------
Retained earnings, end of year................................ 781.6 484.0 217.6
----------------- ----------------- -----------------
Net unrealized investment (losses) gains, beginning of year... (203.0) 131.9 78.8
Change in unrealized investment gains (losses)................ 541.2 (334.9) (9.5)
Effect of adopting new accounting standard.................... - - 62.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 338.2 (203.0) 131.9
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (2.7) (15.0) -
Change in minimum pension liability........................... (32.4) 12.3 (15.0)
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (35.1) (2.7) (15.0)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,000.8 $ 3,194.4 $ 2,950.6
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 297.6 $ 266.4 $ 212.4
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Net change in trading activities and broker-dealer
related receivables/payables.............................. - - (4,177.8)
Increase in matched resale agreements....................... - - (2,900.5)
Increase in matched repurchase agreements................... - - 2,900.5
Investment gains, net of dealer and trading gains........... (5.3) (91.8) (160.8)
Change in amounts due from discontinued GIC Segment......... - 57.3 47.8
General Account policy charges.............................. (769.7) (711.9) (623.4)
Interest credited to policyholders' account balances........ 1,244.2 1,201.3 1,330.0
Changes in Closed Block assets and liabilities, net......... (69.6) (95.1) (73.3)
Other, net.................................................. 627.1 7.8 (416.1)
----------------- ----------------- -----------------
Net cash provided (used) by operating activities.............. 1,324.3 634.0 (3,861.2)
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 1,863.1 2,319.7 3,479.6
Sales....................................................... 8,901.4 5,661.9 7,399.2
Return of capital from joint ventures and limited
partnerships.............................................. 65.2 39.0 119.5
Purchases................................................... (11,675.5) (7,417.6) (11,184.2)
Decrease (increase) in loans to discontinued GIC Segment.... 1,226.9 (40.0) (880.0)
Cash received on sale of 61% interest in DLJ................ - - 346.7
Other, net.................................................. (625.5) (371.1) (317.0)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (244.4) 191.9 (1,036.2)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 2,414.9 2,082.7 2,410.7
Withdrawals............................................... (2,692.7) (2,887.4) (2,433.5)
Net (decrease) increase in short-term financings............ (16.4) (173.0) 4,717.2
Additions to long-term debt................................. 599.7 51.8 97.7
Repayments of long-term debt................................ (40.7) (199.8) (64.4)
Proceeds from issuance of Alliance units.................... - 100.0 -
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. (1,215.4) - -
Capital contribution from the Holding Company............... - 300.0 -
Other, net.................................................. (48.2) - -
----------------- ----------------- -----------------
Net cash (used) provided by financing activities.............. (998.8) (725.7) 4,727.7
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 81.1 100.2 (169.7)
Cash and cash equivalents, beginning of year.................. 693.6 593.4 763.1
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 774.7 $ 693.6 $ 593.4
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 89.6 $ 34.9 $ 1,437.2
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (82.7) $ 49.2 $ 41.0
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business, which is
comprised of an Individual Insurance and Annuities segment and a Group
Pension segment is conducted principally by Equitable Life and its
wholly owned life insurance subsidiary, Equitable Variable Life
Insurance Company ("EVLICO"). Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance"), Equitable
Real Estate Investment Management, Inc. ("EREIM") and Donaldson, Lufkin
and Jenrette, Inc. ("DLJ"), an investment banking and brokerage
affiliate. AXA, a French holding company for an international group of
insurance and related financial services companies is the Holding
Company's largest shareholder, owning approximately 60.6% at December
31, 1995 (63.5% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.2% if all securities convertible into, or
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary and EREIM, a
real estate investment management subsidiary; and those partnerships and
joint ventures in which the Company has control and a majority economic
interest (collectively, including its consolidated subsidiaries, the
"Company"). The consolidated statement of earnings and cash flow for the
year ended December 31, 1993 include the results of operations and cash
flow of DLJ, an investment banking and brokerage affiliate, on a
consolidated basis through December 15, 1993 (see Note 20). Subsequent
to that date, DLJ is accounted for on the equity basis. The Closed Block
assets and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1995 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance.
Closed Block assets and liabilities are carried on the same basis as
similar assets and liabilities held in the General Account.
The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force. If the actual
contribution from the Closed Block in any given period equals or exceeds
the expected contribution for such period as determined at the
establishment of the Closed Block, the expected contribution would be
recognized in income for that period. Any excess of the actual
contribution over the expected contribution would also be recognized in
income to the extent that the aggregate expected contribution for all
prior periods exceeded the aggregate actual contribution. Any remaining
excess of actual contribution over expected contributions would be
accrued in the Closed Block as a liability for future dividends to be
paid to the Closed Block policyholders. If, over the period the policies
and contracts in the Closed Block remain in force, the actual
contribution from the Closed Block is less than the expected
contribution from the Closed Block, only such actual contribution would
be recognized in income.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Guaranteed
Interest Contract and Group Non-Participating Wind-Up Annuities lines of
business. The Company established a pre-tax provision for the estimated
future losses of the GIC line of business and a premium deficiency
reserve for the Group Non-Participating Wind-Up Annuities. Subsequent
losses incurred have been charged to the allowance for future losses and
the premium deficiency reserve. Total allowances are based upon
management's best judgment and there is no assurance that the ultimate
losses will not differ.
Accounting Changes
------------------
In the first quarter of 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan". This statement applies to all loans, including
loans restructured in a troubled debt restructuring involving a
modification of terms. This statement addresses the accounting for
impairment of a loan by specifying how allowances for credit losses
should be determined. Impaired loans within the scope of this statement
are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, at the loan's
observable market price or the fair value of the collateral if the loan
is collateral dependent. The Company provides for impairment of loans
through an allowance for possible losses. The adoption of this statement
did not have a material effect on the level of these allowances or on
the Company's consolidated statements of earnings and shareholder's
equity.
F-7
<PAGE>
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
At December 31, 1993, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which expanded the
use of fair value accounting for those securities that a company does
not have positive intent and ability to hold to maturity. Implementation
of this statement increased consolidated shareholder's equity by $62.6
million, net of deferred policy acquisition costs, amounts attributable
to participating group annuity contracts and deferred Federal income
tax. Beginning coincident with issuance of SFAS No. 115 implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result consolidated
shareholder's equity increased by $126.2 million, net of deferred policy
acquisition costs, amounts attributable to participating group annuity
contracts and deferred Federal income tax.
New Accounting Pronouncements
-----------------------------
In January 1995, the FASB issued SFAS No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," which permits, but does
not require, stock life insurance companies with participating life
contracts to account for those contracts in accordance with Statement of
Position No. 95-1, "Accounting for Certain Insurance Activities of
Mutual Life Insurance Enterprises". The Company has decided to retain
the existing methodology to account for traditional participating
policies and, therefore, will not adopt this statement.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. The Company will implement this statement as of January 1,
1996. The cumulative effect of this accounting change will be a charge
of $23.4 million, net of a Federal income tax benefit of $12.1 million,
due to the writedown to fair value of building improvements relating to
facilities being vacated beginning in 1996. The Company currently
provides allowances for possible losses for other assets under the scope
of this statement. Management has not yet determined the impact of this
statement on assets to be held and used.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which requires a mortgage banking enterprise to
recognize rights to service mortgage loans for others as separate assets
however those servicing rights are acquired. It further requires
capitalized mortgage servicing rights be assessed for impairment based
on the fair value of those rights. The Company will implement this
statement as of January 1, 1996. Implementation of this statement will
not have a material effect on the Company's consolidated financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement defines a fair value based
method of accounting for stock-based employee compensation plans while
continuing to allow an entity to measure compensation cost for such
plans using the intrinsic value based method of accounting. Management
has decided to retain the current compensation cost methodology
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees".
F-8
<PAGE>
Valuation of Investments
------------------------
Fixed maturities, which the Company has both the ability and the intent
to hold to maturity, are stated principally at amortized cost. Fixed
maturities identified as available for sale are reported at estimated
fair value. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Valuation
allowances on real estate held for the production of income are computed
using the forecasted cash flows of the respective properties discounted
at a rate equal to the Company's cost of funds; valuation allowances on
real estate available for sale are computed using the lower of current
estimated fair value, net of disposition costs, or depreciated cost.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts are passed through to the contractholders as
interest credited to policyholders' account balances.
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, Closed Block, participating group annuity contracts and
deferred policy acquisition costs related to universal life and
investment-type products.
F-9
<PAGE>
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from traditional life and annuity policies with life
contingencies generally are recognized as income when due. Benefits and
expenses are matched with such income so as to result in the recognition
of profits over the life of the contracts. This match is accomplished by
means of the provision for liabilities for future policy benefits and
the deferral and subsequent amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. Deferred policy acquisition costs are subject to
recoverability testing at the time of policy issue and loss recognition
testing at the end of each accounting period.
For universal life products and investment-type products, deferred
policy acquisition costs are amortized over the expected average life of
the contracts (periods ranging from 15 to 35 years and 5 to 17 years,
respectively) as a constant percentage of estimated gross profits
arising principally from investment results, mortality and expense
margins and surrender charges based on historical and anticipated future
experience, updated at the end of each accounting period. The effect on
the amortization of deferred policy acquisition costs of revisions to
estimated gross profits is reflected in earnings in the period such
estimated gross profits are revised. The effect on the deferred policy
acquisition cost asset that would result from realization of unrealized
gains (losses) is recognized with an offset to unrealized gains (losses)
in consolidated shareholder's equity as of the balance sheet date.
For traditional life and annuity policies with life contingencies,
deferred policy acquisition costs are amortized in proportion to
anticipated premiums. Assumptions as to anticipated premiums are
estimated at the date of policy issue and are consistently applied
during the life of the contracts. Deviations from estimated experience
are reflected in earnings in the period such deviations occur. For these
contracts, the amortization periods generally are for the estimated life
of the policy.
For individual health benefit insurance, deferred policy acquisition
costs are amortized over the expected average life of the contracts (10
years for major medical policies and 20 years for disability income
products) in proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
For traditional life insurance policies, future policy benefit and
dividend liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
provide a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, deferred policy acquisition
costs are written off and thereafter, if required, a premium deficiency
reserve is established by a charge to earnings. Benefit liabilities for
traditional annuities during the accumulation period are equal to
accumulated contractholders' fund balances and after annuitization are
equal to the present value of expected future payments. Interest rates
used in establishing such liabilities range from 2.25% to 11.5% for life
insurance liabilities and from 2.25% to 13.5% for annuity liabilities.
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest which provide a margin for adverse
deviation. Benefit liabilities for disabled lives are estimated using
the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $639.6 million, $570.6 million at
December 31, 1995 and 1994, respectively. Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
disability income and major medical policies are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 176.0 $ 188.6 $ 193.1
Incurred benefits related to prior years........... 67.8 28.7 106.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 243.8 $ 217.3 $ 299.2
================= ================ =================
Benefits paid related to current year.............. $ 37.0 $ 43.7 $ 48.9
Benefits paid related to prior years............... 137.8 132.3 123.1
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 174.8 $ 176.0 $ 172.0
================= ================ =================
</TABLE>
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations are accrued as policyholders'
dividends.
At December 31, 1995, participating policies including those in the
Closed Block represent approximately 27.2% ($58.4 billion) of directly
written life insurance in force, net of amounts ceded. Participating
policies represent primarily all of the premium income as reflected in
the consolidated statements of earnings and in the results of the Closed
Block.
F-11
<PAGE>
Federal Income Taxes
--------------------
Equitable Life and its life insurance and non-life insurance
subsidiaries file a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For the years ended December 31, 1995, 1994 and
1993, investment results of such Separate Accounts were $1,956.3
million, $676.3 million and $1,676.5 million, respectively.
Deposits to all Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-12
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
December 31, 1994
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 5,663.4 $ 34.6 $ 368.0 $ 5,330.0
Mortgage-backed.................... 686.0 2.9 44.8 644.1
U.S. Treasury securities and
U.S. government and
agency securities................ 1,519.3 6.7 71.9 1,454.1
States and political subdivisions.. 23.4 .1 .7 22.8
Foreign governments................ 43.8 .3 4.2 39.9
Redeemable preferred stock......... 108.4 .4 13.7 95.1
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 8,044.3 $ 45.0 $ 503.3 $ 7,586.0
================= ================= ================ ===============
Held to Maturity:
Corporate.......................... $ 4,661.0 $ 67.9 $ 233.8 $ 4,495.1
U.S. Treasury securities and
U.S. government and
agency securities................ 428.9 4.6 44.2 389.3
States and political subdivisions.. 63.4 .9 3.7 60.6
Foreign governments................ 69.7 4.2 2.0 71.9
================= ================= ================ ===============
Total Held to Maturity................. $ 5,223.0 $ 77.6 $ 283.7 $ 5,016.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 126.4 $ 31.2 $ 23.5 $ 134.1
================= ================= ================ ===============
</TABLE>
F-13
<PAGE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption that such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1995 and 1994, securities
without a readily ascertainable market value having an amortized cost of
$3,748.9 million and $3,980.4 million, respectively, had estimated fair
values of $3,981.8 million and $3,858.7 million, respectively.
The contractual maturity of bonds at December 31, 1995 is shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less................................................ $ 357.9 $ 360.0
Due in years two through five.......................................... 3,773.1 3,847.1
Due in years six through ten........................................... 4,709.8 4,821.8
Due after ten years.................................................... 4,497.1 4,898.2
Mortgage-backed securities............................................. 1,838.0 1,868.0
---------------- -----------------
Total.................................................................. $ 15,175.9 $ 15,795.1
================ =================
</TABLE>
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 284.9 $ 355.6 $ 512.0
Additions charged to income........................ 136.0 51.0 92.8
Deductions for writedowns and asset dispositions... (95.6) (121.7) (249.2)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 325.3 $ 284.9 $ 355.6
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 65.5 $ 64.2 $ 144.4
Equity real estate............................... 259.8 220.7 211.2
----------------- ---------------- -----------------
Total.............................................. $ 325.3 $ 284.9 $ 355.6
================= ================ =================
</TABLE>
Deductions for writedowns and asset dispositions for 1993 include an
$87.1 million writedown of fixed maturity investments at December 31,
1993 as a result of adopting a new accounting statement for the
valuation of these investments that requires specific writedowns instead
of valuation allowances.
At December 31, 1995, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $37.2 million
of fixed maturities and $84.7 million of mortgage loans on real estate.
F-14
<PAGE>
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1995, approximately 15.57% of the $15,139.9 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio, based on amortized
cost, includes $15.9 million and $30.5 million at December 31, 1995 and
1994, respectively, of such restructured securities. These amounts
include fixed maturities which are in default as to principal and/or
interest payments, are to be restructured pursuant to commenced
negotiations or where the borrowers went into bankruptcy subsequent to
acquisition (collectively, "problem fixed maturities") of $1.6 million
and $9.7 million as of December 31, 1995 and 1994, respectively. Gross
interest income that would have been recorded in accordance with the
original terms of restructured fixed maturities amounted to $3.0
million, $7.5 million and $11.7 million in 1995, 1994 and 1993,
respectively. Gross interest income on these fixed maturities included
in net investment income aggregated $2.9 million, $6.8 million and $9.7
million in 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $87.7 million (2.4% of total
mortgage loans on real estate) and $96.9 million (2.3% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $531.5
million and $447.9 million at December 31, 1995 and 1994, respectively.
These amounts include $3.8 million and $1.0 million of problem mortgage
loans on real estate at December 31, 1995 and 1994, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $52.1 million, $44.9 million and $51.8 million in 1995, 1994
and 1993, respectively. Gross interest income on these loans included in
net investment income aggregated $37.4 million, $32.8 million and $46.0
million in 1995, 1994 and 1993, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31, 1995
-------------------
(IN MILLIONS)
<S> <C>
Impaired mortgage loans with provision for losses....................................... $ 310.1
Impaired mortgage loans with no provision for losses.................................... 160.8
-------------------
Recorded investment in impaired mortgage loans.......................................... 470.9
Provision for losses.................................................................... 62.7
-------------------
Net Impaired Mortgage Loans............................................................. $ 408.2
===================
</TABLE>
F-15
<PAGE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the loan equals
or exceeds the recorded investment. Interest income earned on loans
where the collateral value is used to measure impairment is recorded on
a cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During the year ended December 31, 1995, the Company's average recorded
investment in impaired mortgage loans was $429.0 million. Interest
income recognized on these impaired mortgage loans totaled $27.9 million
for the year ended December 31, 1995, including $13.4 million recognized
on a cash basis.
At December 31, 1995, investments owned of any one issuer, including its
affiliates, for which the aggregate carrying values are 10% or more of
total shareholders' equity, were $508.3 million relating to Trammell
Crow and affiliates (including holdings of the Closed Block and the
discontinued GIC Segment). The amount includes restructured mortgage
loans on real estate with an amortized cost of $152.4 million. A $294.0
million commercial loan package which was in bankruptcy at the beginning
of the year was resolved in 1995, with part of the package reclassified
as restructured and the remainder reclassified as equity real estate.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1995 and 1994, the carrying value of equity real estate
available for sale amounted to $255.5 million and $447.8 million,
respectively. For the years ended December 31, 1995, 1994 and 1993,
respectively, real estate of $35.3 million, $189.8 million and $261.8
million was acquired in satisfaction of debt. At December 31, 1995 and
1994, the Company owned $862.7 million and $1,086.9 million,
respectively, of real estate acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $662.4
million and $703.1 million at December 31, 1995 and 1994, respectively.
Depreciation expense on real estate totaled $121.7 million, $117.0
million and $115.3 million for the years ended December 31, 1995, 1994
and 1993, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(38 and 47 individual ventures as of December 31, 1995 and 1994,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 2,684.1 $ 2,786.7
Investments in securities, generally at estimated fair value........... 2,459.8 3,071.2
Cash and cash equivalents.............................................. 489.1 359.8
Other assets........................................................... 270.8 398.7
---------------- -----------------
Total assets........................................................... 5,903.8 6,616.4
---------------- -----------------
Borrowed funds - third party........................................... 1,782.3 1,759.6
Borrowed funds - the Company........................................... 220.5 238.0
Other liabilities...................................................... 593.9 987.7
---------------- -----------------
Total liabilities...................................................... 2,596.7 2,985.3
---------------- -----------------
Partners' Capital...................................................... $ 3,307.1 $ 3,631.1
================ =================
Equity in partners' capital included above............................. $ 902.2 $ 964.2
Equity in limited partnership interests not included above............. 212.8 224.6
Excess (deficit) of equity in partners' capital over investment cost
and equity earnings.................................................. 3.6 (1.8)
Notes receivable from joint venture.................................... 5.3 6.1
---------------- -----------------
Carrying Value......................................................... $ 1,123.9 $ 1,193.1
================ =================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 463.5 $ 537.7 $ 602.7
Revenues of other limited partnership interests.... 242.3 103.4 319.1
Interest expense - third party..................... (135.3) (114.9) (118.8)
Interest expense - the Company..................... (41.0) (36.9) (52.1)
Other expenses..................................... (397.7) (430.9) (531.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 131.8 $ 58.4 $ 219.2
================= ================ =================
Equity in net earnings included above.............. $ 49.1 $ 18.9 $ 71.6
Equity in net earnings of limited partnerships
interests not included above..................... 44.8 25.3 46.3
Excess of earnings in joint ventures over equity
ownership percentage and amortization of
differences in bases............................. .9 1.8 9.2
Interest on notes receivable....................... .1 - .5
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 94.9 $ 46.0 $ 127.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,151.0 $ 1,024.5 $ 981.7
Trading account securities......................... - - 709.3
Securities purchased under resale agreements....... - - 533.8
Mortgage loans on real estate...................... 329.0 384.3 457.4
Equity real estate................................. 560.4 561.8 539.1
Other equity investments........................... 76.9 35.7 110.4
Policy loans....................................... 144.4 122.7 117.0
Broker-dealer related receivables.................. - - 292.2
Other investment income............................ 279.7 336.3 304.9
----------------- ---------------- -----------------
Gross investment income.......................... 2,541.4 2,465.3 4,045.8
----------------- ---------------- -----------------
Interest expense to finance short-term trading
instruments...................................... - - 983.4
Other investment expenses.......................... 413.7 434.4 463.1
----------------- ---------------- -----------------
Investment expenses.............................. 413.7 434.4 1,446.5
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,127.7 $ 2,030.9 $ 2,599.3
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 119.9 $ (14.1) $ 123.1
Mortgage loans on real estate...................... (40.2) (43.1) (65.1)
Equity real estate................................. (86.6) 20.6 (18.5)
Other equity investments........................... 12.8 76.0 119.5
Dealer and trading gains........................... - - 372.5
Sales of newly issued Alliance Units............... - 52.4 -
Other.............................................. (.6) - 1.9
----------------- ---------------- -----------------
Investment Gains, Net.............................. $ 5.3 $ 91.8 $ 533.4
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $46.7 million, $30.8 million
and $5.4 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
For the years ended December 31, 1995 and 1994, respectively, proceeds
received on sales of fixed maturities classified as available for sale
amounted to $8,206.0 million and $5,253.9 million. Gross gains of $211.4
million and $65.2 million and gross losses of $64.2 million and $50.8
million, respectively, were realized on these sales. The change in
unrealized investment gains (losses) related to fixed maturities
classified as available for sale for the years ended December 31, 1995
and 1994 amounted to $1,077.2 million and $(742.2) million,
respectively.
Gross gains of $188.5 million and gross losses of $145.0 million were
realized on sales of investments in fixed maturities held for investment
and available for sale for the year ended December 31, 1993.
F-18
<PAGE>
During each of the years ended December 31, 1995 and 1994, one security
classified as held to maturity was sold and during the eleven months
ended November 30, 1995 and the year ended December 31, 1994,
respectively, twelve and six securities so classified were transferred
to the available for sale portfolio. All actions were taken as a result
of a significant deterioration in creditworthiness. The aggregate
amortized cost of the securities sold were $1.0 million and $19.9
million with a related investment gain of $-0- million and $.8 million
recognized in 1995 and 1994, respectively; the aggregate amortized cost
of the securities transferred was $116.0 million and $42.8 million with
gross unrealized investment losses of $3.2 million and $3.1 million
charged to consolidated shareholders' equity for the eleven months ended
November 30, 1995 and the year ended December 31, 1994, respectively. On
December 1, 1995, the Company transferred $4,794.9 million of securities
classified as held to maturity to the available for sale portfolio. As a
result, unrealized gains on fixed maturities increased $307.0 million,
offset by deferred policy acquisition costs of $73.7 million, amounts
attributable to participating group annuity contracts of $39.2 million
and deferred Federal income tax of $67.9 million.
Investment gains from other equity investments for the year ended
December 31, 1993, included $79.9 million generated by DLJ's involvement
in long-term corporate development investments.
For the years ended December 31, 1995, 1994 and 1993, investment results
passed through to certain participating group annuity contracts as
interest credited to policyholders' account balances amounted to $131.2
million, $175.8 million and $243.2 million, respectively.
During 1995, Alliance entered into an agreement to acquire the business
of Cursitor-Eaton Asset Management Company and Cursitor Holdings Limited
(collectively, "Cursitor") for approximately $141.5 million consisting
of $84.9 million in cash, 1,764,115 of Alliance's publicly traded units
("Alliance Units"), 6% notes aggregating $21.5 million payable ratably
over four years, and substantial additional consideration which will be
determined at a later date. The transaction, which is expected to be
completed during the first quarter of 1996, is subject to the receipt of
consents, regulatory approvals, and certain other closing conditions,
including client approval of the transfer of Cursitor accounts. Upon
completion of this transaction, the Company's ownership percentage of
Alliance will be reduced.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The sales decreased the Company's
ownership of Alliance's Units from 63.2% to 59.2%. In addition, the
Company continues to hold its 1% general partnership interest in
Alliance. The Company recognized an investment gain of $52.4 million as
a result of these transactions.
The Company's ownership interest in Alliance will be further reduced
upon the exercise of options granted to certain Alliance employees. At
December 31, 1995, Alliance had options outstanding to purchase an
aggregate of 4.8 million Alliance Units at a price ranging from $6.0625
to $22.25 per unit. Options are exercisable at a rate of 20% on each of
the first five anniversary dates from the date of grant.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year......................... $ (203.0) $ 131.9 $ 78.8
Changes in unrealized investment (losses) gains.... 1,117.7 (823.8) (14.1)
Effect of adopting SFAS No. 115.................... - - 283.9
Changes in unrealized investment (gains)
losses attributable to:
Participating group annuity contracts.......... (78.1) 40.8 (36.2)
Deferred policy acquisition costs.............. (208.4) 269.5 (150.5)
Deferred Federal income taxes.................. (290.0) 178.6 (30.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 338.2 $ (203.0) $ 131.9
================= ================ =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, end of year comprises:
Unrealized investment (losses) gains on:
Fixed maturities............................... $ 615.9 $ (461.3) $ 283.9
Other equity investments....................... 31.1 7.7 75.8
Other.......................................... 31.6 14.5 25.0
----------------- ---------------- -----------------
Total........................................ 678.6 (439.1) 384.7
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) 5.9 (34.9)
Deferred policy acquisition costs............ (89.4) 119.0 (150.5)
Deferred Federal income taxes................ (178.8) 111.2 (67.4)
----------------- ---------------- -----------------
Total.............................................. $ 338.2 $ (203.0) $ 131.9
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,662.8 and $1,270.3)........................................... $ 3,896.2 $ 1,197.0
Held to maturity, at amortized cost (estimated fair value of
$1,785.0 in 1994)................................................ - 1,927.8
Mortgage loans on real estate........................................ 1,368.8 1,543.7
Policy loans......................................................... 1,797.2 1,827.9
Cash and other invested assets....................................... 440.9 442.5
Deferred policy acquisition costs.................................... 823.6 878.1
Other assets......................................................... 286.1 288.5
----------------- -----------------
Total Assets......................................................... $ 8,612.8 $ 8,105.5
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,346.7 $ 8,965.3
Other liabilities.................................................... 160.5 104.2
----------------- -----------------
Total Liabilities.................................................... $ 9,507.2 $ 9,069.5
================= =================
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 753.4 $ 798.1 $ 860.2
Investment income (net of investment
expenses of $26.7, $19.0 and $17.3).............. 538.9 523.0 526.5
Investment losses, net............................. (20.2) (24.0) (15.0)
----------------- ---------------- -----------------
Total revenues............................... 1,272.1 1,297.1 1,371.7
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,085.1 1,075.6 1,141.4
Other operating costs and expenses................. 62.6 70.5 102.0
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,147.7 1,146.1 1,243.4
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 124.4 $ 151.0 $ 128.3
================= ================ =================
</TABLE>
The fixed maturity portfolio, based on amortized cost, includes $4.3
million and $23.8 million at December 31, 1995 and 1994, respectively,
of restructured securities which includes problem fixed maturities of
$1.9 million and $6.4 million, respectively.
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from a significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized and offset by an increase to
the deferred dividend liability. Implementation of SFAS No. 115 for the
valuation of fixed maturities at December 31, 1993 resulted in the
recognition of a deferred dividend liability of $49.6 million.
At December 31, 1995 and 1994, problem mortgage loans on real estate had
an amortized cost of $36.5 million and $27.6 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $137.7 million and $179.2 million,
respectively. At December 31, 1995 and 1994, the restructured mortgage
loans on real estate amount included $8.8 million and $.7 million,
respectively, of problem mortgage loans on real estate.
Valuation allowances amounted to $18.4 million and $46.2 million on
mortgage loans on real estate and $4.3 million and $2.6 million on
equity real estate at December 31, 1995 and 1994, respectively.
Writedowns of fixed maturities amounted to $16.8 million and $15.9
million and $1.7 million for the years ended December 31, 1995, 1994 and
1993, respectively.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-21
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 1,485.8 $ 1,730.5
Equity real estate................................................... 1,122.1 1,194.8
Other invested assets................................................ 665.2 978.8
Other assets......................................................... 579.3 529.5
----------------- -----------------
Total Assets......................................................... $ 3,852.4 $ 4,433.6
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,399.8 $ 1,924.0
Allowance for future losses.......................................... 164.2 185.6
Amounts due to continuing operations................................. 2,097.1 2,108.6
Other liabilities.................................................... 191.3 215.4
----------------- -----------------
Total Liabilities.................................................... $ 3,852.4 $ 4,433.6
================= =================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $143.8, $174.0 and $175.8).................... $ 325.1 $ 395.0 $ 535.1
Investment (losses) gains, net..................... (22.9) 26.8 (22.6)
Policy fees, premiums and other income............. .7 .3 8.7
----------------- ---------------- -----------------
Total revenues..................................... 302.9 422.1 521.2
Benefits and other deductions...................... 328.0 443.8 545.9
----------------- ---------------- -----------------
Losses Charged to Allowance for Future Losses...... $ (25.1) $ (21.7) $ (24.7)
================= ================ =================
</TABLE>
In 1991, the Company established a pre-tax provision of $396.7 million
for the estimated future losses of the GIC Segment. At December 31,
1993, implementation of SFAS No. 115 for the valuation of fixed
maturities resulted in a benefit of $13.1 million, offset by a
corresponding addition to the allowance for future losses.
The amounts due to continuing operations at December 31, 1994 consisted
of $3,324.0 million borrowed by the GIC Segment from continuing
operations, offset by $1,215.4 million representing an obligation of
continuing operations to provide assets to fund the accumulated deficit
of the GIC Segment. In January 1995, continuing operations transferred
$1,215.4 million in cash to the GIC Segment in settlement of its
obligation. Subsequently, the GIC Segment remitted $1,155.4 million in
cash to continuing operations in partial repayment of borrowings by the
GIC Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1995, consisted of
$2,097.1 million borrowed by the discontinued GIC Segment.
F-22
<PAGE>
Investment income included $88.2 million and $97.7 million of interest
income for the years ended December 31, 1994 and 1993, respectively, on
amounts due from continuing operations. Benefits and other deductions
includes $154.6 million, $219.7 million and $197.1 million of interest
expense related to amounts borrowed from continuing operations in 1995,
1994 and 1993, respectively.
Valuation allowances amounted to $19.2 million and $50.2 million on
mortgage loans on real estate and $77.9 million and $74.7 million on
equity real estate at December 31, 1995 and 1994, respectively.
Writedowns of fixed maturities amounted to $8.1 million, $17.8 million
and $1.1 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
The fixed maturity portfolio, based on amortized cost, includes $15.1
million and $43.3 million at December 31, 1995 and 1994, respectively,
of restructured securities. These amounts include problem fixed
maturities of $6.1 million and $9.7 million at December 31, 1995 and
1994, respectively.
At December 31, 1995 and 1994, problem mortgage loans on real estate had
amortized costs of $35.4 million and $14.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $289.3 million and $371.2 million,
respectively.
At December 31, 1995 and 1994, the GIC Segment had $310.9 million and
$312.2 million, respectively, of real estate acquired in satisfaction of
debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt...................................................... $ - $ 20.0
----------------- -----------------
Long-term debt:
Equitable Life:
Surplus notes, 6.95%, scheduled to mature 2005..................... 399.3 -
Surplus notes, 7.70%, scheduled to mature 2015..................... 199.6 -
Eurodollar notes, 10.375% due 1995................................. - 34.6
Eurodollar notes, 10.5% due 1997................................... 76.2 76.2
Zero coupon note, 11.25% due 1997.................................. 120.1 107.8
Other.............................................................. 16.3 14.3
----------------- -----------------
Total Equitable Life........................................... 811.5 232.9
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.98% - 12.75% due through 2019.................... 1,084.4 1,080.6
----------------- -----------------
Alliance:
Other.............................................................. 3.4 3.9
----------------- -----------------
Total long-term debt................................................. 1,899.3 1,317.4
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,899.3 $ 1,337.4
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1995 range from 5.8% (the London Interbank Offering Rate
plus 22.5 basis points) to 8.5% (the prime rate). There were no
borrowings outstanding under this bank credit facility at December 31,
1995.
F-23
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1995.
In 1994, Alliance established a $100.0 million revolving credit facility
with several banks. On March 31, 1997, the revolving credit facility
converts into a term loan payable in quarterly installments through
March 31, 1999. Outstanding borrowings generally bear interest at the
Eurodollar rate plus .875% per annum through March 31, 1997 and at the
Eurodollar rate plus 1.125% per annum after conversion through March 31,
1999. In addition, a quarterly commitment fee of .25% per annum is paid
on the average daily unused amount. At December 31, 1995, there were no
amounts outstanding under the facility.
In 1994, Alliance also established a $100.0 million commercial paper
program and entered into a three-year $100.0 million revolving credit
facility with a group of commercial banks to support commercial paper to
be issued under the program and for general corporate purposes. Amounts
outstanding under the facility bear interest at an annual rate ranging
from the Eurodollar rate plus .225% to the Eurodollar rate plus .2875%.
A fee of .125% per annum is paid quarterly on the entire facility. At
December 31, 1995, Alliance had not issued any commercial paper and
there were no amounts outstanding under the revolving credit facility.
During 1994, EREIM established two bank lines of credit totaling $30.0
million of which $20.0 million was outstanding at December 31, 1994.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015. Proceeds from the issuance of the surplus notes were
$596.6 million, net of related issuance costs. The unamortized discount
on the surplus notes was $1.1 million at December 31, 1995. Payments of
interest on or principal of the surplus notes are subject to prior
approval by the New York Insurance Department.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,629.7 million and $1,744.4 million at December 31, 1995
and 1994, respectively, as collateral for certain long-term debt.
At December 31, 1995, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1996 and the succeeding
four years are $124.0 million, $466.6 million, $309.5 million, $15.8
million, respectively, and $1,015.0 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ (11.7) $ 4.0 $ 115.8
Deferred......................................... 124.1 97.2 (24.5)
----------------- ---------------- -----------------
Total.............................................. $ 112.4 $ 101.2 $ 91.3
================= ================ =================
</TABLE>
F-24
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and cumulative effect of accounting change by the
expected Federal income tax rate of 35%. The sources of the difference
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 143.5 $ 138.1 $ 106.3
Differential earnings amount....................... - (16.8) (23.2)
Adjustment of tax audit reserves................... 4.1 (4.6) 22.9
Tax rate adjustment................................ - - (5.0)
Other.............................................. (35.2) (15.5) (9.7)
----------------- --------------- -----------------
Federal Income Tax Expense......................... $ 112.4 $ 101.2 $ 91.3
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life is no longer required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994 and
1993.
The components of the net deferred Federal income tax asset are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 December 31, 1994
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Deferred policy acquisition costs,
reserves and reinsurance............. $ - $ 303.2 $ - $ 220.3
Investments............................ - 326.9 - 18.7
Compensation and related benefits...... 293.0 - 307.3 -
Other.................................. - 32.3 - 5.8
--------------- ---------------- --------------- ---------------
Total.................................. $ 293.0 $ 662.4 $ 307.3 $ 244.8
=============== ================ =============== ===============
</TABLE>
The deferred Federal income tax expense (benefit) impacting operations
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The sources of
these temporary differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Deferred policy acquisition costs, reserves
and reinsurance.................................. $ 55.1 $ 13.0 $ (46.7)
Investments........................................ 13.0 89.3 60.4
Compensation and related benefits.................. 30.8 10.0 (50.1)
Other.............................................. 25.2 (15.1) 11.9
----------------- ---------------- -----------------
Deferred Federal Income Tax Expense (Benefit)...... $ 124.1 $ 97.2 $ (24.5)
================= ================ =================
</TABLE>
F-25
<PAGE>
The Internal Revenue Service completed its audit of the Company's
Federal income tax returns for the years 1984 through 1988. There was no
material effect on the Company's consolidated results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 474.2 $ 476.7 $ 458.8
Reinsurance assumed................................ 171.3 180.5 169.9
Reinsurance ceded.................................. (38.7) (31.6) (29.6)
----------------- ---------------- -----------------
Premiums........................................... $ 606.8 $ 625.6 $ 599.1
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 38.9 $ 27.5 $ 33.7
================= ================ =================
Policyholders' Benefits Ceded...................... $ 48.2 $ 20.7 $ 72.3
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 28.5 $ 25.4 $ 24.1
================= ================ =================
</TABLE>
In February 1993, management established a practice limiting the risk
retention on new policies issued by the Insurance Group to a maximum of
$5.0 million. In addition, effective January 1, 1994, all in force
business above $5.0 million was reinsured. The Insurance Group also
reinsures the entire risk on certain substandard underwriting risks as
well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $260.6 million,
$241.0 million and $895.1 million for the years ended December 31, 1995,
1994 and 1993, respectively. Ceded death and disability benefits totaled
$188.1 million, $235.5 million and $787.8 million for the years ended
December 31, 1995, 1994 and 1993, respectively. Insurance liabilities
ceded totaled $724.2 million and $833.4 million at December 31, 1995 and
1994, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory and benefits are based on a cash balance formula or
years of service and final average earnings, if greater, under certain
grandfathering rules in the plans. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974.
Components of net periodic pension (credit) cost for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 30.0 $ 30.3 $ 29.8
Interest cost on projected benefit obligations..... 122.0 111.0 108.0
Actual return on assets............................ (309.2) 24.4 (178.6)
Net amortization and deferrals..................... 155.6 (142.5) 55.3
----------------- ---------------- -----------------
Net Periodic Pension (Credit) Cost................. $ (1.6) $ 23.2 $ 14.5
================= ================ =================
</TABLE>
F-26
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,642.4 $ 1,295.5
Non-vested........................................................... 10.9 8.7
--------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,653.3 $ 1,304.2
================ =================
Plan assets at fair value.............................................. $ 1,503.8 $ 1,193.5
Projected benefit obligation........................................... 1,743.0 1,403.4
---------------- -----------------
Projected benefit obligation in excess of plan assets.................. (239.2) (209.9)
Unrecognized prior service cost........................................ (25.5) (33.2)
Unrecognized net loss from past experience different from that
assumed.............................................................. 368.2 298.9
Unrecognized net asset at transition................................... (7.3) (20.8)
Additional minimum liability........................................... (51.9) (37.8)
---------------- -----------------
Prepaid (Accrued) Pension Cost......................................... $ 44.3 $ (2.8)
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.50%, respectively, at December 31, 1995 and
8.75% and 4.88%, respectively, at December 31, 1994. As of January 1,
1995 and 1994, the expected long-term rate of return on assets for the
retirement plan was 11% and 10%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $35.1 million and $2.7 million,
net of Federal income taxes, at December 31, 1995 and 1994,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
As of December 31, 1993, the Company changed the method of determining
the market-related value of plan assets from fair value to a calculated
value. This change in estimate had no material effect on the Company's
consolidated statements of earnings.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $36.4 million,
$38.1 million and $39.9 million for the years ended December 31, 1995,
1994 and 1993, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for the years ended December 31, 1995, 1994 and
1993, the Company made estimated postretirement benefits payments of
$31.1 million, $29.8 million and $29.7 million, respectively.
F-27
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 4.0 $ 3.9 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 28.6 29.2
Unrecognized prior service cost.................... (2.3) (3.9) (6.9)
Net amortization and deferrals..................... - - 1.5
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 36.4 $ 28.6 $ 29.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 391.8 $ 300.4
Fully eligible active plan participants.............................. 50.4 33.0
Other active plan participants....................................... 64.2 44.0
---------------- -----------------
506.4 377.4
Unrecognized benefit of plan amendments................................ - 3.2
Unrecognized prior service cost........................................ 56.3 61.9
Unrecognized net loss from past experience different from that
assumed and from changes in assumptions.............................. (181.3) (64.7)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 381.4 $ 377.8
================ =================
</TABLE>
In 1993, the Company amended the cost sharing provisions of
postretirement medical benefits. At January 1, 1994, medical benefits
available to retirees under age 65 are the same as those offered to
active employees and medical benefits will be limited to 200% of 1993
costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 10% in 1995,
gradually declining to 3.5% in the year 2008 and in 1994 was 10%,
gradually declining to 5% in the year 2004. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 8.75% at December 31, 1995 and 1994, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1995
would be increased 6.5%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 6.7%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income
except for hedging transactions related to insurance liabilities. The
notional amount of matched interest rate swaps outstanding at December
31, 1995 was $1,120.8 million. The average unexpired terms at December
31, 1995 range from 2.5 to 3.0 years. At December 31, 1995, the cost of
terminating outstanding matched swaps in a loss position was $15.9
million and the unrealized gain on
F-28
<PAGE>
outstanding matched swaps in a gain position was $19.0 million. The
Company has no intention of terminating these contracts prior to
maturity. During 1995, 1994 and 1993, net gains (losses) of $1.4
million, $(.2) million and $-0- million, respectively, were recorded in
connection with interest rate swap activity. Equitable Life has
implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1995 of contracts purchased
and sold were $2,625.0 million and $300.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $12.5 million and
is being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related derivatives is by its nature
trading activities which are primarily for the purpose of customer
accommodations. DLJ's derivative activities consist of option writing
and trading in forward and futures contracts. Derivative financial
instruments have both on-and-off balance sheet implications depending on
the nature of the contracts. DLJ's involvement in swap contracts is not
significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains
or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1995 and 1994.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as investment contracts are measured at the estimated fair
value of the underlying assets. Deposit administration contracts
(included with group annuity contracts) classified as insurance
contracts are measured at estimated fair value of the underlying assets.
The estimated fair values for single premium deferred annuities ("SPDA")
are estimated using projected cash flows discounted at current offering
rates. The estimated fair values for supplementary contracts not
involving life contingencies ("SCNILC") and annuities certain are
derived using discounted cash flows based upon the estimated current
offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-29
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,638.3 $ 3,973.6 $ 4,018.0 $ 3,919.4
Other joint ventures................... 492.7 492.7 544.4 544.4
Policy loans........................... 1,976.4 2,057.5 1,731.2 1,676.6
Policyholders' account balances:
Association plans.................... 101.0 100.0 141.0 141.0
Group annuity contracts.............. 2,335.0 2,395.0 2,450.0 2,469.0
SPDA................................. 1,265.8 1,272.0 1,744.3 1,732.7
Annuities certain and SCNILC......... 649.1 680.7 599.1 624.7
Long-term debt......................... 1,899.3 1,962.9 1,317.4 1,249.2
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,368.8 1,461.4 1,543.7 1,477.8
Other equity investments............... 151.6 151.6 179.5 179.5
Policy loans........................... 1,797.2 1,891.4 1,827.9 1,721.9
SCNILC liability....................... 34.8 34.5 39.5 37.0
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,485.8 1,666.1 1,730.5 1,743.7
Fixed maturities....................... 107.4 107.4 219.3 219.3
Other equity investments............... 455.9 455.9 591.8 591.8
Guaranteed interest contracts.......... 329.0 352.0 835.0 855.0
Long-term debt......................... 135.1 136.0 134.8 127.9
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
liquidity advances to cover delinquent principal and interest and
property protection expenses with respect to loan servicing agreements
for securitized mortgage loans which at December 31, 1995 totaled $2.8
billion (as of December 31, 1995, $4.0 million have been advanced under
these commitments); to make capital contributions of up to $246.7
million to affiliated real estate joint ventures; to provide equity
financing to certain limited partnerships of $129.4 million at December
31, 1995, under existing loan or loan commitment agreements; and to
provide short-term financing loans which at December 31, 1995 totaled
$45.8 million. Management believes the Company will not incur any
material losses as a result of these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1995, the Insurance Group had $29.0 million of letters
of credit outstanding.
F-30
<PAGE>
14) LITIGATION
A number of lawsuits have been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states juries have substantial
discretion in awarding punitive damages. Equitable Life and its
insurance subsidiaries, like other life and health insurers, from time
to time are involved in such litigation. To date, no such lawsuit has
resulted in an award or settlement of any material amount against the
Company. Among litigations pending against Equitable Life and its
insurance subsidiaries of the type referred to in this paragraph are the
litigations described in the following two paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the insurance policies, and that statements in the
policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that they
will seek damages in an unspecified amount. Equitable Life has moved to
dismiss the complaint in its entirety on the grounds that it fails to
state a claim and that uncontroverted documentary evidence establishes a
complete defense to the claims. That motion is awaiting decision by the
court. In January 1996, separate actions were filed in Pennsylvania and
Texas state courts (entitled, respectively, Malvin et al. v. The
Equitable Life Assurance Society of the United States and Bowler et al.
v. The Equitable Life Assurance Society of the United States), making
claims similar to those in the New York action described above. These
new actions are asserted on behalf of proposed classes of Pennsylvania
issued or renewed policyholders and Texas issued or renewed
policyholders, insured under the policies. The Pennsylvania and Texas
actions seek compensatory and punitive damages and injunctive relief
restricting the methods by which Equitable Life increases premiums in
the future based on the common law and statutes of those states.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, Equitable
Life's management believes that the ultimate resolution of those
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigation,
Equitable Life's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on the Company's results of operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, The Equitable of Colorado, Inc. ("EOC"), in New
York State Court, entitled Sidney C. Cole et al. v. The Equitable Life
Assurance Society of the United States and The Equitable of Colorado,
Inc., No. 95/108611 (N.Y. County). The action is brought by the holders
of a joint survivorship whole life policy issued by EOC. The action
purports to be on behalf of a class consisting of all persons who from
January 1, 1984 purchased life insurance policies sold by Equitable Life
and EOC based upon their allegedly uniform sales presentations and
policy illustrations. The complaint puts in issue various alleged sales
practices that plaintiffs assert, among other things, misrepresented the
stated number of years that the annual premium would need to be paid.
Plaintiffs seek damages in an unspecified amount, imposition of a
constructive trust, and seek to enjoin Equitable Life and EOC from
engaging in the challenged sales practices. Equitable Life and EOC
intend to defend vigorously and believe that they have meritorious
defenses which, if successful, would dispose of the action completely.
Equitable Life and EOC further do not believe that this case is an
appropriate class action. Although the outcome of any litigation cannot
be predicted with certainty, particularly in the early stages of an
action, Equitable Life's management believes that the ultimate
F-31
<PAGE>
resolution of this litigation should not have a material adverse effect
on the financial position of the Company. Due to the early stage of such
litigation, the Company's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on the Company's results of operations in any particular
period.
Equitable Casualty Insurance Company ("Casualty"), a captive property
and casualty insurance company organized under the laws of Vermont,
which is an indirect wholly owned subsidiary of Equitable Life, is a
party to an arbitration proceeding that commenced in August 1995 with
the selection of three arbitrators. The arbitration will resolve a
dispute among Casualty, Houston General Insurance Company ("Houston
General"), and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement that was entered
into as part of a 1980 transaction whereby Equitable General Insurance
Company ("Equitable General"), formerly an indirect subsidiary of
Equitable Life and the predecessor of GEICO General, sold its commercial
lines business along with the stock of Houston General to subsidiaries
of Tokio Marine & Fire Insurance Company, Ltd. ("Tokio Marine").
Casualty and GEICO General maintain that, under the reinsurance
agreement, Houston General assumed liability for all losses insured
under commercial lines policies written by Equitable General and its
predecessors in order to effect the transfer of that business to Tokio
Marine's subsidiaries. Houston General contends that it did not assume
reinsurance liability for losses insured under certain of those
commercial lines policies. The arbitration panel determined to begin
hearing evidence in the arbitration in June 1996. The result of the
arbitration is expected to resolve two litigations that were commenced
by Houston General and that have been stayed by the presiding courts
pending the completion of the arbitration (in one case, Houston General
named as a defendant only GEICO General but Casualty intervened as a
defendant with GEICO General, and in the other case, Houston General
named GEICO General and Equitable Life). The arbitration is expected to
be completed during the second half of 1996. While the ultimate outcome
of the arbitration cannot be predicted with certainty, the Company's
management believes that the arbitrators will recognize that Houston
General's position is without merit and contrary to the way in which the
reinsurance industry operates and therefore the ultimate resolution of
this matter should not have a material adverse effect on the Company's
financial position or results of operations.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. A similar complaint was filed on November 7, 1995 and was
subsequently consolidated with the Complaint. The Complaint, which seeks
certification of a plaintiff class of persons who purchased or owned
Class A, B or C shares of the Fund from March 27, 1992 through December
23, 1994, seeks an unspecified amount of damages, costs, attorneys' fees
and punitive damages. The principal allegations of the Complaint are
that the Fund purchased debt securities issued by the Mexican and
Argentine governments in amounts that were not permitted by the Funds'
investment objective, and that there was no shareholder vote to change
the investment objective to permit purchases in such amounts. The
Complaint further alleges that the decline in the value of the Mexican
and Argentine securities held by the Fund caused the Fund's net asset
value to decline to the detriment of the Fund's shareholders. On
September 26, 1995, the defendants jointly filed a motion to dismiss the
Complaint which has not yet been decided by the Court. Alliance believes
that the allegations in the Complaint are without merit and intends to
vigorously defend against these claims. While the ultimate results of
this action cannot be determined, management of Alliance does not expect
that this action will have a material adverse effect on Alliance's
business.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC"), a wholly owned subsidiary of
DLJ, and certain other defendants for unspecified compensatory and
punitive damages in the United States District Court for the Southern
District of New York. The suit was brought on behalf of the purchasers
of 126,457 units consisting of $126,457,000 aggregate principal amount
of 13 1/2% senior notes due 2001 and 126,457 warrants to purchase shares
of common stock of Rickel (the "Units") issued by Rickel in October
1994. The complaint alleges violations of Federal securities laws and
common law fraud against DLJSC, as the underwriter of
F-32
<PAGE>
the Units and as an owner of 7.3% of the common stock of Rickel, Eos
Partners, L.P., and General Electric Capital Corporation, each as owners
of 44.2% of the common stock of Rickel, and members of the Board of
Directors of Rickel, including a DLJSC Managing Director. The complaint
seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in
connection with the offering of the Units, alleging that the defendants
knew of financial losses and a decline in value of Rickel in the months
prior to the offering and did not disclose such information. The
complaint also alleges that Rickel failed to pay its semi-annual
interest payment due on the Units on December 15, 1995 and that Rickel
filed a voluntary petition for reorganization pursuant to Chapter 11 of
the United States Bankruptcy Code on January 10, 1996. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe the
outcome of this litigation will have a material adverse effect on its
financial condition. Due to the early stage of this litigation, based on
the information currently available to it, DLJ's management cannot make
an estimate of loss or predict whether or not such litigation will have
a material adverse effect on DLJ's results of operations in any
particular period.
On June 12, 1995, a purported purchaser of certain securities issued by
Spectravision, Inc. ("Spectravision") filed a class action complaint
against DLJSC and certain other defendants for unspecified damages in
the U.S. District Court for the Northern District of Texas. The suit was
brought on behalf of the purchasers of $260,795,000 of securities issued
by Spectravision in November 1992, and alleges violations of the Federal
securities laws and the Texas Securities Act, common law fraud and
negligent misrepresentation. The securities were issued by Spectravision
pursuant to a prepackaged bankruptcy reorganization plan. DLJSC served
as financial advisor to Spectravision in its reorganization and as
Dealer Manager for Spectravision's 1992 issuance of the securities.
DLJSC is also being sued as a seller of certain notes of Spectravision
acquired and resold by DLJSC. The complaint seeks to hold DLJSC liable
for various alleged misstatements and omissions contained in
prospectuses and other materials issued between July 1992 and June 1994.
DLJSC intends to defend itself vigorously against all of the allegations
contained in the complaint. On June 8, 1995, Spectravision filed a
Chapter 11 petition in the United States Bankruptcy Court for the
District of Delaware. On January 5, 1996, the district court in the
litigation involving DLJSC ordered a partial stay of discovery until
Spectravision has emerged from bankruptcy or six months from the date of
the stipulated stay (whichever comes first). Accordingly, discovery of
DLJSC has not yet occurred. Although there can be no assurance, DLJ does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on its financial condition. Due to the early
stage of such litigation, based upon information currently available to
it, DLJ's management cannot make an estimate of loss or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period. Plaintiff's counsel in
the class action against DLJSC described above has also filed another
securities class action based on similar factual allegations. Such suit
names as defendants Spectravision and its directors, and was brought on
behalf of a class of purchasers of $209.0 million of stock and $77.0
million of notes issued by Spectravision in October 1993. DLJSC served
as the managing underwriter for both of these issuances. DLJSC has not
been named as a defendant in this suit, although it has been reported to
DLJSC that plaintiff's counsel is contemplating seeking to amend the
complaint to add DLJSC as a defendant in that action.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State
F-33
<PAGE>
Court action has subsequently been removed to the Bankruptcy Court,
which removal is being opposed by the plaintiff. DLJSC intends to defend
itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe that
the ultimate outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of such
litigation, based upon the information currently available to it, DLJ's
management cannot make an estimate of loss or predict whether or not
such litigation will have a material adverse effect on DLJ's results of
operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1996 and the succeeding four years are $114.8 million, $101.8
million, $90.0 million, $73.6 million, $57.7 million and $487.0 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1996 and the succeeding four years are $11.0 million, $8.7
million, $6.9 million, $4.6 million, $2.9 million and $1.1 million
thereafter.
At December 31, 1995, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1996
and the succeeding four years are $292.9 million, $271.2 million, $248.1
million, $226.4 million, $195.5 million and $1,018.8 million thereafter.
F-34
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 595.9 $ 690.0 $ 1,452.3
Commissions........................................ 314.3 313.0 551.1
Short-term debt interest expense................... 11.4 19.0 317.1
Long-term debt interest expense.................... 108.1 98.3 86.0
Amortization of policy acquisition costs........... 320.4 318.1 275.9
Capitalization of policy acquisition costs......... (391.0) (410.9) (397.8)
Rent expense, net of sub-lease income.............. 124.8 128.9 159.5
Other.............................................. 772.6 786.7 1,140.1
----------------- ---------------- -----------------
Total.............................................. $ 1,856.5 $ 1,943.1 $ 3,584.2
================= ================ =================
</TABLE>
During the years ended December 31, 1995, 1994 and 1993, the Company
restructured certain operations in connection with cost reduction
programs and recorded pre-tax provisions of $32.0 million, $20.4 million
and $96.4 million, respectively. The amounts paid during 1995,
associated with the 1995 and 1994 cost reduction programs, totaled $24.0
million. At December 31, 1995, the liabilities associated with the 1995
and 1994 cost reduction programs amounted to $37.8 million. The 1995
cost reduction program included relocation expenses, including the
accelerated amortization of building improvements associated with the
relocation of the home office. The 1994 cost reduction program included
costs associated with the termination of operating leases and employee
severance benefits in connection with the consolidation of 16 insurance
agencies. The 1993 cost reduction program primarily reflected severance
benefits of terminated employees in connection with the combination of a
wholly owned subsidiary of the Company with Alliance.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the New York
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For the years ended December 31, 1995,
1994 and 1993, statutory (loss) earnings totaled $(352.4) million, $67.5
million and $324.0 million, respectively. No amounts are expected to be
available for dividends from Equitable Life to the Holding Company in
1996.
At December 31, 1995, the Insurance Group, in accordance with various
government and state regulations, had $18.9 million of securities
deposited with such government or state agencies.
F-35
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Company's statutory
change in surplus and capital stock and statutory surplus and capital
stock determined in accordance with accounting practices prescribed by
the New York Insurance Department with net earnings and equity on a GAAP
basis.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 78.1 $ 292.4 $ 190.8
Change in asset valuation reserves................. 365.7 (285.2) 639.1
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 443.8 7.2 829.9
Adjustments:
Future policy benefits and policyholders'
account balances............................... (67.9) (11.0) (171.0)
Deferred policy acquisition costs................ 70.6 92.8 121.8
Deferred Federal income taxes.................... (150.0) (59.7) (57.5)
Valuation of investments......................... 189.1 45.2 202.3
Valuation of investment subsidiary............... (188.6) 396.6 (464.9)
Limited risk reinsurance......................... 416.9 74.9 85.2
Issuance of surplus notes........................ (538.9) - -
Sale of subsidiary and joint venture............. - - (366.5)
Contribution from the Holding Company............ - (300.0) -
Postretirement benefits.......................... (26.7) 17.1 23.8
Other, net....................................... 115.1 (44.0) 60.3
GAAP adjustments of Closed Block................. (3.1) 4.5 (16.0)
GAAP adjustments of discontinued GIC
Segment........................................ 37.3 42.8 (35.0)
----------------- ---------------- -----------------
Net Earnings....................................... $ 297.6 $ 266.4 $ 212.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,202.9 $ 2,124.8 $ 1,832.4
Asset valuation reserves........................... 1,345.9 980.2 1,265.4
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,548.8 3,105.0 3,097.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,017.4) (949.5) (938.5)
Deferred policy acquisition costs................ 3,083.3 3,221.1 2,858.8
Deferred Federal income taxes.................... (450.8) (26.8) (137.8)
Valuation of investments......................... 417.7 (794.1) (29.8)
Valuation of investment subsidiary............... (665.1) (476.5) (873.1)
Limited risk reinsurance......................... (429.0) (845.9) (920.8)
Issuance of surplus notes........................ (538.9) - -
Postretirement benefits.......................... (343.3) (316.6) (333.7)
Other, net....................................... 4.4 (79.2) (81.9)
GAAP adjustments of Closed Block................. 575.7 578.8 574.2
GAAP adjustments of discontinued GIC
Segment........................................ (184.6) (221.9) (264.6)
----------------- ---------------- -----------------
Total Shareholder's Equity......................... $ 4,000.8 $ 3,194.4 $ 2,950.6
================= ================ =================
</TABLE>
F-36
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has three major business segments: Individual Insurance and
Annuities; Investment Services and Group Pension.
Consolidation/elimination principally includes debt not specific to any
business segment. Attributed Insurance Capital represents net assets and
related revenues and earnings of the Insurance Group not assigned to the
insurance segments. Interest expense related to debt not specific to any
business segment is presented within Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Individual Insurance and Annuities segment offers a variety of
traditional, variable and interest-sensitive life insurance products,
disability income, annuity products and mutual fund and other investment
products to individuals and small groups. This segment includes Separate
Accounts for certain individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes Separate
Accounts which provide various investment options for group clients
through pooled or single group accounts.
Intersegment investment advisory and other fees of approximately $124.1
million, $135.3 million and $128.6 million for 1995, 1994 and 1993,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $14.7 million, $27.4 million and $17.0 million for 1995, 1994
and 1993, respectively, are eliminated in consolidation.
The Group Pension segment administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Individual insurance and annuities................. $ 3,254.6 $ 3,110.7 $ 2,981.5
Group pension...................................... 292.0 359.1 426.6
Attributed insurance capital....................... 61.2 79.4 61.6
----------------- ---------------- -----------------
Insurance operations............................. 3,607.8 3,549.2 3,469.7
Investment services................................ 949.1 935.2 2,792.6
Consolidation/elimination.......................... (34.9) (24.7) (40.5)
----------------- ---------------- -----------------
Total.............................................. $ 4,522.0 $ 4,459.7 $ 6,221.8
================= ================ =================
Earnings (loss) before Federal income taxes
and cumulative effect of accounting change
Individual insurance and annuities................. $ 274.4 $ 245.5 $ 76.2
Group pension...................................... (13.3) 15.8 2.0
Attributed insurance capital....................... 18.7 69.8 49.0
----------------- ---------------- -----------------
Insurance operations............................. 279.8 331.1 127.2
Investment services................................ 161.2 177.5 302.1
Consolidation/elimination.......................... (3.1) .3 .5
----------------- ---------------- -----------------
Subtotal..................................... 437.9 508.9 429.8
Corporate interest expense......................... (27.9) (114.2) (126.1)
----------------- ---------------- -----------------
Total.............................................. $ 410.0 $ 394.7 $ 303.7
================= ================ =================
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Individual insurance and annuities..................................... $ 50,328.8 $ 44,063.4
Group pension.......................................................... 4,033.3 4,222.8
Attributed insurance capital........................................... 2,391.6 2,609.8
---------------- -----------------
Insurance operations................................................. 56,753.7 50,896.0
Investment services.................................................... 12,842.9 12,127.9
Consolidation/elimination.............................................. (354.4) (1,614.4)
---------------- -----------------
Total.................................................................. $ 69,242.2 $ 61,409.5
================ =================
</TABLE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for the years ended December 31,
1995, 1994 and 1993, are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1995
----
Total Revenues................ $ 1,074.7 $ 1,158.4 $ 1,127.1 $ 1,161.8
================= ================= ================== ==================
Net Earnings.................. $ 59.0 $ 94.3 $ 91.2 $ 53.1
================= ================= ================== ==================
1994
----
Total Revenues................ $ 1,107.4 $ 1,075.0 $ 1,153.8 $ 1,123.5
================= ================= ================== ==================
Earnings before Cumulative
Effect of Accounting
Change...................... $ 64.0 $ 68.4 $ 89.1 $ 72.0
================= ================= ================== ==================
Net Earnings.................. $ 36.9 $ 68.4 $ 89.1 $ 72.0
================= ================= ================== ==================
1993
----
Total Revenues................ $ 1,502.2 $ 1,539.7 $ 1,679.4 $ 1,500.5
================= ================= ================== ==================
Net Earnings.................. $ 32.3 $ 47.1 $ 68.8 $ 64.2
================= ================= ================== ==================
</TABLE>
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess of
the proceeds over the book value in DLJ at the date of sale of $340.2
million has been reflected as a capital contribution. In 1995, DLJ
completed the initial public offering ("IPO") of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27 per share. Concurrent with the IPO, the
Company contributed equity securities to DLJ having a market value of
$21.2 million. Upon completion of the IPO, the Company's ownership
percentage was reduced to 36.1%. The Company's ownership interest will
be further reduced upon the issuance of common stock after the vesting
of forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. At December 31, 1995, DLJ had
options
F-38
<PAGE>
outstanding to purchase approximately 9.2 million shares of DLJ common
stock at $27.00 per share. Options are exercisable over a period of up
to ten years. DLJ restricted stock units represents forfeitable rights
to receive approximately 5.2 million shares of DLJ common stock through
February 2000.
The results of operations and cash flows of DLJ through the date of sale
are included in the consolidated statements of earnings and cash flow
for the year ended December 31, 1993. For the period subsequent to the
date of sale, the results of operations of DLJ are accounted for on the
equity basis and are included in commissions, fees and other income in
the consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 10,911.4 $ 8,970.0
Securities purchased under resale agreements........................... 18,748.2 10,476.4
Broker-dealer related receivables...................................... 13,023.7 11,784.8
Other assets........................................................... 1,893.2 2,030.4
---------------- -----------------
Total Assets........................................................... $ 44,576.5 $ 33,261.6
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 26,744.8 $ 18,356.7
Broker-dealer related payables......................................... 12,915.5 10,618.0
Short-term and long-term debt.......................................... 1,717.5 1,956.5
Other liabilities...................................................... 1,775.0 1,285.1
---------------- -----------------
Total liabilities...................................................... 43,152.8 32,216.3
Cumulative exchangeable preferred stock................................ 225.0 225.0
Total shareholders' equity............................................. 1,198.7 820.3
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 44,576.5 $ 33,261.6
================ =================
DLJ's equity as reported............................................... $ 1,198.7 $ 820.3
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 40.5 50.8
The Holding Company's equity ownership in DLJ.......................... (499.0) (532.1)
Minority interest in DLJ............................................... (324.3) -
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 415.9 $ 339.0
================ =================
</TABLE>
F-39
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,325.9 $ 953.5
Net investment income.................................................. 904.1 791.9
Dealer, trading and investment gains, net.............................. 528.6 263.3
---------------- -----------------
Total Revenues......................................................... 2,758.6 2,008.7
Total expenses including income taxes.................................. 2,579.5 1,885.7
---------------- -----------------
Net earnings........................................................... 179.1 123.0
Dividends on preferred stock........................................... 19.9 20.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 159.2 $ 102.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 159.2 $ 102.1
Amortization of cost in excess of net assets acquired in 1985.......... (3.9) (3.1)
The Holding Company's equity in DLJ's earnings......................... (90.4) (60.9)
Minority interest in DLJ............................................... (6.5) -
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 58.4 $ 38.1
================ =================
</TABLE>
21) RELATED PARTY TRANSACTIONS
On August 31, 1993, the Company sold $661.0 million of primarily
privately placed below investment grade fixed maturities to EQ Asset
Trust 1993, a limited purpose business trust, wholly owned by the
Holding Company. The Company recognized a $4.1 million gain net of
related deferred policy acquisition costs, deferred Federal income tax
and amounts attributable to participating group annuity contracts. In
conjunction with this transaction, the Company received $200.0 million
of Class B Notes issued by EQ Asset Trust 1993. These notes have
interest rates ranging from 6.85% to 9.45%. The Class B Notes are
reflected in investments in and loans to affiliates on the consolidated
balance sheets.
F-40