<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
SUPPLEMENT TO
EQUITABLE ACCUMULATOR
(IRA AND NQ)
PROSPECTUS DATED MAY 1, 1997
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- -------------------------------------------------------------------------------
This prospectus supplement describes the Combined Guaranteed Minimum Income
Benefit and Guaranteed Minimum Death Benefit offered to Annuitant issue ages 76
or older under the Equitable Accumulator Prospectus. Capitalized terms in this
supplement have the same meaning as in the prospectus.
The Combined Guaranteed Minimum Income Benefit and Guaranteed Minimum Death
Benefit discussed on page 18 of the prospectus under "baseBUILDER Benefits" is
available for Annuitant issue ages 76 or older at a charge of 0.30% of the
Guaranteed Minimum Income Benefit benefit base in effect on a Processing Date.
The benefit is as discussed below:
The Guaranteed Minimum Income Benefit may be exercised only within 30
days following the 7th or later Contract Date anniversary, but in no
event later than the Annuitant's age 90.
The period certain will be 90 less the Annuitant's age at election.
The Guaranteed Minimum Death Benefit applicable to the combined benefit is as
follows:
4% to Age 85 Roll Up - On the Contract Date, the Guaranteed Minimum
Death Benefit is equal to the initial contribution. Thereafter, the
Guaranteed Minimum Death Benefit is credited with interest at 4% on
each Contract Date anniversary through the Annuitant's age 85 (or at
the Annuitant's death, if earlier), and 0% thereafter, and is adjusted
for any subsequent contributions and withdrawals.
The Guaranteed Minimum Income Benefit benefit base described on page 25 of the
prospectus is as follows:
The Guaranteed Minimum Income Benefit benefit base is equal to the
initial contribution on the Contract Date. Thereafter, the Guaranteed
Minimum Income Benefit benefit base is credited with interest at 4% on
each Contract Date anniversary through the Annuitant's age 85, and 0%
thereafter, and is adjusted for any subsequent contributions and
withdrawals. The Guaranteed Minimum Income Benefit benefit base will
also be reduced by any withdrawal charge remaining on the Transaction
Date that you exercise your Guaranteed Minimum Income Benefit.
- -------------------------------------------------------------------------------
SUPPLEMENT DATED MAY 1, 1997
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
MAY 1, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF THE EQUITABLE ACCUMULATOR (IRA AND NQ)
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
This Profile is a summary of some of the more important points that you should
know and consider before purchasing a Certificate. The Certificate is more fully
described in the prospectus which accompanies this Profile. Please read the
prospectus carefully.
1. THE ANNUITY CERTIFICATE. The Equitable Accumulator Certificate is a
combination variable and fixed deferred annuity issued by Equitable Life.
Certificates can be issued as individual retirement annuities (IRAs) or as
non-qualified annuities (NQ) for after-tax contributions only. The Equitable
Accumulator Certificate is designed to provide for the accumulation of
retirement savings and for income through the investment, during an accumulation
phase, of (a) rollover contributions, direct transfers from other individual
retirement arrangements and additional IRA contributions or (b) after-tax money.
You may invest in Investment Funds where your Certificate's value may vary up or
down depending upon investment performance. You may also invest in Guarantee
Periods (also called Guaranteed Fixed Interest Accounts) that when held to
maturity provide guaranteed interest rates that we have set and a guarantee of
principal. If you make any transfers or withdrawals, the Guaranteed Fixed
Interest Accounts' investment value may increase or decrease until maturity due
to interest rate changes. Earnings accumulate under your Certificate on a
tax-deferred basis until amounts are distributed. Amounts distributed under the
Equitable Accumulator Certificate may be subject to income tax.
The Investment Funds offer the potential for better returns than the interest
rates guaranteed under Guaranteed Fixed Interest Accounts, but the Investment
Funds involve risk and you can lose money. You may make transfers among the
Investment Funds and Guaranteed Fixed Interest Accounts. The value of Guaranteed
Fixed Interest Accounts prior to their maturity fluctuates and you can lose
money on premature transfers or withdrawals.
The Certificate provides a number of distribution methods during the
accumulation phase and for converting to annuity income. The amount accumulated
under your Certificate during the accumulation phase will affect the amount of
distribution or annuity benefits you receive.
--------------
baseBUILDER and Income Manager are service marks of The Equitable Life Assurance
Society of the United States.
1
<PAGE>
You can elect the baseBUILDERSM at issue of the Certificate for an additional
charge. The baseBUILDER provides a combined Guaranteed Minimum Income Benefit
and Guaranteed Minimum Death Benefit. The Guaranteed Minimum Income Benefit
provides a minimum amount of guaranteed lifetime income regardless of investment
performance when converting, at specific times, to the Income ManagerSM (Life
Annuity with a Period Certain).
2. ANNUITY PAYMENTS. When you are ready to start receiving income, annuity
income is available by applying your Certificate's value to the Income Manager
(Life Annuity with a Period Certain). You can also have your Certificate's value
applied to any of the following ANNUITY BENEFITS: (1) Life Annuity - payments
for your life, (2) Life Annuity - Period Certain - payments for your life, but
with payments continuing to the beneficiary for the balance of the 5, 10, 15 or
20 years (as you select) if you die before the end of the selected period; (3)
Life Annuity - Refund Certain - payments for your life, with payments continuing
to the beneficiary after your death until any remaining amount applied to this
option runs out; and (4) Period Certain Annuity - payments for a specified
period of time, usually 5, 10, 15 or 20 years, with no life contingencies.
Options (2) and (3) are also available as a Joint and Survivor Annuity -
payments for your life, and after your death, continuation of payments to the
survivor for life. Annuity Benefits (other than the Refund Certain which is only
available on a fixed basis) are available as a fixed annuity, or as a variable
annuity, where the dollar amount of your payments will depend upon the
investment performance of the Investment Funds. Once you begin receiving annuity
payments, you cannot change your annuity benefit.
3. PURCHASE. You can purchase an Equitable Accumulator IRA Certificate by
rolling over or transferring at least $5,000 or more from one or more individual
retirement arrangements. You may add additional amounts of $1,000 or more at any
time (subject to certain restrictions). Additional amounts are limited to $2,000
per year, but additional rollover or IRA transfer amounts are unlimited.
An Equitable Accumulator NQ Certificate can be purchased with $5,000 or more.
Additional amounts of $1,000 or more can be made at anytime (subject to certain
restrictions).
4. INVESTMENT OPTIONS. You may invest in any or all of the following Investment
Funds, which invest in shares of corresponding portfolios of EQ Advisors Trust
(EQ Trust) and The Hudson River Trust (HR Trust). The portfolios are described
in the prospectuses for EQ Trust and HR Trust.
EQ TRUST INVESTMENT FUNDS HR TRUST INVESTMENT FUNDS
- ---------------------------------- --------------------------------
o EQ/Putnam Growth & Income Value o Alliance Money Market
o EQ/Putnam Investors Growth o Alliance High Yield
o EQ/Putnam International Equity o Alliance Common Stock
o MFS Research o Alliance Aggressive Stock
o MFS Emerging Growth Companies o Alliance Small Cap Growth
You may also invest in one or more Guaranteed Fixed Interest Accounts currently
maturing in years 1998 through 2007.
2
<PAGE>
5. EXPENSES. The Certificates have expenses as follows: As a percentage of
assets in the Investment Funds, a daily charge is deducted for mortality and
expense risks (including the Guaranteed Minimum Death Benefit) at an annual rate
of 1.10%, and a daily charge is deducted for administration expenses at an
annual rate of 0.25%. If the baseBUILDER benefit is elected, there is an annual
charge of 0.30% expressed as a percentage of the Guaranteed Minimum Income
Benefit benefit base.
The charges for the portfolios of EQ Trust range from 0.85% to 1.20% of the
average daily net assets of EQ Trust portfolios, depending upon EQ Trust
portfolios selected. The charges for the portfolios of HR Trust range from 0.64%
to 1.20% of the average daily net assets of HR Trust portfolios, depending upon
HR Trust portfolios selected. The amounts for EQ Trust are based on current
expense caps, and the amounts for HR Trust are based on restated values during
1996 (as well as an expense cap for the Alliance Small Cap Growth portfolio).
The 12b-1 fee for the portfolios of EQ Trust and HR Trust are 0.25% of the
average daily assets of EQ Trust and HR Trust, respectively. Charges for state
premium and other applicable taxes may also apply at the time you elect to start
receiving annuity payments.
A withdrawal charge is imposed as a percentage of each contribution withdrawn in
excess of a free corridor amount, or if the Certificate is surrendered. The free
corridor amount for withdrawals is 15% of the Certificate's value at the
beginning of the year. The withdrawal charge does not apply under certain of the
distribution methods available under the Equitable Accumulator IRA Certificate.
When applicable, the withdrawal charge is determined in accordance with the
table below, based on the year a contribution is withdrawn. The year in which we
receive your contribution is "Year 1."
<TABLE>
<CAPTION>
Year of Contribution Withdrawal
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 following chart is designed to help you understand the charges in the
Certificate. The "Total Annual Charges" column shows the combined total of the
Certificate charges deducted as a percentage of assets in the Investment Funds
and the portfolio charges, as shown in the first two columns. The last two
columns show you two examples of the charges, in dollars, that you would pay
under a Certificate, and include the benefit based charge for the baseBUILDER
benefit. The examples assume that you invested $1,000 in a Certificate which
earns 5% annually and that you withdraw your money: (1) at the end of year 1,
and (2) at the end of year 10. For year 1, the Total Annual Charges are assessed
as well as the withdrawal charge. For year 10, the example shows the aggregate
of all the annual charges assessed for the 10 years, but there is no withdrawal
charge. No charges for state premium and other applicable taxes are assumed in
the examples.
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
TOTAL ANNUAL TOTAL ANNUAL TOTAL Total Annual
CERTIFICATE PORTFOLIO ANNUAL Expenses at End of:
INVESTMENT FUND CHARGES CHARGES CHARGES (1) (2)
1 Year 10 Years
<S> <C> <C> <C> <C>
EQ/Putnam Growth & Income 1.35% 0.85% 2.20% $92.28 $284.94
VALUE
EQ/PUTNAM INVESTORS GROWTH 1.35% 0.85% 2.20% $92.28 $284.94
EQ/PUTNAM INTERNATIONAL
EQUITY 1.35% 1.20% 2.55% $95.76 $319.15
MFS RESEARCH 1.35% 0.85% 2.20% $92.28 $284.94
MFS EMERGING GROWTH
COMPANIES 1.35% 0.85% 2.20% $92.28 $284.94
ALLIANCE MONEY MARKET 1.35% 0.64% 1.99% $90.19 $263.86
ALLIANCE HIGH YIELD 1.35% 0.91% 2.26% $92.88 $290.88
ALLIANCE COMMON STOCK 1.35% 0.66% 2.01% $90.39 $265.88
ALLIANCE AGGRESSIVE STOCK 1.35% 0.83% 2.18% $92.08 $282.95
ALLIANCE SMALL CAP GROWTH 1.35% 1.20% 2.55% $95.76 $319.15
</TABLE>
For Investment Funds investing in portfolios with less than 10 years of
operations, charges have been estimated. The charges reflect any waiver or
limitation. For more detailed information, see the Fee Table in the prospectus.
6. TAXES. In most cases, your earnings are not taxed until distributions are
made from your Certificate. If you are younger than age 59 1/2 when you receive
any distributions, you may be charged a 10% Federal tax penalty on the amount
received.
7. ACCESS TO YOUR MONEY. During the accumulation phase, you may receive
distributions under a Certificate through the following WITHDRAWAL OPTIONS.
Under both IRA and NQ Certificates: (1) Lump Sum Withdrawals of at least $1,000
taken at any time; and (2) Systematic Withdrawals paid monthly, quarterly or
annually, subject to certain restrictions, including a maximum percentage of
your Certificate's value. Under IRA Certificates only: (1) Substantially Equal
Payment Withdrawals (if you are less than age 59 1/2), paid monthly, quarterly
or annually based on life expectancy; and (2) Minimum Distribution Withdrawals
(after you are age 70 1/2), which pays the minimum amount necessary to meet
minimum distribution requirements in the Internal Revenue Code.
You also have access to your Certificate's value by surrendering the
Certificate. All or a portion of certain withdrawals may be subject to a
withdrawal charge to the extent that the withdrawal exceeds the free corridor
amount. A free corridor amount does not apply to a surrender. Withdrawals and
surrenders may be subject to income tax and a tax penalty. Withdrawals from
Guaranteed Fixed Interest Accounts prior to their maturity may result in a
market value adjustment.
4
<PAGE>
7
8. PERFORMANCE. During the accumulation phase, your Certificate's value in the
Investment Funds may vary up or down depending upon the investment performance
of the Investment Funds you have selected. The following chart shows total
returns for certain Investment Funds for the time periods shown. The results
indicated reflect all of the charges, except the optional baseBUILDER benefit
charge, the withdrawal charge, and any charge for state premium and other
applicable taxes. If included, these charges would reduce the performance
numbers shown below. Past performance is not a guarantee of future results.
The performance data for the Alliance Money Market, Alliance High Yield,
Alliance Common Stock, and Alliance Aggressive Stock Funds do not reflect 12b-1
fees prior to October 1996. There is no performance data for the Alliance Small
Cap Growth Fund and the Investment Funds investing in EQ Trust portfolios, as
such Investment Funds were not available under the Certificates prior to May 1,
1997.
<TABLE>
<CAPTION>
CALENDAR YEAR
INVESTMENT FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Money Market 3.84% 4.32% 2.62% 1.57% 2.16% 4.75% 6.77% 7.72% 5.87% 5.19%
Alliance High Yield 21.14 18.30 (4.09) 21.49 10.79 22.79 (2.46) 3.72 8.26 3.29
Alliance Common Stock 22.51 30.67 (3.46) 23.14 1.82 36.03 (9.36) 23.90 20.79 5.99
Alliance Aggressive Stock 20.46 29.87 (5.11) 15.17 (4.47) 84.35 6.70 41.57 (0.23) 5.85
</TABLE>
9. DEATH BENEFIT. If the annuitant dies before amounts are applied under an
annuity benefit, the named beneficiary will be paid a death benefit. The death
benefit is equal to your Certificate's value in the Investment Funds and
Guaranteed Fixed Interest Accounts, or if greater, the Guaranteed Minimum Death
Benefit.
If you are between the ages of 20 through 79, you choose one of two types of
Guaranteed Minimum Death Benefit available under the Certificate: a "6% to Age
80 Roll Up" and an "Annual Ratchet to Age 80." Both types are described below.
Both benefits are based on the amount you initially put in and are adjusted for
additional contributions and withdrawals. For ages 80 through 83 a return of the
money you have invested under the Certificate will be the Guaranteed Minimum
Death Benefit.
6% to Age 80 Roll Up (Not available in New York) -- We add interest to the
initial amount at 6% (4% for amounts in the Alliance Money Market Fund and
Guaranteed Fixed Interest Accounts) through the Annuitant's age 80 (or at the
annuitant's death, if earlier). The 6% interest rate will still apply for
amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program discussed below.
Annual Ratchet to Age 80 --The Guaranteed Minimum Death Benefit is reset each
year through the Annuitant's age 80 to the Certificate's value, if it is higher
than the prior year's Guaranteed Minimum Death Benefit. In New York, the
Guaranteed Minimum Death Benefit at the death of the annuitant will never be
less than the amounts in the Investment Funds, plus amounts (not reflecting any
increase or decrease due to interest rate changes) in the Guaranteed Fixed
Interest Accounts reflecting guaranteed interest.
5
<PAGE>
10. OTHER INFORMATION.
QUALIFIED PLANS. If the Certificates will be purchased by certain types of plans
qualified under Section 401(a), or 401(k) of the Internal Revenue Code, please
consult your tax adviser first. Any discussion of taxes in this profile does not
apply.
BASEBUILDER BENEFIT. The baseBUILDER (available for annuitant ages 20 through 75
at issue of the Certificates) is an optional benefit that combines the
Guaranteed Minimum Income Benefit and the Guaranteed Minimum Death Benefit. The
baseBUILDER benefit may be available for annuitant ages 76 and older, and is
currently not available in New York.
Income Benefit - The Guaranteed Minimum Income Benefit, as part of the
baseBUILDER, provides a minimum amount of guaranteed lifetime income
for your future. When you are ready to convert (at specified future
times) your Certificate's value to the Income Manager (Life Annuity
with a Period Certain) the amount of lifetime income that will be
provided will be the greater of (i) your Guaranteed Minimum Income
Benefit or (ii) your Certificate's current value applied at current
annuity factors.
Death Benefit - As part of the baseBUILDER you have the choice, at
issue of the Certificate, of two Guaranteed Minimum Death Benefit
options: (i) the 6% to Age 80 Roll Up or, (ii) the Annual Ratchet to
Age 80. These options are described in "Death Benefit" above.
FREE LOOK. You can examine the Certificate for a period of 10 days after
you receive it, and return it to us for a refund. The free look period is
longer in some states.
Your refund will equal your Certificate's value, reflecting any investment gain
or loss, in the Investment Funds, and any increase or decrease in the value of
any amounts held in the Guaranteed Fixed Interest Accounts, through the date we
receive your Certificate. Some states or Federal income tax regulations may
require that we calculate the refund differently.
PRINCIPAL ASSURANCE. This option is designed to assure the return of your
original amount invested on a Guaranteed Fixed Interest Account maturity date,
by putting a portion of your money in a particular Guaranteed Fixed Interest
Account, and the balance in the Investment Funds in any way you choose. Assuming
that you make no transfers or withdrawals of the portion in the Guaranteed Fixed
Interest Account, such amount will grow to your original investment upon
maturity.
DOLLAR COST AVERAGING. Special Dollar Cost Averaging - You can elect when you
apply for your Certificate to allocate your contribution to the Alliance Money
Market Fund and have it transferred from the Alliance Money Market Fund into the
other Investment Funds on a monthly basis over the first twelve months, during
which time mortality and expense risks and administration charges will not be
deducted from the Alliance Money Market Fund. General Dollar Cost Averaging -You
can elect at any time to put money into the Alliance Money Market Fund and have
a dollar amount or percentage transferred from the Alliance Money Market Fund
into the other Investment Funds on a periodic basis over a longer period of
time, and all applicable charges deducted from the Alliance
6
<PAGE>
Money Market Fund will apply. Dollar cost averaging does not assure a profit or
protect against a loss should market prices decline.
REPORTS. We will provide you with an annual statement of your Certificate's
values as of the last day of each year, and three additional reports of your
Certificate's values each year. You also will be provided with written
confirmations of each financial transaction, and copies of annual and
semi-annual statements of EQ Trust and HR Trust.
You may call toll-free at 1-800-789-7771 for a recording of daily Investment
Fund values and guaranteed rates applicable to Guaranteed Fixed Interest
Accounts.
11. INQUIRIES. If you need more information, please contact your registered
representative. You may also contact us, at:
The Equitable Life Assurance Society of the United States
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Telephone 1-800-789-7771 and Fax 1-201-583-2224
7
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
EQUITABLE ACCUMULATOR
(IRA AND NQ)
PROSPECTUS DATED MAY 1, 1997
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 issued on a group
basis or as individual contracts. Enrollment under a group contract is
evidenced by issuance of a certificate. Certificates and individual contracts
are each referred to as "Certificates." Certificates can be issued as
individual retirement annuities (IRA), or non-qualified annuities for
after-tax contributions only (NQ). Under IRA Certificates we 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 an
IRA or NQ Certificate into effect.
The Certificates are designed to provide for the accumulation of retirement
savings and for 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 Certificates offer investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 10
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the
GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IB shares of a corresponding
portfolio (PORTFOLIO) of EQ Advisors Trust (EQ TRUST) and The Hudson River
Trust (HR TRUST), mutual funds whose shares are purchased by separate
accounts of insurance companies. The prospectuses for EQ Trust and HR Trust,
both of which accompany this prospectus, describe the investment objectives,
policies and risks, of the Portfolios.
INVESTMENTS FUNDS
O EQ/PUTNAM GROWTH & INCOME VALUE O ALLIANCE MONEY MARKET
O EQ/PUTNAM INVESTORS GROWTH O ALLIANCE HIGH YIELD
O EQ/PUTNAM INTERNATIONAL EQUITY O ALLIANCE COMMON STOCK
O MFS RESEARCH O ALLIANCE AGGRESSIVE STOCK
O MFS EMERGING GROWTH COMPANIES O ALLIANCE SMALL CAP GROWTH
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. The Guarantee Periods currently available have
Expiration Dates of February 15, in years 1998 through 2007.
This prospectus provides information about IRA and NQ Certificates 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 current prospectuses for EQ Trust and HR Trust, both of
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 May 1, 1997, 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 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. baseBUILDER is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 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, as amended
(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. The SEC maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
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, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
2
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- -------------------------------------------------------------------------------
GENERAL TERMS PAGE 4
FEE TABLE PAGE 6
PART 1: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 9
Equitable Life 9
Separate Account No. 49 9
EQ Trust 9
EQ Trust's Manager and Advisers 10
HR Trust 10
HR Trust's Manager and Adviser 10
Investment Policies and Objectives of
EQ Trust's Portfolios and HR Trust's
Portfolios 11
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 12
Guarantee Periods 12
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to the
Expiration Date 13
Investments 14
PART 3: PROVISIONS OF THE
CERTIFICATES AND SERVICES
WE PROVIDE PAGE 15
What is the Equitable Accumulator? 15
Contributions Under the Certificates 15
Methods of Payment 15
Allocation of Contributions 16
Free Look Period 16
Annuity Account Value 17
Transfers Among Investment Options 17
Dollar Cost Averaging 18
BaseBUILDER Benefits 18
Guaranteed Minimum Income Benefit 18
Death Benefit 19
How Death Benefit Payment is Made 20
When the NQ Certificate Owner Dies Before
the Annuitant 20
Cash Value 21
Surrendering the Certificates to
Receive the Cash Value 21
When Payments are Made 21
Assignment 21
Services We Provide 21
Distribution of the Certificates 22
PART 4: DISTRIBUTION METHODS UNDER THE
CERTIFICATES PAGE 23
Withdrawal Options 23
How Withdrawals Affect Your Guaranteed
Minimum Income Benefit and Guaranteed
Minimum Death Benefit 25
Annuity Benefits and Payout Annuity Options 26
PART 5: DEDUCTIONS AND CHARGES PAGE 28
Charges Deducted from the Annuity
Account Value 28
Charges Deducted from the Investment
Funds 29
EQ Trust Charges to Portfolios 29
HR Trust Charges to Portfolios 29
Group or Sponsored Arrangements 30
Other Distribution Arrangements 30
PART 6: VOTING RIGHTS PAGE 31
EQ Trust and HR Trust Voting Rights 31
Voting Rights of Others 31
Separate Account Voting Rights 31
Changes in Applicable Law 31
PART 7: TAX ASPECTS OF THE CERTIFICATES PAGE 32
Tax Changes 32
Taxation of Non-Qualified Annuities 32
Charitable Remainder Trusts 33
Special Rules for NQ Certificates Issued in
Puerto Rico 33
IRA Tax Information 33
Federal and State Income Tax
Withholding 39
Other Withholding 39
Impact of Taxes to Equitable Life 40
Transfers Among Investment Options 40
PART 8: INDEPENDENT ACCOUNTANTS PAGE 41
PART 9: INVESTMENT PERFORMANCE PAGE 42
Standardized Performance Data 42
Rate of Return Data for Investment
Funds 44
Communicating Performance Data 45
Alliance Money Market Fund Yield Information 46
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 47
APPENDIX II: QUALIFIED PLAN
CERTIFICATES--NQ CERTIFICATES PAGE 48
APPENDIX III: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 49
APPENDIX IV: IRS CHART--ESTIMATED
DEDUCTION TABLE PAGE 50
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS PAGE 51
3
<PAGE>
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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 benefits
under a Certificate. Under NQ Certificates the Annuitant can be different
from the Certificate Owner; under IRA Certificates, the Annuitant and
Certificate Owner must be the same individual.
ANNUITY ACCOUNT VALUE--The sum of the amounts in the Investment Options under
the Certificate. See "Annuity Account Value" in Part 3.
ANNUITY COMMENCEMENT DATE--The date on which annuity benefit payments are to
commence.
BASEBUILDER (SERVICE MARK) --Optional protection benefit, consisting of the
Guaranteed Minimum Income Benefit and the Guaranteed Minimum Death 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 a Certificate and has the right to
exercise all rights under the Certificate. Under NQ Certificates the
Certificate Owner can be different from the Annuitant; under IRA Certificates
the Certificate Owner must be the same individual as the Annuitant.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACT DATE--The effective date of the Certificates. 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.
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants, Inc.
(EQ Financial) is the manager of EQ Trust and has appointed advisers for each
of the Portfolios.
EXPIRATION DATE--The date on which a Guarantee Period ends.
GUARANTEED MINIMUM DEATH BENEFIT--The minimum amount payable upon death of
the Annuitant.
GUARANTEED MINIMUM INCOME BENEFIT--The minimum amount of future guaranteed
lifetime income.
GUARANTEE PERIOD--Any of the periods of time ending on an Expiration Date
that are available for investment under the Certificates. Guarantee Periods
may also be referred to as Guaranteed Fixed Interest Accounts.
GUARANTEED PERIOD ACCOUNT--The Account that contains the Guarantee Periods.
GUARANTEED RATE--The annual interest rate established for each allocation to
a Guarantee Period.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
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.
MATURITY VALUE--The amount in a Guarantee Period on its Expiration Date.
NQ--An annuity contract which may be purchased only with after-tax
contributions.
PORTFOLIOS--The portfolios of HR Trust and EQ 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 3.
SAI--The statement of additional information for the Separate Account under
the Certificates.
4
<PAGE>
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.
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 Certificates
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of EQ Trust and HR
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificates,
see "Part 5: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for EQ Trust and HR Trust.
As explained in Part 2, 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 that 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 2: The
Guaranteed Period Account."
OWNER TRANSACTION EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (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 a 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%
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH
INVESTMENT FUND)
<TABLE>
<CAPTION>
<S> <C>
MORTALITY AND EXPENSE RISKS(2) ................................................................. 1.10%
ADMINISTRATION(3) .............................................................................. 0.25%
-------
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES ....................................................... 1.35%
=======
OPTIONAL BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
BASEBUILDER BENEFIT EXPENSE (calculated as a percentage of the Guaranteed Minimum Income
Benefit benefit base)(4) ...................................................................... 0.30%
</TABLE>
- ------------
See footnotes on next page.
6
<PAGE>
EQ TRUST AND HR TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT TOTAL
MANAGEMENT & OTHER ANNUAL
PORTFOLIOS ADVISORY FEES 12B-1 FEE(5) EXPENSES EXPENSES
- ---------------------------------- --------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
EQ TRUST
EQ/Putnam Growth & Income Value(6) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Investors Growth(6) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam International Equity(6) 0.70% 0.25% 0.25% 1.20%
MFS Research(6) 0.55% 0.25% 0.05% 0.85%
MFS Emerging Growth Companies(6) 0.55% 0.25% 0.05% 0.85%
HR TRUST
Alliance Money Market(7) 0.35% 0.25% 0.04% 0.64%
Alliance High Yield(7) 0.60% 0.25% 0.06% 0.91%
Alliance Common Stock(7) 0.38% 0.25% 0.03% 0.66%
Alliance Aggressive Stock(7) 0.55% 0.25% 0.03% 0.83%
Alliance Small Cap Growth(7) 0.90% 0.25%(8) 0.10% 1.20%(8)
</TABLE>
- ------------
Notes:
(1) Deducted upon a withdrawal with respect to amounts in excess of the 15%
free corridor amount, and upon surrender of a Certificate. See
"Withdrawal Charge" in Part 5.
(2) A portion of this charge is for providing the Guaranteed Minimum Death
Benefit. See "Mortality and Expense Risks Charge" in Part 5.
(3) We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
(4) If the baseBUILDER Benefit is elected, this charge is deducted annually
on each Processing Date. See "baseBUILDER Benefit Charge" in Part 5. For
the description of the Guaranteed Minimum Income Benefit benefit base,
see "Guaranteed Minimum Income Benefit Benefit Base" in Part 4.
(5) The Class IB shares of EQ Trust and HR Trust are subject to fees imposed
under distribution plans (herein, the "Rule 12b-1 Plans") adopted by EQ
Trust and HR Trust pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended. The Rule 12b-1 Plans provide that EQ Trust and
HR 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 12b-1 fee will not be increased for the life
of the Certificates.
(6) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust commenced
operations on May 1, 1997. The maximum investment advisory fees cannot
be increased without a vote of that Portfolio's shareholders. The other
direct operating expenses will fluctuate from year to year depending on
actual expenses but pursuant to agreement, cannot together with other
fees specified exceed total annual expenses specified. See "EQ Trust
Charges to Portfolios" in Part 5.
(7) The amounts shown for the Portfolios of HR Trust (other than Alliance
Small Cap Growth) have been restated to reflect advisory fees which went
into effect as of May 1, 1997. "Other Expenses" are based on average
daily net assets in each Portfolio during 1996. The amounts shown for
the Alliance Small Cap Growth Portfolio are estimated for the current
fiscal year as this Portfolio commenced operations on May 1, 1997. 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 HR 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 "HR Trust Charges to Portfolios" in
Part 5.
(8) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25% 12b-1
fee to the extent necessary to limit annual expenses for the Alliance
Small Cap Growth Portfolio to 1.20% of the average daily net assets of
that Portfolio as set forth above. This agreement may be modified by EDI
and HR Trust at any time, and there can be no assurance that the 12b-1
fee will not be restored to 0.25% in the future.
7
<PAGE>
EXAMPLES
The examples below show the expenses that a hypothetical Certificate Owner
(who has elected the baseBUILDER benefit) would pay 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.
- -----------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
IF YOU DO NOT SURRENDER YOUR
CERTIFICATE AT THE END OF EACH
PERIOD SHOWN, THE EXPENSES
WOULD BE:
1 YEAR 3 YEARS 1 YEAR 3 YEARS
-------- --------- -------- ---------
EQ TRUST
EQ/Putnam Growth
& Income Value $92.28 $125.02 $25.46 $78.59
EQ/Putnam
Investors Growth 92.28 125.02 25.46 78.59
EQ/Putnam Int'l
Equity 95.76 135.44 28.94 89.01
MFS Research 92.28 125.02 25.46 78.59
MFS Emerging
Growth Companies 92.28 125.02 25.46 78.59
HR TRUST
Alliance Money
Market 90.19 118.74 23.37 72.31
Alliance High Yield 92.88 126.82 26.06 80.39
Alliance Common
Stock 90.39 119.34 23.57 72.91
Alliance Aggressive
Stock 92.08 124.42 25.26 78.00
Alliance Small Cap
Growth 95.76 135.44 28.94 89.01
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution 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 "Annuity Benefits and Payout Annuity Options" in Part 4. The
examples do not reflect charges for applicable taxes such as state or
local premium taxes that may also be deducted in certain jurisdictions.
8
<PAGE>
- -------------------------------------------------------------------------------
PART 1: 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. Our home office is located at
1290 Avenue of the Americas, New York, New York 10104. 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 shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding common stock of the Holding Company
(assuming conversion of convertible preferred stock held by AXA). 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 $239.8 billion of assets as of December 31, 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, as amended (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 EQ Trust and
HR 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 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 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 Certificates belong 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.
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type" of
mutual fund, EQ Trust
9
<PAGE>
issues different series of stock, each of which relates to a different
Portfolio of EQ Trust. EQ Trust commenced operations on May 1, 1997. EQ Trust
does not impose a sales charge or "load" for buying and selling its shares.
All dividend distributions to EQ Trust are reinvested in full and fractional
shares of the Portfolio to which they relate. Investment Funds that invest in
Portfolios of EQ Trust purchase Class IB shares of a corresponding Portfolio
of EQ Trust. More detailed information about EQ Trust, its investment
objectives, policies and 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.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has overall
responsibility for the general management and administration of EQ Trust. EQ
Financial is an investment adviser registered under the 1940 Act, and a
broker-dealer registered under the Exchange Act. EQ Financial is a Delaware
corporation and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, New York 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, and Massachusetts Financial Services Company, which serve as
advisers to the EQ/Putnam and MFS Portfolios, respectively, of EQ Trust.
HR TRUST
HR Trust is an open-end diversified management investment company, more
commonly called a mutual fund. As a "series" type of mutual fund, it issues
several different series of stock, each of which relates to a different
Portfolio of HR Trust. HR Trust commenced operations in January 1976 with a
predecessor of its Alliance Common Stock Portfolio. HR Trust does not impose
a sales charge or "load" for buying and selling its shares. All dividend
distributions to HR Trust are reinvested in full and fractional shares of the
Portfolio to which they relate. Investment Funds that invest in Portfolios of
HR Trust purchase Class IB shares of a corresponding Portfolio of HR Trust.
More detailed information about HR 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.
HR TRUST'S MANAGER AND ADVISER
HR Trust is managed and advised by Alliance Capital Management L.P.
(Alliance), which is registered with the SEC as an investment adviser under
the 1940 Act. Alliance, a publicly-traded limited partnership, is indirectly
majority-owned by Equitable Life. On December 31, 1996, Alliance was managing
approximately $182.8 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 main office is located at 1345 Avenue of the Americas, New York,
New York 10105.
10
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF EQ TRUST'S PORTFOLIOS AND HR 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. Set forth below is a summary of the
investment policies and objectives of each Portfolio. This summary is
qualified in its entirety by reference to the prospectuses for EQ Trust and
HR Trust, both of which accompany this prospectus. Please read the
prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- ----------------------------- ------------------------------------------------------ -----------------------------
<S> <C> <C>
EQ TRUST
EQ/Putnam Growth & Income Primarily common stocks that offer potential for Capital growth and,
Value capital growth and may, consistent with the secondarily, current income
Portfolio's investment objective, invest in common
stocks that offer potential for current income.
EQ/Putnam Investors Growth Primarily common stocks that the Portfolio adviser Long-term growth of capital
believes afford the best opportunity for long-term and any increased income that
capital growth. results from this growth
EQ/Putnam International Primarily a diversified portfolio of equity securities Capital appreciation
Equity of companies organized under laws of countries other
than the United States.
MFS Research A substantial portion of assets invested in common Long-term growth of capital
stock or securities convertible into common stock of and future income
companies believed by the Portfolio adviser to possess
better than average prospects for long-term growth.
MFS Emerging Growth Companies Primarily (i.e., at least 80% of its assets under Long-term growth of capital
normal circumstances) in common stocks of emerging
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
HR TRUST
Alliance Money Market Primarily high quality U.S. dollar denominated money High level of current income
market instruments. while preserving assets and
maintaining liquidity
Alliance High Yield Primarily a diversified mix of high yield, High return by maximizing
fixed-income securities which generally involve current income and, to the
greater volatility of price and risk of principal and extent consistent with that
income than higher quality fixed-income securities. objective, capital
Lower quality debt securities are commonly known as appreciation
"junk bonds."
Alliance Common Stock Primarily common stock and other equity-type Long-term growth of capital
instruments. and increasing income
Alliance Aggressive Stock Primarily common stocks and other equity-type Long-term growth of capital
securities issued by quality small and intermediate
sized companies with strong growth prospects and in
covered options on those securities.
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of capital
Growth securities issued by smaller companies that, in the
opinion of the adviser, have favorable growth
prospects.
</TABLE>
11
<PAGE>
- -------------------------------------------------------------------------------
PART 2: 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
other 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 1998 through 2007. Not all of these Guarantee Periods will be
available for Annuitant ages 76 and above. See "Allocation of Contributions"
in Part 3. 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 April 15, 1997 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
FEBRUARY 15TH OF APRIL 15, PER $100 OF
MATURITY YEAR 1997 MATURITY VALUE
- ---------------- ------------ --------------
1998 4.93% $96.05
1999 5.40 90.78
2000 5.64 85.58
2001 5.76 80.65
2002 5.86 75.91
2003 5.94 71.39
2004 6.03 66.99
2005 6.09 62.89
2006 6.17 58.89
2007 6.23 55.16
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 1998 through 2002, then according to the above table the lump sum
contribution you would have to make as of April 15,
12
<PAGE>
1997 would be $428.97 (the sum of the prices per $100 of Maturity Value for
each maturity year from 1998 through 2002).
The above example is provided to illustrate the use of present value
calculations. It does not take into account the potential for charges to be
deducted, withdrawals or transfers to be made from Guarantee Periods or for
the market value adjustment that would apply to such transactions. Actual
calculations will 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 3:
(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 (including any withdrawal charges) 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 proce-
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dures 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.
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, as amended
(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 the 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.
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- -------------------------------------------------------------------------------
PART 3: PROVISIONS OF THE CERTIFICATES AND SERVICES
WE PROVIDE
- -------------------------------------------------------------------------------
WHAT IS THE EQUITABLE ACCUMULATOR?
The Equitable Accumulator is a deferred annuity designed to provide for the
accumulation of retirement savings, and for income at a future date.
Investment Options available are Investment Funds providing variable returns
and Guarantee Periods providing guaranteed interest when held to maturity.
Equitable Accumulator Certificates can be issued as individual retirement
annuities (IRAs) or non-qualified annuities for after-tax contributions only
(NQ). The provisions of your Certificate may be restricted by applicable laws
or regulations. The Certificates may not be available in all states.
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to 59 1/2 may be subject
to tax penalty.
IRA CERTIFICATES
IRA Certificates are available for Annuitant issue ages 20 through 78. IRA
Certificates are not available in Puerto Rico.
NQ CERTIFICATES
NQ Certificates are available for Annuitant issue ages 20 through 83.
When issued with the appropriate endorsement, an NQ Certificate may be
purchased by a plan qualified under Section 401(a) of the Code. Such
purchases may not be available in all states. Plan fiduciaries considering
purchase of a Certificate should read the important information in Appendix
II.
CONTRIBUTIONS UNDER THE CERTIFICATES
The minimum initial contribution is $5,000. Under IRA Certificates 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 "IRA Tax Information" in Part 7.
Under NQ Certificates, you may make subsequent contributions of at least
$1,000 at any time until the Annuitant attains age 84.
Under IRA Certificates your subsequent contributions of at least $1,000 may
be made at any time until you attain age 79. Subsequent IRA Certificate
contributions may be "regular" IRA contributions (limited to a maximum of
$2,000 a year), or rollover contributions or direct transfers as described
above.
"Regular" IRA contributions may not be made for the taxable year in which you
attain age 70 1/2 or thereafter. Rollover and direct transfer contributions
may be made until you attain age 79. However, under the Code 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 "IRA Tax Information" in Part 7. For the
consequences of making a "regular" IRA contribution to your IRA Certificate,
also see Part 7.
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 $1,500,000. 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.
Contributions are credited as of the Transaction Date.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check 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. Contributions
must be sent to Equitable Life at our Processing Office address designated
for contributions. Your initial contribution must be accompanied by a
completed application which is acceptable to us. In the event the application
information is incomplete or the application is otherwise not acceptable, we
may retain your contribution 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 or non-acceptability and return the contribution
immediately to the appli-
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cant, unless the applicant specifically consents to our retaining the
contribution until the required information is received by the Processing
Office.
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 Business Day contributions are received. Wire orders not accompanied by
complete information may be retained as described above.
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 may choose Self-Directed, Principal Assurance or Dollar Cost Averaging
allocations.
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 for the Transaction Date. A contribution allocated
to the Guaranteed Period Account will have the Guaranteed Rate for the
specified Guarantee Period offered on the Transaction Date.
Self-Directed Allocation
You allocate your contributions to one or up to all of the available
Investment Options. Allocations among the Investment Options 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.
At Annuitant ages 76 and above, allocations to Guarantee Periods must be
limited to those with maturities of five years or less and with maturity
dates no later than the February 15th immediately following the Annuity
Commencement Date.
Principal Assurance
This option (for Annuitant issue ages 20 through 75) assures that your
Maturity Value in a specified Guarantee Period will equal your initial
contribution on the Guarantee Period's Expiration Date, while at the same
time allowing you to invest in the Investment Funds. It may be elected only
at issue of your Certificate and assumes no withdrawals or transfers from the
Guarantee Period. The maturity year generally may not be later than 10 years
nor earlier than seven years from the Contract Date. In order to accomplish
this strategy, we will allocate a portion of your initial contribution to the
selected Guarantee Period. See "Guaranteed Rates and Price Per $100 of
Maturity Value" in Part 2. The balance of your initial contribution and all
subsequent contributions must be allocated under "Self-Directed Allocation"
as described above.
If you are applying for an IRA Certificate, 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 7.
FREE LOOK PERIOD
You have the right to examine your 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. 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.
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We follow these same procedures if you change your mind before you receive
your Certificate, but after a contribution has been made. See "Part 7: Tax
Aspects of the Certificates" for possible consequences of cancelling your
Certificate during the free look period.
ANNUITY ACCOUNT VALUE
Your Annuity Account Value is the sum of the amounts in the Investment
Options.
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 each respective
trust, which in turn reflects the investment income and realized and
unrealized capital gains and losses of the Portfolios, as well as each
respective trust's 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. See "Part 2: 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 out of a Guarantee Period other than at the Expiration Date
will result in a market value adjustment. See "Part 2: The Guaranteed
Period Account."
o At Annuitant age 76 and above, transfers to Guarantee Periods must be
limited to those with maturities of five years or less and with
maturity dates no later than the February 15th immediately following
the Annuity Commencement Date.
o Transfers may not be made to a Guarantee Period with an Expiration
Date in the current calender year, or if the Guaranteed Rate is 3%.
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.
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DOLLAR COST AVERAGING
We offer two programs for Dollar Cost Averaging as described below. The main
objective of dollar cost averaging is to attempt to shield your investment
from short term price fluctuations. Since approximately the same dollar
amounts are transferred from the Alliance Money Market Fund to other
Investment Funds periodically, 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.
Special Dollar Cost Averaging
For Certificate Owners who at issue of the Certificate want to dollar cost
average their entire initial contribution from the Alliance Money Market Fund
into the other Investment Funds monthly over a period of twelve months, we
offer a Special Dollar Cost Averaging program under which the mortality and
expense risks and the administration charges normally deducted from the
Alliance Money Market Fund will not be deducted. See "Charges Deducted from
the Investment Funds" in Part 5.
General Dollar Cost Averaging
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market Fund
to other Investment Funds on a monthly, quarterly or annual basis. This
program may be elected at any time.
The minimum amount that may be transferred on each Transaction Date is $250.
The maximum amount which may be transferred is equal to the Annuity Account
Value in the Alliance Money Market Fund at the time the option is elected,
divided by the number of transfers scheduled to be made each Contract Year.
Dollar cost averaging may not be elected while the Systematic Withdrawal
option (described under "Withdrawal Options" in Part 4) is in effect.
The transfer date will be the same calendar day of the month as the Contract
Date. If, on any transfer date, the Annuity Account Value in the Alliance
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.
BASEBUILDER BENEFITS
The baseBUILDER option provides guaranteed benefits in the form of a Combined
Guaranteed Minimum Income Benefit and Guaranteed Minimum Death Benefit. The
combined benefit is available for Annuitant issue ages 20 through 75 and is
subject to an additional charge (see "baseBUILDER Benefit Charge" in Part 5).
The baseBUILDER provides a degree of protection while you live (Income
Benefit) as well as for your beneficiary should you die. As part of the
baseBUILDER you will have a choice of two Guaranteed Minimum Death Benefit
options (i) a 6% to Age 80 Roll Up or (ii) an Annual Ratchet to Age 80 (both
options are described below). If you do not elect the baseBUILDER benefit,
the Guaranteed Minimum Death Benefit choices are still provided under the
Certificate. The baseBUILDER benefit is not currently available in New York.
If the Annuitant is age 76 or older and you are interested in the Combined
Guaranteed Minimum Income Benefit and Guaranteed Minimum Death Benefit, ask
your registered representative for a copy of the prospectus supplement
describing this benefit.
The main advantages of the Guaranteed Minimum Income Benefit relate to
amounts allocated to the Investment Funds. Before electing the baseBUILDER,
you should consider the extent to which you expect to utilize the Investment
Funds. You elect the baseBUILDER guaranteed benefits when you apply for a
Certificate and once elected, it may not be changed or cancelled.
GUARANTEED MINIMUM INCOME BENEFIT
The Guaranteed Minimum Income Benefit provides a minimum amount of guaranteed
lifetime income when you apply the Annuity Account Value under your Equitable
Accumulator Certificate to an Income ManagerSM (Life Annuity with a Period
Certain) certificate during the periods of time indicated below. The Income
Manager provides payments during a period certain with payments continuing
for life thereafter. This means that payments will be made for the rest of
the Annuitant's life. In addition, if the Annuitant dies before a specified
period of time (period certain) has ended, payments will continue to the
beneficiary for the balance of the period certain.
On the Transaction Date that you exercise the Guaranteed Minimum Income
Benefit, the annual lifetime income that will be provided under the Income
Manager (Life Annuity with a Period Certain) will be the greater of (i) your
Guaranteed Minimum Income Benefit, and (ii) the income provided by
application of your Annuity Account Value at our then current annuity
factors. The Guaranteed Minimum Income Benefit does not provide an Annu-
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ity Account Value or guarantee performance of your Investment Options.
Because this benefit is based on conservative actuarial factors, the level of
lifetime income that it guarantees may often be less than the level that
would be provided by application of your Annuity Account Value at current
annuity factors. It should therefore be regarded as a safety net.
Illustrated below are Guaranteed Minimum Income Benefit amounts per $100,000
of initial contribution, for a male Annuitant age 60 (at issue) on Contract
Date anniversaries as indicated below, assuming no subsequent contributions
or withdrawals and assuming there were no allocations to the Alliance Money
Market Fund or the Guaranteed Period Account.
GUARANTEED MINIMUM INCOME BENEFIT
ANNUAL
CONTRACT DATE INCOME PAYABLE
ANNIVERSARY FOR LIFE WITH
AT ELECTION 10 YEAR PERIOD CERTAIN
- --------------- ---------------------------------
7 $ 8,992
10 12,160
15 18,358
Withdrawals will reduce your Guaranteed Minimum Income Benefit, see "How
Withdrawals Affect Your Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit" in Part 4.
The Guaranteed Minimum Income Benefit may be exercised only within 30 days
following the seventh or later Contract Date anniversary under your Equitable
Accumulator Certificate. However, it may not be exercised earlier than the
Annuitant's age 60, nor later than the Annuitant's age 83; except that for
Annuitant issue ages 20 through 44, it may be exercised following the 15th or
later Contract Date anniversary.
When you exercise the Guaranteed Minimum Income Benefit, you will receive an
Income Manager (Life Annuity with a Period Certain) payout annuity
certificate in exchange for your Equitable Accumulator Certificate, with at
least the minimum annual income specified and a period certain based on the
Annuitant's age at the time the benefit is exercised as follows:
LEVEL PAYMENTS*
---------------
PERIOD CERTAIN YEARS
ANNUITANT'S --------------------
AGE AT ELECTION IRA NQ
--------------- --- --
60 to 75 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
* Other forms and period certains may also be available.
Payments will start one payment mode from the Contract Date of the Income
Manager certificate.
Each year on your Contract Date anniversary, if you are eligible to exercise the
Guaranteed Minimum Income Benefit, we will send you an eligibility notice
illustrating how much income could be provided on the Contract Date anniversary.
You may then notify us within 30 days following the Contract Date anniversary if
you want to exercise the Guaranteed Minimum Income Benefit by submitting the
proper form and returning your Equitable Accumulator Certificate. The amount of
income you actually receive will be determined on the Transaction Date that we
receive your properly completed exercise notice.
You may also apply your Cash Value at any time to an Income Manager (Life
Annuity with a Period Certain), and you may always apply your Annuity Account
Value to any of our life annuity benefits. The annuity benefits are discussed in
Part 4. These benefits differ from the Income Manager payout annuities and may
provide higher or lower income levels, but do not have all the features of
Income Manager. You may request an illustration from your registered
representative.
The Income Manager (Life Annuity with a Period Certain) is offered through our
prospectus for the Income Manager payout annuities. A copy of the most current
version may be obtained from your registered representative. You should read it
carefully before you decide to exercise your Guaranteed Minimum Income Benefit.
Successor Annuitant/Certificate Owner
If the successor Annuitant/Certificate Owner election (discussed below) was
elected at issue of the Certificate and is in effect at your death, the
Guaranteed Minimum Income Benefit will continue to be available on Contract Date
anniversaries seven and later based on the Contract Date of your Equitable
Accumulator Certificate, provided the Guaranteed Minimum Income Benefit is
exercised as specified above based on the age of the successor Annuitant/
Certificate Owner.
<PAGE>
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
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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 Annuity Account Value or, if greater, the
Guaranteed Minimum Death Benefit described below.
GUARANTEED MINIMUM DEATH BENEFIT
Applicable for Annuitant issue ages 20 through 79
You elect either the "6% to Age 80 Roll Up" or the "Annual Ratchet to Age 80"
Guaranteed Minimum Death Benefit when you apply for a Certificate. Once elected,
the benefit may not be changed.
6% to Age 80 Roll Up--On the Contract Date the Guaranteed Minimum Death Benefit
is equal to the initial contribution. Thereafter, the Guaranteed Minimum Death
Benefit is credited with interest at 6% (4% for amounts in the Alliance Money
Market Fund and the Guarantee Periods, except as indicated below) on each
Contract Date anniversary through the Annuitant's age 80 (or at the Annuitant's
death, if earlier), and 0% thereafter, and is adjusted for any subsequent
contributions and withdrawals. The Guaranteed Minimum Death Benefit interest
applicable to amounts in the Alliance Money Market Fund under the Special Dollar
Cost Averaging program (described above) will be 6%. The 6% to Age 80 Roll Up is
not available in New York.
Annual Ratchet to Age 80--On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the initial contribution. Thereafter, the Guaranteed Minimum
Death Benefit is reset through the Annuitant's age 80, to the Annuity Account
Value on a Contract Date anniversary if higher than the then current Guaranteed
Minimum Death Benefit, and is adjusted for any subsequent contributions and
withdrawals.
Applicable for Annuitant issue ages 80 through 83
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the initial contribution is adjusted for any
subsequent contributions, and any withdrawals.
Withdrawals will reduce your Guaranteed Minimum Death Benefit, see "How
Withdrawals Affect Your Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit" in Part 4. For Certificates issued in New York, the Guaranteed
Minimum Death Benefit at the Annuitant's death will not be less than the Annuity
Account Value in the Investment Funds plus the sum of the Guaranteed Period
Amounts in each Guarantee Period. See "Guarantee Periods" in Part 2.
See Appendix III for an example of the calculation of the Guaranteed Minimum
Death Benefit.
HOW DEATH BENEFIT PAYMENT IS MADE
We will pay the death benefit to the beneficiary in the form of the annuity
benefit you have chosen under your Certificate. If no annuity benefit 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 any 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 annuity benefits offered by Equitable Life. See "Annuity
Benefits and Payout Annuity Options" in Part 4. 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 Contract Date anniversary following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of your Certificate
and is in effect at your death, the Guaranteed Minimum Death Benefit will be
reset at the greater of the then current Guaranteed Minimum Death Benefit and
the then current Annuity Account Value. In determining whether the Guaranteed
Minimum Death Benefit will continue to grow, we will use the age (as of the
Contract Date anniversary) of the successor Annuitant/Certificate Owner.
WHEN THE NQ CERTIFICATE OWNER DIES
BEFORE THE ANNUITANT
When you are not the Annuitant under an NQ Certificate 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
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death (unless an annuity benefit 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 annuity
benefit 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.
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 2: 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 5: 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 annuity benefits. See "Annuity Benefits and Payout Annuity Options"
in Part 4. 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 7: 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 (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 IRA Certificates are not assignable or transferable except through surrender
to us. They may not be borrowed against or used as collateral for a loan or
other obligation.
The NQ 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 7: Tax Aspects of the Certificates."
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 each 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.
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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, 4th Floor
Secaucus, NJ 07096
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 1290 Avenue of the Americas, New York, New York 10104. For 1996, EDI
was paid a fee of $1,204,370 for its services under a "Distribution Agreement"
with Equitable Life and the Separate Account.
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 6.0% of
total contributions made under the Certificates. 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.
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PART 4: DISTRIBUTION METHODS UNDER THE CERTIFICATES
The Certificates offer several distribution methods specifically designed to
provide retirement income. IRA Certificates permit Lump Sum Withdrawals,
Substantially Equal Payment Withdrawals, Systematic Withdrawals and Minimum
Distribution Withdrawals. NQ Certificates permit Lump Sum Withdrawals and
Systematic Withdrawals. The Certificates also offer fixed and variable annuity
benefits and Income Manager payout annuity options. IRA Certificate Owners
should consider how the distribution method selected may affect the ability to
comply with the minimum distribution rules discussed in "Part 7: Tax Aspects of
the Certificates."
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 begun your distribution in the form of a life
contingent annuity before that time).
WITHDRAWAL OPTIONS
The Certificates are annuity contracts, 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.
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 2. Withdrawals may be taxable and subject to tax penalty. See "Part 7:
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 7: Tax Aspects of
the Certificates."
LUMP SUM WITHDRAWALS
(Available under IRA and NQ Certificates)
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 3.
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 3. 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. See "Withdrawal Charge" in Part 5.
SYSTEMATIC WITHDRAWALS
(Available under IRA and NQ Certificates)
Under IRA Certificates this option may be elected only if you are between 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
basis. 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 Withdraw-
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als 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. A market value adjustment may apply.
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 5.
SUBSTANTIALLY EQUAL PAYMENT WITHDRAWALS
(Available under IRA Certificates)
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 7. 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 election
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. A market value adjustment may apply.
Substantially Equal Payment Withdrawals are not subject to a withdrawal charge.
MINIMUM DISTRIBUTION WITHDRAWALS
(Available under IRA Certificates)
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 5.
Example
The chart below illustrates the pattern of payments, under Minimum Distribution
Withdrawals for a male who purchases an IRA Certificate at age 70
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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--IRA Certificates" 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.
HOW WITHDRAWALS AFFECT YOUR GUARANTEED MINIMUM INCOME BENEFIT AND GUARANTEED
MINIMUM DEATH BENEFIT
Except as described in the next sentence, each withdrawal will cause a reduction
in your current Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit benefit base (described below) on a pro rata basis. Your current
Guaranteed Minimum Death Benefit if based on the 6% to Age 80 Roll Up, and your
Guaranteed Minimum Income Benefit benefit base, will be reduced on a
dollar-for-dollar basis as long as the sum of your withdrawals in any Contract
Year is 6% or less of the beginning of Contract Year Guaranteed Minimum Death
Benefit. Once a withdrawal is made that causes cumulative withdrawals in a
Contract Year to exceed 6% of the beginning of Contract Year Guaranteed Minimum
Death Benefit, that withdrawal and any subsequent withdrawals in that Contract
Year will cause a pro rata reduction to occur.
Reduction on a dollar-for-dollar basis means your current Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit benefit base are reduced by
the dollar amount of the withdrawal. Reduction on a pro rata basis means that we
calculate the percentage of the Annuity Account Value as of the Transaction Date
that is being withdrawn and we reduce your current Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit benefit base by that same
percentage. For example, if your Annuity Account Value is $10,000 and you
withdraw $4,000 you have withdrawn 40% ($4,000/ $10,000) of your Annuity Account
Value. If your Guaranteed Minimum Death Benefit was $20,000 prior to the
withdrawal, it would be reduced by $8,000 ($20,000 x .40) and your new
Guaranteed Minimum Death Benefit after the withdrawal would be $12,000 ($20,000
- -$8,000).
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your Guaranteed Minimum Death
Benefit or Guaranteed Minimum Income Benefit.
GUARANTEED MINIMUM INCOME BENEFIT
BENEFIT BASE
The Guaranteed Minimum Income Benefit benefit base is equal to the initial
contribution on the Contract Date. Thereafter, the Guaranteed Minimum Income
Benefit benefit base is credited with interest at 6% (4% for amounts in the
Alliance Money Market Fund and the Guarantee Periods, except as indicated below)
on each Contract Date anniversary through the Annuitant's age 80, and 0%
thereafter, and is adjusted for any subsequent contributions and withdrawals.
The Guaranteed Minimum Income Benefit benefit base interest applicable to
amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program (described in Part 3) will be 6%. The Guaranteed Minimum
Income Benefit benefit base will also be reduced by any withdrawal charge
remaining on the Transaction Date that you exercise your Guaranteed Minimum
Income Benefit.
Your Guaranteed Minimum Income Benefit benefit base is applied to guaranteed
minimum annuity factors to determine the Guaranteed Minimum Income Benefit. The
guaranteed minimum annuity factors are based on (i) interest at 2.5% if the
Guaranteed Minimum Income Benefit is exercised within 30 days following a
Contract Date anniversary in years 7 through 9 and at 3% if exercised
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within 30 days following the 10th or later Contract Date anniversary, and (ii)
mortality tables that assume increasing longevity. These interest and mortality
factors are generally more conservative than the basis underlying current
annuity factors, which means that they would produce less periodic income for an
equal amount applied.
Your Guaranteed Minimum Income Benefit benefit base does not create an Annuity
Account Value or a Cash Value and is used solely for purposes of calculating
your Guaranteed Minimum Income Benefit.
ANNUITY BENEFITS AND PAYOUT ANNUITY
OPTIONS
The Equitable Accumulator Certificates offer annuity benefits and Income Manager
payout annuity options, described below, for providing retirement income.
ANNUITY BENEFITS
Annuity benefits under the Equitable Accumulator 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 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 annuity benefit 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 2.
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 annuity forms 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 Investment Funds
through the purchase of annuity units. The amount of each variable annuity
payment may fluctuate, depending upon the performance of the Investment Funds.
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 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.
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For each annuity benefit, we will issue a separate written agreement putting the
benefit 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 annuity form,
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 form is
chosen and payments have commenced, no change can be made.
If, at the time you elect an annuity form, the amount to be applied is less than
$2,000 or the initial payment under the form 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.
INCOME MANAGER PAYOUT ANNUITY OPTIONS
Under Equitable Accumulator Certificates, you may apply your Annuity Account
Value to an Income Manager (Life Annuity with a Period Certain) payout annuity
certificate. These certificates provide guaranteed payments for the Annuitant's
life or for the Annuitant's life and the life of a joint Annuitant, and are
available provided the Certificate Owner and Annuitant meet the issue age and
payment requirements. Income Manager payout annuities provide guaranteed level
(IRA and NQ Certificates) or guaranteed increasing (NQ Certificates) payments.
If you apply a part of the Annuity Account Value under any of the above Income
Manager payout annuity certificates, it will be considered a withdrawal and may
be subject to withdrawal charges. See "Withdrawal Options" above. If 100% of the
Annuity Account Value is applied from an Equitable Accumulator Certificate 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 new
certificate. For purposes of the withdrawal charge schedule, the year in which
your Annuity Account Value is applied under the new certificate will be
"Contract Year 1." If 100% of the Annuity Account Value is applied from the
Equitable 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 new certificate. You should consider the
timing of your purchase as it relates to the potential for withdrawal charges
under the new certificate. No subsequent contributions will be permitted under
an Income Manager (Life Annuity with a Period Certain) certificate.
You may also apply your Annuity Account Value to an Income Manager (Period
Certain) payout annuity once withdrawal charges are no longer in effect. This
version of the Income Manager provides for guaranteed payments for a specified
period. No withdrawal charges will apply under this Income Manager payout
annuity certificate.
The payout annuities are described in our prospectus for the Income Manager.
Copies of the most current version are available from your registered
representative. To purchase an Income Manager payout annuity we also require the
return of your Equitable Accumulator Certificate. An Income Manager payout
annuity certificate will be issued to put one of the payout annuity options into
effect. Depending upon your circumstances, this may be accomplished on a
tax-free basis. Consult your tax adviser.
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- -------------------------------------------------------------------------------
PART 5: 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 "Group or Sponsored
Arrangements" 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%
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.
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.
Although we treat contributions as withdrawn before earnings for purposes of
calculating the withdrawal charge, the Federal income tax law treats earnings
under Equitable Accumulator Certificates as withdrawn first. See "Part 7: Tax
Aspects of the Certificates."
The withdrawal charge is to help cover sales expenses.
For NQ Certificates issued to a charitable remainder trust (CRT), the free
corridor amount will be changed to be the greater of (1) the current Annuity
Account Value, less contributions that have not been withdrawn (earnings in the
Certificate) and (2) the free corridor amount defined above. If you are
considering an annuity for use in a CRT, see "Charitable Remainder Trusts" in
Part 7 concerning recent IRS announcements on the use of annuities in CRTs.
baseBUILDER Benefit Charge
If you elect the Combined Guaranteed Minimum Income Benefit and Guaranteed
Minimum Death Benefit, we deduct a charge annually on each Processing Date. The
charge is equal to a percentage of the Guaranteed Minimum Income Benefit benefit
base in effect on the Processing Date. The percentage is equal to 0.30%. The
Guaranteed Minimum Income Benefit benefit base is described under "How
Withdrawals Affect Your Guaranteed Minimum Income Benefit and Guaranteed Minimum
Death Benefit" in Part 4.
This charge will be deducted from your Annuity Account Value in the Investment
Funds on a pro rata basis. If there is insufficient value in the Investment
Funds, all or a portion of such charge will be deducted from the Guarantee
Periods in order of the earliest Expiration Date(s) first. A market value
adjustment may apply. See "Market Value Adjustment for Transfers, Withdrawals or
Surrender Prior to the Expiration Date" in Part 2.
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
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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% for IRA Certificates, and
from 0% to 3.5% for NQ Certificates (1% in Puerto Rico and 5% in the Virgin
Islands).
CHARGES DEDUCTED FROM THE
INVESTMENT FUNDS
Mortality and Expense Risks Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality and expense risks, including the Guaranteed Minimum
Death Benefit. The daily charge is at the rate of 0.003032%, which is equivalent
to an annual rate of 1.10%, on the assets in each Investment Fund.
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 at the time of death, the Guaranteed Minimum
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.
Administration Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for administration expenses under the Certificates. The daily
charge is at a rate of 0.000692% (equivalent to an annual rate of 0.25%) 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.
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, direct operating expenses of EQ Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, administrative service fees, custodian
fees, and liability insurance), and certain investment-related expenses of EQ
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 investment management fees paid annually by the Portfolio cannot be changed
without a vote by shareholders. They are as follows:
AVERAGE DAILY
NET ASSETS
---------------
EQ/Putnam Growth & Income
Value.......................... 0.55%
EQ/Putnam Investors Growth .... 0.55%
EQ/Putnam International Equity 0.70%
MFS Research ................... 0.55%
MFS Emerging Growth Companies . 0.55%
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ Financial.
EQ Financial has entered into expense limitation agreements with EQ Trust, with
respect to each Portfolio, pursuant to which EQ Financial has agreed to waive or
limit its fees and total annual operating expenses (expressed as a percentage of
the Portfolios' average daily net assets) to 0.85% each for the EQ/Putnam Growth
& Income Value, EQ/Putnam Investors Growth, MFS Research, MFS Emerging Growth
Companies Portfolios; and 1.20% for the EQ/Putnam International Equity
Portfolio. See the prospectus for EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ 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. This fee will not be increased for the life of
the Certificates. Fees and expenses are described more fully in the EQ Trust
prospectus.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1 fee,
direct operating expenses of HR 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 HR 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:
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AVERAGE DAILY NET ASSETS
----------------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5
MILLION MILLION BILLION BILLION THEREAFTER
--------- --------- --------- --------- ------------
Alliance
Money
Market...... 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance
High Yield . 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance
Common
Stock ...... 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance
Aggressive
Stock ...... 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance
Small Cap
Growth...... 0.900% 0.850% 0.825% 0.800% 0.775%
*On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment advisory
agreements between the HR Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that HR 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. This fee will not be increased for the life of
the Certificates. EDI is currently waiving a portion of the 12b-1 fee with
respect to the Alliance Small Cap Growth Portfolio. Fees and expenses are
described more fully in the HR 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. We
may also offer Investment Funds investing in Class IA shares of HR Trust and EQ
Trust, which are not subject to the 12b-1 fee. 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 or sponsoring organization 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
existence. 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 or 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
Charges 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 charges be
permitted where it would be unfairly discriminatory.
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PART 6: VOTING RIGHTS
- -------------------------------------------------------------------------------
EQ TRUST AND HR TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of EQ Trust and HR 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 each trust's Board of Trustees,
o to ratify the selection of independent auditors for each trust, and
o on any other matters described in each trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because EQ Trust is a Delaware business trust and HR 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 share of each trust 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 each trust. EQ Trust shares currently are sold only to our
separate accounts. HR 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 Certificate Owners, we currently do not foresee any
disadvantages arising out of this. HR 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 HR 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 an Investment Fund divided by the
Accumulation Unit Value for that Investment 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.
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PART 7: TAX ASPECTS OF THE CERTIFICATES
- -------------------------------------------------------------------------------
This Part of the prospectus generally covers our understanding of the current
Federal income tax rules that apply to NQ and IRA Certificates.
This Part does not apply to NQ Certificates used as the investment vehicle for
qualified plans discussed in Appendix II.
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
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 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.
TAXATION OF NON-QUALIFIED ANNUITIES
This section generally covers our understanding of the current Federal income
tax laws that apply to a non-qualified annuity purchased with only after-tax
dollars.
Equitable Life has designed the NQ 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.
Withdrawals
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, and is subject to
income tax withholding. See "Federal and State Income Tax Withholding" below.
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 must 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.
Annuity Payments
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.
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Early Distribution Penalty Tax
In addition to income tax, 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 the taxpayer's 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.
Payments as a Result of Death
If, as a result of the Annuitant's death, the beneficiary is entitled to receive
the death benefit described in Part 3, 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.
Special distribution requirements apply upon the death of the owner of a
non-qualified annuity. That is, in the case of a contract where the owner and
annuitant are different, even though the annuity contract could continue because
the annuitant has not died, Federal tax law requires that the person who
succeeds as owner of the contract take distribution of the contract within a
specified period of time.
CHARITABLE REMAINDER TRUSTS
On April 17, 1997, the IRS issued proposed regulations concerning CRTs. The
preamble to the proposed regulation indicates that the IRS is studying whether
the use of deferred annuities or other assets offering similar tax benefits
causes a CRT to fail to qualify as a CRT under the tax law. The IRS also issued
a Revenue Procedure which indicates that effective such date it will no longer
issue rulings that a trust qualifies as a CRT in situations where the timing of
trust income can be controlled to take advantage of the difference between trust
income and taxable income for the benefit of the unitrust recipient.
SPECIAL RULES FOR NQ CERTIFICATES
ISSUED IN PUERTO RICO
Under current law Equitable Life treats income from NQ 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 NQ 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.
IRA TAX INFORMATION
TAX-QUALIFIED INDIVIDUAL RETIREMENT
ANNUITIES (IRAS)
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.
The IRA Certificate is designed to qualify as an IRA under Section 408(b) of the
Code. Your rights under the IRA Certificate cannot be forfeited.
This prospectus 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
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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 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 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, does
not represent a determination of the merits of the annuity as an investment, and
may not address certain features under the IRA Certificate.
Cancellation
You can cancel a Certificate issued as an IRA by following the directions in
Part 3 under "Free Look Period." Since there may be adverse tax consequences if
a Certificate is cancelled (and because we are required to report to the IRS
certain distributions from cancelled 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 3. 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
$4,000 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.
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 indi-
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vidual 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:
$10,000-Excess AGI X Maximum = Adjusted
- ----------------------- Permissible Dollar
$10,000 Dollar Deduction
Deduction Limit
Under the second method, the individual determines his or her Excess AGI and
then refers to the table in Appendix IV 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 to the
individual's IRA (or the nonworking spouse's IRA) may not, however, together
exceed the maximum $2,000 per person limit. 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 any
individual who has made nondeductible contributions to an IRA in prior years and
is receiving amounts from any IRA 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
interests in all 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 $2,000 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.
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.
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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 has made 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 re-
36
<PAGE>
tirement plans by age 70 1/2. The distribution requirements are designed to
provide for distribution of the 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.
37
<PAGE>
If you elect to have your spouse be the sole primary beneficiary and to be the
successor Annuitant and 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.
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.
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. Also not
subject to penalty tax are IRA distributions used to pay certain extraordinary
medical expenses or medical insurance premiums for defined unemployed
individuals.
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 Income Manager (Life Annuity with a Period Certain),
both of which are described in Part 5. The version of the Income Manager which
would meet this exception must provide level payments for life, with no deferral
of the payment start date. If you are an 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 Income Manager 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
Income Manager 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 prior distributions under this
option. 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 Income Manager 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.
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<PAGE>
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 is imposed on an individual's aggregate excess distributions
from all tax-favored retirement plans. 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. This tax is temporarily suspended
for distributions to the individual for the years 1997, 1998 and 1999. However,
the excise tax continues to apply for estate tax purposes. 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 tax-favored retirement plans
is excessive. The aggregate accumulations will be subject to excise tax in 1997
if they exceed the present value of a hypothetical life annuity paying $160,000
a year.
FEDERAL AND STATE INCOME TAX
WITHHOLDING
Equitable Life is required to withhold Federal income tax from IRA distributions
and 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
from the Certificates made 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 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 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 the Certificate Owner, a Federal generation skipping
tax may be payable with respect to the benefit at
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<PAGE>
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.
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- -------------------------------------------------------------------------------
PART 8: INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 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.
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<PAGE>
- -------------------------------------------------------------------------------
PART 9: INVESTMENT PERFORMANCE
- -------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds included in
the tables below. The performance data were calculated by two methods. The first
method presented in the tables under "Standardized Performance Data," reflects
all applicable fees and charges, including the optional benefit charge, but not
the charges for any applicable taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does not
reflect the withdrawal charge, the optional benefit charge, or the charge for
tax such as premium taxes. These additional charges would effectively reduce the
rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IB shares
of HR Trust Portfolios (other than the Alliance Small Cap Growth Portfolio which
commenced operations on May 1, 1997) are based on the actual investment results
of the Portfolios, and have been adjusted for the fees and charges applicable
under the Certificates. However, the investment results prior to October 1996,
when Class IB shares were not available, do not reflect 12b-1 fees, which would
effectively reduce such investment performance.
The performance data for the Alliance Money Market and Alliance Common Stock
Investment Funds that invest in corresponding HR Trust Portfolios, for 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 Investment Funds are based on the date of inception of the predecessor
separate accounts. These performance data have been adjusted to reflect the
maximum investment advisory fee payable for the corresponding Portfolio of HR
Trust, as well as an assumed charge of 0.06% for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares of
Portfolios of EQ Trust have only recently been established and no Certificates
funded by those Investment Funds have been issued as of the date of this
Prospectus. EQ Trust commenced operations on May 1, 1997. Therefore, no actual
historical performance data for any of these Portfolios are available. In this
connection, see the discussion immediately following the tables below.
See "Part 2: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
STANDARDIZED PERFORMANCE DATA
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 a 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, 1996 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.
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<PAGE>
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1996*
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
--------- ------- ------- ------- -------------
HR TRUST
- -------------------------
Alliance Money Market (3.16)% 1.79% 2.08% 4.17% 5.37%
Alliance High Yield 14.14 9.58 12.48 -- 9.61
Alliance Common Stock 15.51 14.12 13.53 14.02 13.44
Alliance Aggressive Stock 13.46 12.54 9.62 16.78 18.21
- ------------
See footnotes below
The table below illustrates the growth of an assumed investment of $1,000, with
fees and charges deducted on the standardized basis described above for the
first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1996*
LENGTH OF INVESTMENT PERIOD
------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
------- -------- -------- -------- -------------
HR TRUST
- -------------------------
Alliance Money Market $ 968 $1,055 $1,108 $1,504 $ 2,309
Alliance High Yield 1,141 1,316 1,800 -- 2,504
Alliance Common Stock 1,155 1,486 1,886 3,713 14,130
Alliance Aggressive Stock 1,135 1,425 1,583 4,716 6,298
- ------------
* The tables reflect the withdrawal charge and the optional benefit charge.
** The "Since Inception" dates for the Portfolios of the HR Trust are as
follows: Alliance Money Market (July 13, 1981); Alliance High Yield
(January 2, 1987); Alliance Common Stock (January 13, 1976); Alliance
Aggressive Stock (January 27, 1986).
Additional investment performance information appears in the attached HR Trust
and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on May
1, 1997. Therefore, no actual historical performance data are available.
However, historical performance of a composite of six other advisory accounts
managed by Alliance is described in the attached HR Trust prospectus. According
to that prospectus, these accounts have substantially the same investment
objectives and policies, and are managed in accordance with essentially the same
investment strategies and techniques, as those of the Alliance Small Cap Growth
Portfolio. It should be noted that these accounts are not subject to certain of
the requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax exempt clients of
Alliance. The investment performance information included in the HR Trust
prospectus for all Portfolios other than the Alliance Small Cap Growth Portfolio
is based on actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR Trust
and the EQ Trust prospectuses, are provided by those prospectuses to illustrate
the past performance of each respective Portfolio adviser in managing
substantially similar investment vehicles as measured against specified market
indices and do not represent the past or future performance of any Portfolio.
None of the performance data contained in the HR Trust and EQ Trust prospectuses
reflects fees and charges imposed under your Certificate, which fees and charges
would reduce such performance figures. Therefore, the performance data for each
of the Portfolios described in the EQ Trust prospectus
43
<PAGE>
and for the Alliance Small Cap Growth Portfolio in the HR Trust prospectus may
be of limited use and are not intended to be a substitute for actual performance
of the corresponding Portfolios, nor are such results an estimate or guarantee
of future performance for these Portfolios.
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.
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 risks charge, administration charge, or any withdrawal or optional
benefit 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:
ALLIANCE MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill
Index.
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch High Yield Master Index.
ALLIANCE COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
ALLIANCE AGGRESSIVE STOCK: January 27, 1986; 50% Standard & Poor's Mid-Cap Total
Return Index and 50% Russell 2000 Small Stock 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
Equitable Accumulator performance relative to other variable annuity products.
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
ALLIANCE MONEY MARKET 3.84% 3.59% 2.90% 4.46% 5.66% -- 5.85%
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE HIGH YIELD 21.14 11.18 13.09 -- -- -- 9.90
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
ALLIANCE COMMON STOCK 22.51 15.62 14.15 14.25 14.93 13.93% 13.67
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE AGGRESSIVE STOCK 20.46 14.08 10.31 16.99 -- -- 18.55
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
</TABLE>
- ------------
See footnote on next page.
44
<PAGE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
ALLIANCE MONEY MARKET 3.84% 11.16% 15.35% 54.77% 128.30% -- 141.10%
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 16.99 23.86 73.61 165.31 -- 184.26
ALLIANCE HIGH YIELD 21.14 37.44 85.00 -- -- -- 156.96
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
ALLIANCE COMMON STOCK 22.51 54.54 93.78 279.01 706.25 1,257.82% 1,366.24
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.39 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE AGGRESSIVE STOCK 20.46 48.45 63.33 380.33 -- -- 541.64
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 48.69 99.38 280.32 -- -- 318.19
</TABLE>
- ------------
See footnote below.
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
ALLIANCE MONEY
MARKET** 9.37% 7.01% 5.17% 5.19% 5.87% 7.72% 6.77% 4.75% 2.16% 1.57% 2.62% 4.32% 3.84%
ALLIANCE HIGH
YIELD -- -- -- 3.29 8.26 3.72 (2.46) 22.79 10.79 21.49 (4.09) 18.30 21.14
ALLIANCE COMMON
STOCK** (3.29) 31.63 15.79 5.99 20.79 23.90 (9.36) 36.03 1.82 23.14 (3.46) 30.67 22.51
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.58 5.85 (0.23) 41.57 6.70 84.35 (4.47) 15.17 (5.11) 29.87 20.46
</TABLE>
- ------------
* Returns do not reflect the optional benefit charge, and any charge for
tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were:
<TABLE>
<CAPTION>
1976 1977 1978 1979 1980 1981 1982 1983
------- ---------- ------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE COMMON STOCK 7.98% (10.47)% 6.77% 28.09% 48.10% (7.13)% 15.99% 24.42%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.61 11.50 7.48
</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 each
respective trust and may present the performance of the Investment Funds or
compare it 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 "Portfolio Inception Dates and
Comparative Benchmarks" in this Part 9, 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,
45
<PAGE>
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.
ALLIANCE MONEY MARKET FUND YIELD INFORMATION
The current yield and effective yield of the Alliance Money Market Fund may
appear in reports and promotional material to current or prospective Certificate
Owners.
Current yield for the Alliance 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. Alliance Money Market Fund yields and effective yields assume the
deduction of all Certificate charges and expenses other than the withdrawal
charge, the optional benefit charge, and any charge for tax such as premium tax.
The yields and effective yields for the Alliance Money Market Fund when used for
the Special Dollar Cost Averaging program, assume that no Certificate charges
are deducted. See "Part 5: Alliance Money Market Fund Yield Information" in the
SAI.
46
<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, 1998 to a Guarantee Period with an Expiration Date of February
15, 2007 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, 2002.
ASSUMED
GUARANTEED RATE ON
FEBRUARY 15, 2002
---------------------
5.00% 9.00%
---------- ----------
As of February 15, 2002 (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, 2002 (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.
47
<PAGE>
APPENDIX II: QUALIFIED PLAN CERTIFICATES--NQ CERTIFICATES
- -----------------------------------------------------------------------------
CONTRIBUTIONS
When issued with the appropriate endorsement, NQ Certificates may be used as an
investment vehicle for a defined contribution plan maintained by an employer and
which is a tax qualified plan within the meaning of Section 401(a) of the Code.
When issued in connection with such a qualified plan, we will only accept
employer contributions from a trust under a plan qualified under Section 401(a)
of the Code. If the plan contains a cash or deferred arrangement within the
meaning of Section 401(k) of the Code, contributions may include employee
pre-tax and employer matching or other employer contributions, but not employee
after-tax contributions to the plan.
CERTIFICATE OWNER, ANNUITANT AND BENEFICIARY
The Certificate Owner must be the trustee of a trust for a qualified plan
maintained by the employer. The Annuitant must be the participant/employee and
the beneficiary under the Certificate must be the Certificate Owner.
PURCHASE CONSIDERATIONS
Any trustee considering a purchase of an NQ Certificate should discuss with its
tax adviser whether this is an appropriate investment vehicle for the employer's
plan. The form of Certificate and this prospectus should be reviewed in full,
and the following factors, among others, should be noted. This Certificate
accepts transfer contributions only and not regular, ongoing payroll
contributions. For 401(k) plans, no employee after-tax contributions are
accepted. Further, Equitable will not perform or provide any plan record keeping
services with respect to this Certificate. The plan's administrator will be
solely responsible for performing or providing for all such services. There is
no loan feature offered under the Certificates, so if the plan provides for
loans and a participant takes a loan from the plan, other plan assets must be
used as the source of the loan and any loan repayments must be credited to other
investment vehicles and/or accounts available under the plan.
Finally, because the method of purchasing the Certificates and the features of
the Certificates may appeal more to plan participants who are older and tend to
be highly paid, and because certain features of the Certificates are available
only to plan participants who meet certain minimum and/or maximum age
requirements, plan trustees should discuss with their advisers whether the
purchase of the Certificates would cause the plan to engage in prohibited
discrimination in contributions, benefits or otherwise.
48
<PAGE>
APPENDIX III: GUARANTEED MINIMUM DEATH BENEFIT EXAMPLE
- -----------------------------------------------------------------------------
Under the Certificates the death benefit is equal to the Annuity Account Value,
or, if greater, the Guaranteed Minimum Death Benefit (see "Guaranteed Minimum
Death Benefit" in Part 3);
The following is an example illustrating the calculation of the Guaranteed
Minimum Death Benefit. Assuming $100,000 is allocated to the Investment Funds
(with no allocation to the Money Market Fund or the Guarantee Periods), no
subsequent contributions, no transfers and no withdrawals, the Guaranteed
Minimum Death Benefit for an Annuitant age 45 would be calculated as follows:
6% TO AGE 80 ANNUAL
ROLL UP RATCHET TO
GUARANTEED AGE 80
END OF MINIMUM GUARANTEED
CONTRACT ANNUITY DEATH MINIMUM
YEAR ACCOUNT VALUE BENEFIT(1) DEATH BENEFIT
- ---------- --------------- -------------- ---------------
1 $105,000 $106,000 $105,000(2)
2 $115,500 $112,360 $115,500(2)
3 $132,825 $119,102 $132,825(2)
4 $106,260 $126,248 $132,825(3)
5 $116,886 $133,823 $132,825(3)
6 $140,263 $141,852 $140,263(2)
7 $140,263 $150,363 $140,263(3)
The Annuity Account Values for Contract Years 1 through 7 are determined based
on hypothetical rates of return of 5.00%, 10.00%, 15.00%, (20.00)%, 10.00%,
20.00% and 0.00%, respectively.
6% TO AGE 80 ROLL UP
(1) For Contract Years 1 through 7, the Guaranteed Minimum Death Benefit
equals the initial contribution increased by 6%.
ANNUAL RATCHET TO AGE 80
(2) At the end of Contract Years 1, 2 and 3, and again at the end of
Contract Year 6, the Guaranteed Minimum Death Benefit is equal to the
current Annuity Account Value.
(3) At the end of Contract Years 4, 5 and 7, the Guaranteed Minimum Death
Benefit is equal to the Guaranteed Minimum Death Benefit at the end of
the prior year since it is equal to or higher than the current Annuity
Account Value.
49
<PAGE>
APPENDIX IV: IRS CHART--ESTIMATED 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.
50
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals--IRA
Certificates 2
Part 2: Accumulation Unit Values 2
Part 3: Annuity Unit Values 2
Part 4: Custodian and Independent Accountants 3
Part 5: Alliance Money Market Fund Yield Information 3
Part 6: Long-Term Market Trends 4
Part 7: Key Factors In Retirement Planning 5
Part 8: Financial Statements 9
HOW TO OBTAIN AN EQUITABLE 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 Equitable Accumulator SAI:
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
51
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
SUPPLEMENT DATED MAY 1, 1997 TO ROLLOVER
IRA AND CHOICE INCOME PLAN PROSPECTUS, DATED OCTOBER 16, 1996
- -----------------------------------------------------------------------------
This supplement dated May 1, 1997, updates certain information in the Rollover
IRA and Choice Income Plan prospectus of The Equitable Life Assurance Society of
the United States (EQUITABLE LIFE), dated October 16, 1996. You should read this
supplement in conjunction with the prospectus. You should keep the supplement
and the prospectus for future reference. We have filed with the Securities and
Exchange Commission (SEC) our statement of additional information (SAI) dated
May 1, 1997. If you have previously received, but do not presently have, a copy
of the prospectus, you may obtain an additional copy of the prospectus, as well
as a copy of the SAI, from us, free of charge, if you write to Equitable Life,
Income Management Group, P.O. Box 1547, Secaucus, NJ 07096-1547, call (800)
789-7771 or if you only need a copy of the SAI, you may mail in the SAI request
form located at the end of the supplement. The SAI has been incorporated by
reference into this supplement.
In the supplement, each section of the prospectus in which a change has been
made is identified and the number of each prospectus page on which a change
occurs is also noted. Special terms used in the prospectus have the same meaning
in the supplement unless otherwise noted.
ON THE COVER PAGE OF THE PROSPECTUS THE THIRD (INCLUDING THE CHART OF INVESTMENT
OPTIONS) AND FOURTH PARAGRAPHS ARE REPLACED BY THE FOLLOWING PARAGRAPHS:
The Certificates offer investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 12
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in
the GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IB shares of a corresponding
portfolio (PORTFOLIO) of EQ Advisors Trust (EQ TRUST) and The Hudson River
Trust (HR TRUST), mutual funds whose shares are purchased by separate
accounts of insurance companies. The prospectuses for EQ Trust and HR
Trust, both of which accompany this supplement, describe the investment
objectives, policies and risks of the Portfolios.
INVESTMENTS FUNDS
O EQ/PUTNAM GROWTH & INCOME VALUE
O EQ/PUTNAM INVESTORS GROWTH
O EQ/PUTNAM INTERNATIONAL EQUITY
O MFS RESEARCH
O MFS EMERGING GROWTH COMPANIES
O ALLIANCE MONEY MARKET
O ALLIANCE HIGH YIELD
O ALLIANCE COMMON STOCK
O ALLIANCE AGGRESSIVE STOCK
O ALLIANCE GROWTH INVESTORS
O ALLIANCE GLOBAL
O ALLIANCE SMALL CAP GROWTH
THE FOLLOWING SENTENCE IS ADDED AT THE END OF THE FIFTH PARAGRAPH:
The Guarantee Periods currently available have Expiration Dates of February
15 in years 1998 through 2007 under the Rollover IRA and 1998 through 2012
under the Choice Income Plan.
THROUGHOUT THE PROSPECTUS ANY REFERENCE TO THE INVESTMENT FUNDS AND GUARANTEE
PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET FORTH ABOVE.
- -----------------------------------------------------------------------------
Copyright 1997
The Equitable Life Assurance Society of the United States, New York, New York
10104.
All rights reserved.
<PAGE>
THROUGHOUT THE PROSPECTUS (EXCEPT WHERE OTHERWISE NOTED) THE REFERENCE TO
"TRUST" IS REPLACED BY "EQ TRUST AND HR TRUST."
ON PAGE 2, UNDER THE HEADING "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" REPLACE THE ENTIRE SECTION WITH THE FOLLOWING SECTION:
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December 31,
1996 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, as amended (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 the
prospectus and the supplement 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 the prospectus and the supplement 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 the prospectus and
the supplement. 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. The SEC maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
Equitable Life will provide without charge to each person to whom a
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, 1290 Avenue of the Americas, New York,
New York 10104. Attention: Corporate Secretary (telephone: (212) 554-1234).
ON PAGE 4, UNDER THE HEADING "GENERAL TERMS"
ADD THE FOLLOWING DEFINITIONS:
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants,
Inc. (EQ Financial) is the manager of EQ Trust and has appointed advisers
for each of the Portfolios.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
DELETE THE DEFINITION FOR "TRUST."
2
<PAGE>
ON PAGES 6 AND 7, REPLACE THE "FEE TABLE" SECTION WITH THE FOLLOWING SECTION:
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 EQ Trust and HR 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 each trust's
charges and expenses, see the prospectuses for EQ Trust and HR 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 (percentage deducted upon 1 ... 7.00%
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)
2 ... 6.00
3 ... 5.00
4 ... 4.00
5 ... 3.00
6 ... 2.00
7 ... 1.00
8+ .. 0.00
</TABLE>
<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>
<S> <C>
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>
- ------------
See footnotes on next page.
3
<PAGE>
EQ TRUST AND HR TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT TOTAL
MANAGEMENT & OTHER ANNUAL
PORTFOLIOS ADVISORY FEES 12B-1 FEE(4) EXPENSES EXPENSES
- ---------------------------------- --------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
EQ TRUST
EQ/Putnam Growth & Income Value(5) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Investors Growth(5) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam International Equity(5) 0.70% 0.25% 0.25% 1.20%
MFS Research(5) 0.55% 0.25% 0.05% 0.85%
MFS Emerging Growth Companies(5) 0.55% 0.25% 0.05% 0.85%
HR TRUST
Alliance Money Market(6) 0.35% 0.25% 0.04% 0.64%
Alliance High Yield(6) 0.60% 0.25% 0.06% 0.91%
Alliance Common Stock(6) 0.38% 0.25% 0.03% 0.66%
Alliance Aggressive Stock(6) 0.55% 0.25% 0.03% 0.83%
Alliance Growth Investors(6) 0.53% 0.25% 0.06% 0.84%
Alliance Global(6) 0.65% 0.25% 0.08% 0.98%
Alliance Small Cap Growth(6) 0.90% 0.25%(7) 0.10% 1.20%(7)
</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.
(4) The Class IB shares of EQ Trust and HR Trust are subject to fees
imposed under distribution plans (herein, the "Rule 12b-1 Plans")
adopted by EQ Trust and HR Trust pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. The Rule 12b-1 Plans
provide that EQ Trust and HR 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. This fee will not be increased for the life of the
Certificates.
(5) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust
commenced operations on May 1, 1997. The maximum investment advisory
fees cannot be increased without a vote of that Portfolio's
shareholders. The other direct operating expenses will fluctuate
from year to year depending on actual expenses, but pursuant to
agreement, cannot together with other fees specified exceed the
total annual expenses specified. See "EQ Trust Charges to
Portfolios" in Part 7.
(6) The amounts shown for the Portfolios of HR Trust (other than
Alliance Small Cap Growth) have been restated to reflect advisory
fees which went into effect as of May 1, 1997. "Other Expenses" are
based on the average daily net assets in each Portfolio during 1996.
The amounts shown for the Alliance Small Cap Growth Portfolio are
estimated for the current fiscal year as this Portfolio commenced
operations on May 1, 1997. 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 HR 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 "HR Trust Charges to Portfolios" in Part 7.
<PAGE>
(7) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25%
12b-1 fee to the extent necessary to limit annual expenses for the
Alliance Small Cap Growth Portfolio to 1.20% of the average daily
net assets of that Portfolio as set forth above. This agreement may
be modified by EDI and HR Trust at any time, and there can be no
assurance that the 12b-1 fee will not be restored to 0.25% in the
future.
4
<PAGE>
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 DO NOT SURRENDER YOUR
IF YOU SURRENDER YOUR CERTIFICATE AT THE END CERTIFICATE AT THE END OF
OF EACH PERIOD SHOWN, THE EACH PERIOD SHOWN, THE
EXPENSES WOULD BE: EXPENSES WOULD BE:
1 YEAR 3 YEARS 1 YEAR 3 YEARS
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
EQ TRUST
EQ/Putnam Growth & Income
Value $90.75 $123.59 $25.52 $78.95
EQ/Putnam Investors
Growth 90.75 123.59 25.52 78.95
EQ/Putnam International
Equity 94.23 134.03 29.00 89.39
MFS Research 90.75 123.59 25.52 78.95
MFS Emerging Growth
Companies 90.75 123.59 25.52 78.95
HR TRUST
Alliance Money Market 88.66 117.29 23.43 72.65
Alliance High Yield 91.35 125.39 26.12 80.75
Alliance Common Stock 88.86 117.89 23.63 73.26
Alliance Aggressive Stock 90.55 122.99 25.32 78.35
Alliance Growth Investors 90.65 123.29 25.42 78.65
Alliance Global 92.04 127.48 26.81 82.83
Alliance Small Cap Growth 94.23 134.03 29.00 89.39
- ------------
See footnote on next page.
</TABLE>
5
<PAGE>
GMDB ONLY BENEFIT ELECTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR
IF YOU SURRENDER YOUR CERTIFICATE AT THE END CERTIFICATE AT THE END OF
OF EACH PERIOD SHOWN, THE EACH PERIOD SHOWN, THE
EXPENSES WOULD BE: EXPENSES WOULD BE:
1 YEAR 3 YEARS 1 YEAR 3 YEARS
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
EQ TRUST
EQ/Putnam Growth & Income
Value $90.75 $118.31 $22.87 $70.68
EQ/Putnam Investors
Growth 90.75 118.31 22.87 70.68
EQ/Putnam International
Equity 94.23 128.77 26.35 81.15
MFS Research 90.75 118.31 22.87 70.68
MFS Emerging Growth
Companies 90.75 118.31 22.87 70.68
HR TRUST
- -------------------------
Alliance Money Market 88.66 111.98 20.78 64.37
Alliance High Yield 91.35 120.11 23.47 72.48
Alliance Common Stock 88.86 112.59 20.98 64.97
Alliance Aggressive Stock 90.55 117.70 22.67 70.08
Alliance Growth Investors 90.65 118.01 22.77 70.38
Alliance Global 92.04 122.20 24.16 74.57
Alliance Small Cap Growth 94.23 128.77 26.35 81.15
</TABLE>
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution 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.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on October 16,
1996. The following table shows the Accumulation Unit Values, as of October
16, 1996 and the last Business Day for the periods shown. There are no
Accumulation Unit Values for Alliance Small Cap Growth and the Investment
Funds investing in Class IB shares of EQ Trust Portfolios as such
Investment Funds were not available prior to the date of this supplement.
LAST BUSINESS DAY OF
---------------------------------------------
OCTOBER 16, 1996 DECEMBER 1996 MARCH 1997
---------------- --------------- ------------
Alliance Money Market 24.472785 24.675315 24.891695
Alliance High Yield 25.466366 26.090042 26.137191
Alliance Common Stock 143.741180 151.232750 145.273200
Alliance Aggressive Stock 65.166142 65.534670 63.837949
Alliance Growth Investors 25.496401 26.148649 25.584199
Alliance Global 24.381648 25.118937 24.218751
6
<PAGE>
ON PAGE 8, UNDER THE HEADING "TRANSFERS"
THE FIRST SENTENCE OF THE PARAGRAPH IS REVISED AS FOLLOWS:
Under the Rollover IRA, you may make an unlimited number of transfers among
the Investment Options.
DELETE THE SECOND SENTENCE.
ON PAGE 9, UNDER THE HEADING "IRA ASSURED PAYMENT OPTION," DELETE THE THIRD
PARAGRAPH.
ON PAGE 12, UNDER THE HEADING "EQUITABLE LIFE"
REPLACE THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Our home office is located at 1290 Avenue of the Americas, New York, New
York 10104.
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of convertible preferred stock held by
AXA). 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 $239.8 billion of assets as of December 31, 1996.
ON PAGE 12, INSERT THE FOLLOWING SECTIONS AFTER THE LAST PARAGRAPH OF THE
SECTION UNDER THE HEADING "SEPARATE ACCOUNT NO. 49":
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type"
of mutual fund, EQ Trust issues different series of stock, each of which
relates to a different Portfolio of EQ Trust. EQ Trust commenced operations
on May 1, 1997. EQ Trust does not impose a sales charge or "load" for
buying and selling it shares. All dividend distributions to EQ Trust are
reinvested in full and fractional shares of the Portfolio to which they
relate. Investment Funds that invest in Portfolios of EQ Trust purchase
Class IB shares of a corresponding Portfolio of EQ Trust. More detailed
information about EQ Trust, its investment objectives, policies and
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 supplement and in its statement of additional
information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has
overall responsibility for the general management of EQ Trust. EQ Financial
is an investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, NY 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, and Massachusetts Financial Services Company, which serve as
advisers to EQ/Putnam and MFS Portfolios, respectively, of EQ Trust.
7
<PAGE>
ON PAGES 12 AND 13, IN THE HEADINGS "THE TRUST" AND "THE TRUST'S INVESTMENT
ADVISER" REPLACE "THE TRUST" WITH "HR TRUST."
ON PAGE 13, UNDER THE HEADING "THE TRUST'S INVESTMENT ADVISOR" REPLACE THE
THIRD SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING SENTENCE:
On December 31, 1996, Alliance was managing approximately $182.8 billion in
assets.
DELETE THE SECOND PARAGRAPH.
ON PAGE 14, UNDER THE HEADING "INVESTMENT POLICIES AND OBJECTIVES OF THE
TRUST'S PORTFOLIOS"
ADD THE FOLLOWING SENTENCES TO THE END OF THE FIRST PARAGRAPH:
Set forth below is a summary of the investment policies and objectives of
each Portfolio. This summary is qualified in its entirely by reference to
the prospectuses for EQ Trust and HR Trust, both of which accompany this
supplement. Please read the prospectuses for each of the trusts carefully
before investing.
INSERT THE FOLLOWING DESCRIPTIONS BEFORE THE DESCRIPTION OF "AGGRESSIVE
STOCK":
<TABLE>
<CAPTION>
<S> <C> <C>
EQ/Putnam Growth & Primarily common stocks that offer potential for capital Capital growth and,
Income Value growth and may, consistent with the Portfolio's investment secondarily, current
objective, invest in common stocks that offer potential income
for current income.
EQ/Putnam Investors Primarily common stocks that the Portfolio adviser Long-term growth of
Growth believes afford the best opportunity for long-term capital capital and any
growth. increased income that
results from this growth
EQ/Putnam Primarily a diversified portfolio of equity securities of Capital appreciation
International companies organized under laws of countries other than the
Equity United States.
MFS Research A substantial portion of assets invested in common stock Long-term growth of
or securities convertible into common stock of companies capital and future
believed by the Portfolio adviser to possess better than income
average prospects for long-term growth.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under normal Long-term growth of
Companies circumstances) in common stocks of emerging growth capital
companies that the Portfolio adviser believes are early in
their life cycle but which have the potential to become
major enterprises.
</TABLE>
DELETE THE DESCRIPTIONS OF "AGGRESSIVE STOCK," "GROWTH INVESTORS" AND "HIGH
YIELD" AND INSERT THE FOLLOWING DESCRIPTIONS:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Aggressive Primarily common stocks and other equity-type securities Long-term growth of
Stock issued by quality small and intermediate sized companies capital
with strong growth prospects and in covered options on
those securities.
8
<PAGE>
Alliance Growth Diversified mix of publicly traded equity and fixed High total return
Investors income securities, including at times common stocks consistent with the
issued by intermediate and small-sized companies and at adviser's determination
times lower quality fixed income securities commonly of reasonable risk
known as "junk bonds."
Alliance High Yield Primarily a diversified mix of high yield, fixed-income High return by
securities which generally involve greater volatility of maximizing current
price and risk of principal and income than higher income and, to the
quality fixed-income securities. Lower quality debt extent consistent with
securities are commonly known as "junk bonds." that objective, capital
appreciation
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of
Growth securities issued by smaller companies that, in the capital
opinion of the adviser, have favorable growth prospects.
</TABLE>
ON PAGE 15, REPLACE THE FIRST AND SECOND PARAGRAPHS WITH THE FOLLOWING
PARAGRAPHS:
This Part presents performance data for each of the Investment Funds
included in the tables below. The performance data were calculated by two
methods. The first method presented in the tables under "Standardized
Performance Data," reflects all applicable fees and charges, including the
Combined GMDB/GMIB Benefit charge, but not the charges for any applicable
taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the withdrawal charge, the Combined GMDB/GMIB Benefit charge or
the charge for tax such as premium taxes. These additional charges would
effectively reduce the rates of return credited to a particular
Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IB
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997) are based on the
actual investment results of the Portfolios, and have been adjusted for the
fees and charges applicable under the Certificates. However, the investment
results prior to October 1996, when Class IB shares were not available, do
not reflect 12b-1 fees, which would effectively reduce such investment
performance.
The performance data for the Alliance Money Market and Alliance Common
Stock Funds that invest in corresponding HR Trust Portfolios, for 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 Investment Funds are based on the date of inception of
the predecessor separate accounts. These performance data have been
adjusted to reflect the maximum investment advisory fee payable for the
corresponding Portfolio of HR Trust, as well as an assumed charge of 0.06%
for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the
date of this supplement. EQ Trust commenced operations on May 1, 1997.
Therefore, no actual historical performance data for any of these
Portfolios are available. In this connection, see the discussion
immediately following the tables, below.
REPLACE THE HEADING "PERFORMANCE DATA FOR A CERTIFICATE" WITH "STANDARDIZED
PERFORMANCE DATA."
IN THE FIRST SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING CHANGE THE
DATE FROM "DECEMBER 31, 1995" TO "DECEMBER 31, 1996."
9
<PAGE>
ON PAGES 15 AND 16, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------- --------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market (3.00)% 1.84% 2.10% 4.18% 5.38%
Alliance High Yield 14.33 9.63 12.53 -- 9.64
Alliance Common Stock 15.70 14.18 13.58 14.08 13.51
Alliance Aggressive Stock 13.65 12.60 9.64 16.85 18.30
Alliance Growth Investors 4.18 8.18 8.59 -- 12.39
Alliance Global 6.15 9.67 11.37 -- 9.20
</TABLE>
- ------------
See footnotes below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis described above for
the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------- ------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market $ 970 $1,056 $1,110 $1,506 $ 2,313
Alliance High Yield 1,143 1,318 1,804 -- 2,509
Alliance Common Stock 1,157 1,489 1,890 3,732 14,324
Alliance Aggressive Stock 1,137 1,428 1,585 4,745 6,352
Alliance Growth Investors 1,042 1,266 1,510 -- 2,546
Alliance Global 1,062 1,319 1,713 -- 2,412
</TABLE>
- ------------
* The tables reflect charges under a Certificate with the 0.45% GMDB/GMIB
charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as
follows: Alliance Money Market (July 13, 1981); Alliance High Yield
(January 2, 1987); Alliance Common Stock (January 13, 1976); Alliance
Aggressive Stock (January 27, 1986); Alliance Growth & Income (October 1,
1993); and Alliance Global (August 27, 1987).
ON PAGE 16, INSERT THE FOLLOWING PARAGRAPHS BEFORE THE "RATE OF RETURN DATA
FOR INVESTMENT FUNDS" SECTION:
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations
on May 1, 1997. Therefore, no actual historical performance data are
available. However, historical performance of a composite of six other
advisory accounts managed by Alliance is described in the attached HR
Trust prospectus. According to that prospectus, these accounts have
substantially the same investment objectives and policies, and are managed
in accordance with essentially the same investment strategies and
techniques, as those of the Alliance Small Cap Growth Portfolio. It should
be noted that these accounts are not subject to certain of the
requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax exempt clients of
Alliance. The investment performance information included in the HR Trust
prospectus for all Portfolios other than the Alliance Small Cap Growth
Portfolio is based on actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses to
illustrate the past performance of each respective Portfolio adviser in
managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future
performance of any Portfolio. None of the performance data contained in
the HR Trust and EQ Trust prospectuses reflects fees and charges imposed
under your Certificate, which fees and charges would reduce such
performance figures. Therefore, the performance data for each of the
Portfolios described in the EQ Trust prospectus and for the Alliance Small
Cap Growth Portfolio in the HR Trust prospectus may be of limited use and
are not intended to be a substitute for actual performance of the
corresponding Portfolios, nor are such results an estimate or guarantee of
future performance for these Portfolios.
10
<PAGE>
ON PAGES 17 AND 18, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 4.00% 3.75% 3.05% 4.62% 5.82% 6.02%
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE HIGH YIELD 21.33 11.35 13.27 -- -- -- 10.07
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
ALLIANCE COMMON STOCK 22.70 15.79 14.32 14.43 15.10 14.10% 13.84
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE AGGRESSIVE STOCK 20.65 14.25 10.48 17.17 -- -- 18.73
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE GROWTH
INVESTORS 11.18 9.93 9.41 -- -- -- 14.16
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GLOBAL 13.15 11.36 12.12 -- -- -- 10.37
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
</TABLE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 4.00% 11.67% 16.23% 57.14% 133.56% -- 146.83%
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 184.26
ALLIANCE HIGH YIELD 21.33 38.08 86.42 -- -- -- 160.90
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
ALLIANCE COMMON STOCK 22.70 55.25 95.27 284.82 724.81 1,299.61% 1,413.57
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1.416.26 1,655.74
ALLIANCE AGGRESSIVE STOCK 20.65 49.13 64.58 387.69 -- -- 552.40
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 48.69 99.38 280.32 -- -- 318.19
ALLIANCE GROWTH
INVESTORS 11.18 32.83 56.79 -- -- -- 161.06
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GLOBAL 13.15 38.11 77.21 -- -- -- 151.34
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 - -- -- 95.62
</TABLE>
- ------------
See footnote on next page.
11
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
-------- ------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY
MARKET** 9.53% 7.17% 5.33% 5.35% 6.03% 7.88%
ALLIANCE HIGH
YIELD -- -- -- 3.44 8.42 3.88
ALLIANCE COMMON
STOCK** (3.14) 31.83 15.96 6.15 20.97 24.09
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.77 6.01 (0.08) 41.79
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.52
ALLIANCE GLOBAL -- -- -- (13.63) 9.55 25.22
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
-------- ------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY
MARKET** 6.93% 4.91% 2.32% 1.73% 2.77% 4.48% 4.00%
ALLIANCE HIGH
YIELD (2.31) 22.97 10.96 21.67 (3.95) 18.48 21.33
ALLIANCE COMMON
STOCK** (9.22) 36.23 1.98 23.33 (3.31) 30.87 22.70
ALLIANCE
AGGRESSIVE
STOCK 6.86 84.63 (4.33) 15.35 (4.97) 30.06 20.65
ALLIANCE GROWTH
INVESTORS 9.33 47.12 3.64 13.89 (4.31) 24.86 11.18
ALLIANCE GLOBAL (7.20) 28.99 (1.70) 30.54 3.97 17.39 13.15
<FN>
- ------------
* Returns do not reflect the withdrawal charge, the Combined GMDB/GMIB
Benefit charge and any charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were:
1976 1977 1978 1979 1980 1981 1982 1983
ALLIANCE COMMON
STOCK 8.14% (10.33)% 6.94% 28.28% 48.32% (6.99)% 16.16% 24.60%
ALLIANCE MONEY
MARKET -- -- -- -- -- 5.68 11.67 7.65%
</TABLE>
ON PAGE 25, UNDER THE HEADING "TRANSFERS AMONG INVESTMENT OPTIONS," DELETE
THE FIRST BULLETED PARAGRAPH.
ON PAGE 26, UNDER THE HEADING "DOLLAR COST AVERAGING"
REPLACE THE FIRST SENTENCE IN THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market
Fund to other Investment Funds on a monthly, quarterly, or annual basis.
REPLACE THE SECOND AND THIRD SENTENCES IN THE SECOND PARAGRAPH WITH THE
FOLLOWING SENTENCES:
The minimum amount that may be transferred on each Transaction Date is
$250. The maximum amount which may be transferred is equal to the Annuity
Account Value in the Alliance Money Market Fund at the time the option is
elected, divided by the number of transfers scheduled to made each Contract
Year.
ON PAGE 29, UNDER THE HEADING, "DISTRIBUTION OF THE CERTIFICATES," REPLACE
THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING TWO SENTENCES:
EDI's principal business address is 1290 Avenue of the Americas, New York,
New York 10104. For 1996, EDI was paid a fee of $1,204,370 for its services
under its "Distribution Agreement" with Equitable Life and the Separate
Account.
ON PAGE 31, UNDER THE SUB-HEADING "PAYMENTS," DELETE THE SECOND PARAGRAPH.
ON PAGE 40, DELETE THE SECTION WITH THE HEADING "TRUST CHARGES TO
PORTFOLIOS," AND REPLACE WITH THE FOLLOWING SECTIONS:
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the
12b-1 fee, other direct operating expenses of EQ Trust (such as trustees'
fees, expenses of independent auditors and legal counsel, administrative
service fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale
12
<PAGE>
of securities), are reflected in each Portfolio's daily share price. The
investment management fees paid annually by the Portfolios cannot be
changed without a vote by shareholders. They are as follows:
AVERAGE DAILY NET ASSETS
------------------------
EQ/Putnam Growth & Income Value 0.55%
EQ/Putnam Investors Growth ..... 0.55%
EQ/Putnam International Equity . 0.70%
MFS Research.................... 0.55%
MFS Emerging Growth Companies .. 0.55%
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial
has agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, EQ/Putnam Investors
Growth, MFS Research and MFS Emerging Growth Companies Portfolios; and
1.20% for EQ/Putnam International Equity Portfolio. See the prospectus for
EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ 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. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1
fee, direct operating expenses of HR 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 HR 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:
AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market .... 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance High Yield....... 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Common Stock .... 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Aggressive
Stock.................... 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Growth
Investors................ 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Global........... 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance Small Cap
Growth................... 0.900% 0.850% 0.825% 0.800% 0.775%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that HR 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. This fee will not be
increased for the life of the Certificates. EDI is currently waiving a
portion of the 12b-1 fee with respect to the Alliance Small Cap Growth
Portfolio. Fees and expenses are described more fully in the HR Trust
prospectus.
ON PAGE 42, UNDER THE HEADING "TRUST VOTING RIGHTS"
REPLACE THE FIRST SENTENCE OF THE SECOND PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Because EQ Trust is a Delaware business trust and HR Trust is a
Massachusetts business trust, annual meetings are not required.
13
<PAGE>
ON PAGE 42, UNDER THE HEADING "VOTING RIGHTS OF OTHERS," REPLACE THE FIRST
TWO SENTENCES OF THE PARAGRAPH WITH THE FOLLOWING SENTENCES:
Currently we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts
of insurance companies affiliated and unaffiliated with us.
ON PAGE 43, UNDER THE SUB-HEADING "CONTRIBUTIONS TO IRAS," REPLACE THE SECOND
SENTENCE OF THE FOURTH PARAGRAPH WITH THE FOLLOWING SENTENCE:
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 $4,000 to individual retirement arrangements (but no more than $2,000
to any one individual retirement arrangement).
ON PAGE 44, REPLACE THE SECOND SENTENCE OF THE FIFTH PARAGRAPH WITH THE
FOLLOWING SENTENCE:
The deductible and nondeductible contributions to the individual's IRA (or
the nonworking spouse's IRA) may not, however, together exceed the maximum
$2,000 per person limit.
ON PAGE 44, UNDER THE SUB-HEADING "EXCESS CONTRIBUTIONS," REPLACE THE SECOND
TO LAST SENTENCE ON THIS PAGE WITH THE FOLLOWING SENTENCE:
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 $2,000 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.
ON PAGE 48, UNDER THE HEADING "PENALTY TAX ON EARLY DISTRIBUTIONS," ADD THE
FOLLOWING SENTENCE AT THE END OF THE FIRST PARAGRAPH:
Also not subject to penalty tax are IRA distributions used to pay certain
extraordinary medical expenses or medical insurance premiums for defined
unemployed individuals.
ON PAGE 48, UNDER THE HEADING "TAX PENALTY FOR EXCESS DISTRIBUTIONS OR
ACCUMULATION," REPLACE THE TWO PARAGRAPHS WITH THE FOLLOWING PARAGRAPH:
A 15% excise tax is imposed on an individual's aggregate excess
distributions from all tax-favored retirement plans. 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. This tax is
temporarily suspended for distributions to the individual for the years
1997, 1998 and 1999. However, the excise tax continues to apply for estate
tax purposes. 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 tax-favored retirement plans is excessive. The
aggregate accumulations will be subject to excise tax in 1997 if they
exceed the present value of a hypothetical life annuity paying $160,000 a
year.
ON PAGE 49, UNDER THE HEADING ON PAGE 48 "FEDERAL AND STATE INCOME TAX
WITHHOLDING," REPLACE THE FOURTH SENTENCE OF THE THIRD PARAGRAPH WITH THE
FOLLOWING SENTENCE:
For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies
a different choice of withholding exemptions.
14
<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: Alliance 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:
(Supplement dated May 1, 1997 to Rollover IRA and Choice
Income Plan Prospectus, dated October 16, 1996)
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
15
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
SUPPLEMENT DATED MAY 1, 1997 TO ACCUMULATOR PROSPECTUS,
DATED OCTOBER 16, 1996
- -----------------------------------------------------------------------------
This supplement dated May 1, 1997, updates certain information in the
Accumulator prospectus of the Equitable Life Assurance Society of the United
States (EQUITABLE LIFE), dated October 16, 1996. You should read this supplement
in conjunction with the prospectus. You should keep the supplement and the
prospectus for future reference. We have filed with the Securities and Exchange
Commission (SEC) our statement of additional information (SAI) dated May 1,
1997. If you have previously received, but do not presently have, a copy of the
prospectus, you may obtain an additional copy of the prospectus, as well as a
copy of the SAI, from us, free of charge, if you write to Equitable Life, Income
Management Group, P.O. Box 1547, Secaucus, NJ 07096-1547, call (800) 789-7771 or
if you only need a copy of the SAI, you may mail in the SAI request form located
at the end of the supplement. The SAI has been incorporated by reference into
this supplement.
In the supplement, each section of the prospectus in which a change has been
made is identified and the number of each prospectus page on which a change
occurs is also noted. Special terms used in the prospectus have the same meaning
in the supplement unless otherwise noted.
ON THE COVER PAGE OF THE PROSPECTUS, THE THIRD (INCLUDING THE CHART OF
INVESTMENT OPTIONS) AND FOURTH PARAGRAPHS ARE REPLACED BY THE FOLLOWING
PARAGRAPHS:
The Certificates offer investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 12
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in
the GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IB shares of a corresponding
portfolio (PORTFOLIO) of EQ Advisors Trust (EQ TRUST) and The Hudson River
Trust (HR TRUST), mutual funds whose shares are purchased by separate
accounts of insurance companies. The prospectuses for EQ Trust and HR
Trust, both of which accompany this supplement, describe the investment
objectives, policies and risks of the Portfolios.
INVESTMENTS FUNDS
-------------------------------------------------------------------------
O EQ/PUTNAM GROWTH & INCOME VALUE O ALLIANCE HIGH YIELD
O EQ/PUTNAM INVESTORS GROWTH O ALLIANCE COMMON STOCK
O EQ/PUTNAM INTERNATIONAL EQUITY O ALLIANCE AGGRESSIVE STOCK
O MFS RESEARCH O ALLIANCE GROWTH INVESTORS
O MFS EMERGING GROWTH COMPANIES O ALLIANCE GLOBAL
O ALLIANCE MONEY MARKET O ALLIANCE SMALL CAP GROWTH
THE FOLLOWING SENTENCE IS ADDED AT THE END OF THE FIFTH PARAGRAPH:
The Guarantee Periods currently available have Expiration Dates of
February 15 in years 1998 through 2007.
THROUGHOUT THE PROSPECTUS ANY REFERENCE TO THE INVESTMENT FUNDS AND GUARANTEE
PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET FORTH ABOVE.
- -----------------------------------------------------------------------------
Copyright 1997
The Equitable Life Assurance Society of the United States, New York, New York
10104.
All rights reserved.
<PAGE>
THROUGHOUT THE PROSPECTUS (EXCEPT WHERE OTHERWISE NOTED) THE REFERENCE TO
"TRUST" IS REPLACED BY "EQ TRUST AND HR TRUST."
ON PAGE 2, UNDER THE HEADING "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" REPLACE THE ENTIRE SECTION WITH THE FOLLOWING SECTION:
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 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, as amended (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 the
prospectus and the supplement 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 the prospectus and the supplement 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 the prospectus and
the supplement. 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. The SEC maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
Equitable Life will provide without charge to each person to whom a
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, 1290 Avenue of the Americas, New York,
New York 10104. Attention: Corporate Secretary (telephone: (212) 554-1234).
ON PAGE 4, UNDER THE HEADING "GENERAL TERMS"
ADD THE FOLLOWING DEFINITIONS:
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants,
Inc. (EQ Financial) is the manager of EQ Trust and has appointed advisers
for each of the Portfolios.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
DELETE THE DEFINITION FOR "TRUST."
2
<PAGE>
ON PAGES 5 AND 6, REPLACE THE "FEE TABLE" SECTION WITH THE FOLLOWING SECTION:
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 EQ
Trust and HR 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
each trust's charges and expenses, see the prospectuses for EQ Trust and HR
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)
<TABLE>
<CAPTION>
CONTRACT
YEAR
----------
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (deducted upon surrender or 1........ 7.00%
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
Certificate is surrendered beginning with "Contract Year 1" with respect to each 3........ 5.00
contribution withdrawn or surrendered. For each contribution, the Contract Year 4........ 4.00
in which we receive that contribution is "Contract Year 1")(1) 5........ 3.00
6........ 2.00
7........ 1.00
8+....... 0.00
</TABLE>
<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>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH
INVESTMENT FUND)
<TABLE>
<CAPTION>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE ...... 0.90%
ASSET BASED ADMINISTRATIVE CHARGE(3) ... 0.30%
-------
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES............................. 1.20%
=======
</TABLE>
- ------------
See footnotes on next page.
3
<PAGE>
EQ TRUST AND HR TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT TOTAL
MANAGEMENT & OTHER ANNUAL
PORTFOLIOS ADVISORY FEES 12B-1 FEE(4) EXPENSES EXPENSES
- --------------------------------- --------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
EQ TRUST
EQ/Putnam Growth & Income
Value(5) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Investors Growth(5) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam International Equity(5) 0.70% 0.25% 0.25% 1.20%
MFS Research(5) 0.55% 0.25% 0.05% 0.85%
MFS Emerging Growth Companies(5) 0.55% 0.25% 0.05% 0.85%
HR TRUST
Alliance Money Market(6) 0.35% 0.25% 0.04% 0.64%
Alliance High Yield(6) 0.60% 0.25% 0.06% 0.91%
Alliance Common Stock(6) 0.38% 0.25% 0.03% 0.66%
Alliance Aggressive Stock(6) 0.55% 0.25% 0.03% 0.83%
Alliance Growth Investors(6) 0.53% 0.25% 0.06% 0.84%
Alliance Global(6) 0.65% 0.25% 0.08% 0.98%
Alliance Small Cap Growth(6) 0.90% 0.25%(7) 0.10% 1.20%(7)
</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 EQ Trust and HR Trust are subject to fees
imposed under distribution plans (herein, the "Rule 12b-1 Plans")
adopted by EQ Trust and HR Trust pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. The Rule 12b-1 Plans
provide that EQ Trust and HR 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. This fee will not be increased for the life of the
Certificates.
(5) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust
commenced operations on May 1, 1997. The maximum investment advisory
fees cannot be increased without a vote of that Portfolio's
shareholders. The other direct operating expenses will fluctuate
from year to year depending on actual expenses, but pursuant to
agreement, cannot together with other fees specified exceed the
total annual expenses specified. See "EQ Trust Charges to
Portfolios" in Part 6.
(6) The amounts shown for the Portfolios of HR Trust (other than
Alliance Small Cap Growth) have been restated to reflect advisory
fees which went into effect as of May 1, 1997. "Other Expenses" are
based on the average daily net assets in each Portfolio during 1996.
The amounts shown for the Alliance Small Cap Growth Portfolio are
estimated for the current fiscal year as this Portfolio commenced
operations on May 1, 1997. 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 HR 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 "HR Trust Charges to Portfolios" in Part 6.
(7) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25%
12b-1 fee to the extent necessary to limit annual expenses for the
Alliance Small Cap Growth Portfolio to 1.20% of the average daily
net assets of that Portfolio as set forth above. This agreement may
be modified by EDI and HR Trust at any time, and there can be no
assurance that the 12b-1 fee will not be restored to 0.25% in the
future.
4
<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 DO NOT SURRENDER
YOUR CERTIFICATE AT THE
IF YOU SURRENDER YOUR CERTIFICATE AT THE END END OF EACH PERIOD SHOWN,
OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE: THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 1 YEAR 3 YEARS
------ ------- ------ -------
EQ TRUST
EQ/Putnam Growth & Income Value $90.75 $123.59 $25.52 $78.95
EQ/Putnam Investors Growth 90.75 123.59 25.52 78.95
EQ/Putnam International Equity 94.23 134.03 29.00 89.39
MFS Research 90.75 123.59 25.52 78.95
MFS Emerging Growth Companies 90.75 123.59 25.52 78.95
HR TRUST
Alliance Money Market $88.66 $117.29 $23.43 $72.65
Alliance High Yield 91.35 125.39 26.12 80.75
Alliance Common Stock 88.86 117.89 23.63 73.26
Alliance Aggressive Stock 90.55 122.99 25.32 78.35
Alliance Growth Investors 90.65 123.29 25.42 78.65
Alliance Global 92.04 127.48 26.81 82.83
Alliance Small Cap Growth 94.23 134.03 29.00 89.39
- ------------
See footnote on next page.
5
<PAGE>
GMDB ONLY BENEFIT ELECTION
IF YOU DO NOT
SURRENDER YOUR
CERTIFICATE AT THE
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF END OF EACH PERIOD
EACH PERIOD SHOWN, THE EXPENSES WOULD BE: SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 1 YEAR 3 YEARS
---- ----- ---- -----
EQ TRUST
EQ/Putnam Growth & Income Value $90.75 $118.31 $22.87 $70.68
EQ/Putnam Investors Growth 90.75 118.31 22.87 70.68
EQ/Putnam International Equity 94.23 128.77 26.35 81.15
MFS Research 90.75 118.31 22.87 70.68
MFS Emerging Growth Companies 90.75 118.31 22.87 70.68
HR TRUST
Alliance Money Market $88.66 $111.98 $20.78 $64.37
Alliance High Yield 91.35 120.11 23.47 72.48
Alliance Common Stock 88.86 112.59 20.98 64.97
Alliance Aggressive Stock 90.55 117.70 22.67 70.08
Alliance Growth Investors 90.65 118.01 22.77 70.38
Alliance Global 92.04 122.20 24.16 74.57
Alliance Small Cap Growth 94.23 128.77 26.35 81.15
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution 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.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on October 16,
1996. The following table shows the Accumulation Unit Values, as of October
16, 1996 and the last Business Day for the periods shown. There are no
Accumulation Unit Values for Alliance Small Cap Growth, and the Investment
Funds investing in Class IB shares of EQ Trust Portfolios as such
Investment Funds were not available prior to the date of this supplement.
LAST BUSINESS DAY OF
---------------------------------------------
OCTOBER 16, 1996 DECEMBER 1996 MARCH 1997
---------------- --------------- ------------
Alliance Money Market 24.472785 24.675315 24.891695
Alliance High Yield 25.466366 26.090042 26.137191
Alliance Common Stock 143.741180 151.232750 145.273200
Alliance Aggressive Stock 65.166142 65.534670 63.837949
Alliance Growth Investors 25.496401 26.148649 25.584199
Alliance Global 24.381648 25.118937 24.218751
6
<PAGE>
ON PAGE 7, UNDER THE HEADING "TRANSFERS"
THE FIRST SENTENCE OF THE PARAGRAPH IS REVISED AS FOLLOWS:
You may make an unlimited number of transfers among the Investment Options.
DELETE THE SECOND SENTENCE.
ON PAGE 10 UNDER THE HEADING "EQUITABLE LIFE"
REPLACE THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Our home office is located at 1290 Avenue of the Americas, New York, New
York 10104.
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of convertible preferred stock held by
AXA). 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 $239.8 billion of assets as of December 31, 1996.
ON PAGE 10, INSERT THE FOLLOWING SECTIONS AFTER THE LAST PARAGRAPH OF THE
SECTION UNDER THE HEADING "SEPARATE ACCOUNT NO. 49":
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type"
of mutual fund, EQ Trust issues different series of stock, each of which
relates to a different Portfolio of EQ Trust. EQ Trust commenced operations
on May 1, 1997. EQ Trust does not impose a sales charge or "load" for
buying and selling it shares. All dividend distributions to EQ Trust are
reinvested in full and fractional shares of the Portfolio to which they
relate. Investment Funds that invest in Portfolios of EQ Trust purchase
Class IB shares of a corresponding Portfolio of EQ Trust. More detailed
information about EQ Trust, its investment objectives, policies and
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 supplement and in its statement of additional
information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has
overall responsibility for the general management of EQ Trust. EQ Financial
is an investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, New York 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, and Massachusetts Financial Services Company, which serve as
advisers to EQ/Putnam and MFS Portfolios, respectively, of EQ Trust.
ON PAGES 10 AND 11 IN THE HEADINGS "THE TRUST" AND "THE TRUST'S INVESTMENT
ADVISOR" REPLACE "THE TRUST" WITH "HR TRUST."
ON PAGE 11, UNDER THE HEADING "THE TRUST'S INVESTMENT ADVISOR" REPLACE THE
THIRD SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING SENTENCE:
On December 31, 1996, Alliance was managing approximately $182.8 billion in
assets.
DELETE THE SECOND PARAGRAPH.
7
<PAGE>
ON PAGE 12, UNDER THE HEADING "INVESTMENT POLICIES AND OBJECTIVES OF THE
TRUST'S PORTFOLIOS"
ADD THE FOLLOWING SENTENCES TO THE END OF THE FIRST PARAGRAPH:
Set forth below is a summary of the investment policies and objectives of
each Portfolio. This summary is qualified in its entirely by reference to
the prospectuses for EQ Trust and HR Trust, both of which accompany this
supplement. Please read the prospectuses for each of the trusts carefully
before investing.
INSERT THE FOLLOWING DESCRIPTIONS BEFORE THE DESCRIPTION OF "AGGRESSIVE
STOCK":
<TABLE>
<CAPTION>
<S> <C> <C>
EQ/Putnam Growth & Primarily common stocks that offer potential for capital Capital growth and,
Income Value growth and may, consistent with the Portfolio's investment secondarily, current
objective, invest in common stocks that offer potential income
for current income.
EQ/Putnam Investors Primarily common stocks that the Portfolio adviser Long-term growth of
Growth believes afford the best opportunity for long-term capital capital and any
growth. increased income that
results from this growth
EQ/Putnam Primarily a diversified portfolio of equity securities of Capital appreciation
International companies organized under laws of countries other than the
Equity United States.
MFS Research A substantial portion of assets invested in common stock Long-term growth of
or securities convertible into common stock of companies capital and future
believed by the Portfolio adviser to possess better than income
average prospects for long-term growth.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under normal Long-term growth of
Companies circumstances) in common stocks of emerging growth capital
companies that the Portfolio adviser believes are early in
their life cycle but which have the potential to become
major enterprises.
</TABLE>
DELETE THE DESCRIPTIONS OF "AGGRESSIVE STOCK," "GROWTH INVESTORS" AND "HIGH
YIELD" AND INSERT THE FOLLOWING DESCRIPTIONS:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Aggressive Primarily common stocks and other equity-type securities Long-term growth of
Stock issued by quality small and intermediate sized companies capital
with strong growth prospects and in covered options on
those securities.
Alliance Growth Diversified mix of publicly traded equity and fixed High total return
Investors income securities, including at times common stocks consistent with the
issued by intermediate and small-sized companies and at adviser's determination
times lower quality fixed income securities commonly of reasonable risk
known as "junk bonds."
Alliance High Yield Primarily a diversified mix of high yield, fixed-income High return by
securities which generally involve greater volatility of maximizing current
price and risk of principal and income than higher income and, to the
quality fixed-income securities. Lower quality debt extent consistent with
securities are commonly known as "junk bonds." that objective, capital
appreciation
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of
Growth securities issued by smaller companies that, in the capital
opinion of the adviser, have favorable growth prospects.
</TABLE>
8
<PAGE>
ON PAGE 13, REPLACE THE FIRST AND SECOND PARAGRAPHS WITH THE FOLLOWING
PARAGRAPHS:
This Part presents performance data for each of the Investment Funds
included in the tables below. The performance data were calculated by two
methods. The first method presented in the tables under "Standardized
Performance Data," reflects all applicable fees and charges, including the
Combined GMDB/GMIB Benefit charge, but not the charges for any applicable
taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the withdrawal charge, the Combined GMDB/GMIB Benefit charge or
the charge for tax such as premium taxes. These additional charges would
effectively reduce the rates of return credited to a particular
Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IB
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997) are based on the
actual investment results of the Portfolios, and have been adjusted for the
fees and charges applicable under the Certificates. However, the investment
results prior to October 1996, when Class IB Shares were not available, do
not reflect 12b-1 fees, which would effectively reduce such investment
performance.
The performance data for the Alliance Money Market and Alliance Common
Stock Funds that invest in corresponding HR Trust Portfolios, for 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 Investment Funds are based on the date of inception of
the predecessor separate accounts. These performance data have been
adjusted to reflect the maximum investment advisory fee payable for the
corresponding Portfolio of HR Trust, as well as an assumed charge of 0.06%
for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the
date of this Supplement. EQ Trust commenced operations on May 1, 1997.
Therefore, no actual historical performance data for any of these
Portfolios are available. In this connection, see the discussion
immediately following the tables below.
ON PAGE 13, REPLACE THE HEADING "PERFORMANCE DATA FOR A CERTIFICATE" WITH
"STANDARDIZED PERFORMANCE DATA."
IN THE FIRST SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING CHANGE THE
DATE FROM "DECEMBER 31, 1995" TO "DECEMBER 31, 1996."
ON PAGES 13 AND 14, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------- --------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market (3.00)% 1.84% 2.10% 4.18% 5.38%
Alliance High Yield 14.33 9.63 12.53 -- 9.64
Alliance Common Stock 15.70 14.18 13.58 14.08 13.51
Alliance Aggressive Stock 13.65 12.60 9.64 16.85 18.30
Alliance Growth Investors 4.18 8.18 8.59 -- 12.39
Alliance Global 6.15 9.67 11.37 -- 9.20
</TABLE>
- ------------
See footnotes below.
9
<PAGE>
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis described above for
the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
LENGTH OF INVESTMENT PERIOD
------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------- ------- -------- -------- -------- -------------
Alliance Money Market $ 970 $1,056 $1,110 $1,506 $ 2,313
Alliance High Yield 1.143 1,318 1,804 -- 2,509
Alliance Common Stock 1,157 1,489 1,890 3,732 14,324
Alliance Aggressive Stock 1,137 1,428 1,585 4,745 6,352
Alliance Growth Investors 1,042 1,266 1,510 -- 2,546
Alliance Global 1,062 1,319 1,713 -- 2,412
- ------------
* The tables reflect charges under a Certificate with the 0.45% GMDB/GMIB
charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as
follows: Alliance Money Market (July 13, 1981); Alliance High Yield
(January 2, 1987); Alliance Common Stock (January 13, 1976); Alliance
Aggressive Stock (January 27, 1986); Alliance Growth & Income (October 1,
1993); and Alliance Global (August 27, 1987).
ON PAGE 14, INSERT THE FOLLOWING PARAGRAPHS BEFORE THE "RATE OF RETURN DATA
FOR INVESTMENT FUNDS" SECTION:
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on
May 1, 1997. Therefore, no actual historical performance data are
available. However, historical performance of a composite of six other
advisory accounts managed by Alliance is described in the attached HR Trust
prospectus. According to that prospectus, these accounts have substantially
the same investment objectives and policies, and are managed in accordance
with essentially the same investment strategies and techniques, as those of
the Alliance Small Cap Growth Portfolio. It should be noted that these
accounts are not subject to certain of the requirements and restrictions to
which the Alliance Small Cap Growth Portfolio is subject and that they are
managed for tax exempt clients of Alliance. The investment performance
information included in the HR Trust prospectus for all Portfolios other
than the Alliance Small Cap Growth Portfolio is based on actual historical
performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses to
illustrate the past performance of each respective Portfolio adviser in
managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future
performance of any Portfolio. None of the performance data contained in the
HR Trust and EQ Trust prospectuses reflects fees and charges imposed under
your Certificate, which fees and charges would reduce such performance
figures. Therefore, the performance data for each of the Portfolios
described in the EQ Trust prospectus and for the Alliance Small Cap Growth
Portfolio in the HR Trust prospectus may be of limited use and are not
intended to be a substitute for actual performance of the corresponding
Portfolios, nor are such results an estimate or guarantee of future
performance for these Portfolios.
10
<PAGE>
ON PAGES 15 AND 16, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 4.00% 3.75% 3.05% 4.62% 5.82% 6.02%
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE HIGH YIELD 21.33 11.35 13.27 -- -- -- 10.07
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
ALLIANCE COMMON STOCK 22.70 15.79 14.32 14.43 15.10 14.10% 13.84
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE AGGRESSIVE STOCK 20.65 14.25 10.48 17.17 -- -- 18.73
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE GROWTH
INVESTORS 11.18 9.93 9.41 -- -- -- 14.16
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GLOBAL 13.15 11.36 12.12 -- -- -- 10.37
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
</TABLE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 4.00% 11.67% 16.23% 57.14% 133.56% -- 146.83%
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 184.26
ALLIANCE HIGH YIELD 21.33 38.08 86.42 -- -- -- 160.90
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
ALLIANCE COMMON STOCK 22.70 55.25 95.27 284.82 724.81 1,299.61% 1,413.57
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1.416.26 1,655.74
ALLIANCE Aggressive Stock 20.65 49.13 64.58 387.69 -- -- 552.40
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 48.69 99.38 280.32 -- -- 318.19
ALLIANCE GROWTH
INVESTORS 11.18 32.83 56.79 -- -- -- 161.06
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GLOBAL 13.15 38.11 77.21 -- -- -- 151.34
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 - -- -- 95.62
</TABLE>
- ------------
See footnote on next page.
11
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
-------- ------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY
MARKET** 9.53% 7.17% 5.33% 5.35% 6.03% 7.88%
ALLIANCE HIGH
YIELD -- -- -- 3.44 8.42 3.88
ALLIANCE COMMON
STOCK** (3.14) 31.83 15.96 6.15 20.97 24.09
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.77 6.01 (0.08) 41.79
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.52
ALLIANCE GLOBAL -- -- -- (13.63) 9.55 25.22
(RESTUBBED TABLE CONTINUED FROM ABOVE)
1990 1991 1992 1993 1994 1995 1996
-------- ------- -------- ------- -------- ------- -------
ALLIANCE MONEY
MARKET** 6.93% 4.91% 2.32% 1.73% 2.77% 4.48% 4.00%
ALLIANCE HIGH
YIELD (2.31) 22.97 10.96 21.67 (3.95) 18.48 21.33
ALLIANCE COMMON
STOCK** (9.22) 36.23 1.98 23.33 (3.31) 30.87 22.70
ALLIANCE
AGGRESSIVE
STOCK 6.86 84.63 (4.33) 15.35 (4.97) 30.06 20.65
ALLIANCE GROWTH
INVESTORS 9.33 47.12 3.64 13.89 (4.31) 24.86 11.18
ALLIANCE GLOBAL (7.20) 28.99 (1.70) 30.54 3.97 17.39 13.15
- ------------
* Returns do not reflect the withdrawal charge, the Combined GMDB/GMIB
Benefit charge and any charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were:
1976 1977 1978 1979 1980 1981 1982 1983
---- ---- ---- ---- ---- ---- ---- ----
ALLIANCE COMMON
STOCK 8.14% (10.33)% 6.94% 28.28% 48.32% (6.99)% 16.16% 24.60%
ALLIANCE MONEY
MARKET -- -- -- -- -- 5.68 11.67 7.65%
</TABLE>
ON PAGE 22, UNDER THE HEADING "TRANSFERS AMONG INVESTMENT OPTIONS," DELETE
THE FIRST BULLETED PARAGRAPH.
ON PAGE 22, UNDER THE HEADING "DOLLAR COST AVERAGING"
REPLACE THE FIRST SENTENCE IN THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market
Fund to other Investment Funds on a monthly, quarterly, or annual basis.
REPLACE THE SECOND AND THIRD SENTENCES IN THE SECOND PARAGRAPH WITH THE
FOLLOWING SENTENCES:
The minimum amount that may be transferred on each Transaction Date is
$250. The maximum amount which may be transferred is equal to the Annuity
Account Value in the Alliance Money Market Fund at the time the option is
elected, divided by the number of transfers scheduled to made each Contract
Year.
ON PAGE 28, UNDER THE HEADING, "DISTRIBUTION OF THE CERTIFICATES," REPLACE
THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING TWO SENTENCES.
EDI's principal business address is 1290 Avenue of the Americas, New York,
New York 10104. For 1996, EDI was paid a fee of $1,204,370 for its services
under its "Distribution Agreement" with Equitable Life and the Separate
Account.
ON PAGE 30, DELETE THE SECTION WITH THE HEADING "TRUST CHARGES TO
PORTFOLIOS," AND REPLACE WITH THE FOLLOWING SECTIONS:
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the
12b-1 fee, other direct operating expenses of EQ Trust (such as trustees'
fees, expenses of independent auditors and legal counsel, administrative
service fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale
12
<PAGE>
of securities), are reflected in each Portfolio's daily share price. The
investment management fees paid annually by the Portfolios cannot be
changed without a vote by shareholders. They are as follows:
AVERAGE DAILY NET ASSETS
------------------------
EQ/Putnam Growth & Income
Value.......................... 0.55%
EQ/Putnam Investors Growth ..... 0.55%
EQ/Putnam International Equity . 0.70%
MFS Research.................... 0.55%
MFS Emerging Growth Companies . 0.55%
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial
has agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, EQ/Putnam Investors
Growth, MFS Research, MFS Emerging Growth Companies Portfolios; and 1.20%
for EQ/Putnam International Equity Portfolio. See the prospectus for EQ
Trust for more information.
The Rule 12b-1 Plan provides that EQ 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. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1
fee, direct operating expenses of HR 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 HR 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:
AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market .... 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance High Yield....... 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Common Stock .... 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Aggressive
Stock..................... 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Growth
Investors................. 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Global........... 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance Small Cap
Growth.................... 0.900% 0.850% 0.825% 0.800% 0.775%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment
advisory agreements between HR Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that HR 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. This fee will not be
increased for the life of the Certificates. EDI is currently waiving a
portion of the 12b-1 fee with respect to the Alliance Small Cap Growth
Portfolio. Fees and expenses are described more fully in the HR Trust
prospectus.
13
<PAGE>
ON PAGE 32, UNDER THE HEADING "TRUST VOTING RIGHTS"
REPLACE THE FIRST SENTENCE OF THE SECOND PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Because EQ Trust is a Delaware business trust and HR Trust is a
Massachusetts business trust, annual meetings are not required.
ON PAGE 32, UNDER THE HEADING "VOTING RIGHTS OF OTHERS," REPLACE THE FIRST
TWO SENTENCES OF THE PARAGRAPH WITH THE FOLLOWING SENTENCES:
Currently we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts
of ours and by separate accounts of insurance companies affiliated and
unaffiliated with us.
ON PAGE 34, UNDER THE HEADING "FEDERAL AND STATE INCOME TAX WITHHOLDING,"
REPLACE THE FOURTH SENTENCE OF THE THIRD PARAGRAPH WITH THE FOLLOWING
SENTENCE:
For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies
a different choice of withholding exemption.
14
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
--------
Part 1: Accumulation Unit Values 2
Part 2: Annuity Unit Values 2
Part 3: Custodian and Independent Accountants 3
Part 4: Alliance Money Market Fund Yield Information 3
Part 5: Long-Term Market Trends 4
Part 6: Financial Statements 6
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:
(Supplement dated May 1, 1997 to Accumulator Prospectus,
dated October 16, 1996)
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
15
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
EQUITABLE ACCUMULATOR (IRA AND NQ)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 49
- -----------------------------------------------------------------------------
O EQ/PUTNAM GROWTH & INCOME VALUE O ALLIANCE MONEY MARKET
O EQ/PUTNAM INVESTORS GROWTH O ALLIANCE HIGH YIELD
O EQ/PUTNAM INT'L EQUITY O ALLIANCE COMMON STOCK
O MFS RESEARCH O ALLIANCE AGGRESSIVE STOCK
O MFS EMERGING GROWTH COMPANIES O ALLIANCE SMALL CAP GROWTH
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
- -------------------------------------------------------------------------------
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Post Office Box 1547, Secaucus, NJ 07096-1547
Office:
- -------------------------------------------------------------------------------
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
Equitable Accumulator, dated May 1, 1997. 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
PAGE
- ----------------------------------------------------------- --------
Part 1 Minimum Distribution Withdrawals--IRA Certificates 2
- ----------------------------------------------------------- --------
Part 2 Accumulation Unit Values 2
- ----------------------------------------------------------- --------
Part 3 Annuity Unit Values 2
- ----------------------------------------------------------- --------
Part 4 Custodian and Independent Accountants 3
- ----------------------------------------------------------- --------
Part 5 Alliance Money Market Fund Yield Information 3
- ----------------------------------------------------------- --------
Part 6 Long-Term Market Trends 4
- ----------------------------------------------------------- --------
Part 7 Key Factors in Retirement Planning 5
- ----------------------------------------------------------- --------
Part 8 Financial Statements 9
- ----------------------------------------------------------- --------
Copyright 1997
The Equitable Life Assurance Society of the United States, New York, New York
10104.
All rights reserved.
<PAGE>
PART 1 -MINIMUM DISTRIBUTION
WITHDRAWALS--IRA
CERTIFICATES
If you elect Minimum Distribution Withdrawals described in Part 4 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 Equitable 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: a
---
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 HR Trust or EQ Trust, as applicable.
(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 risks charge,
administration charge and distribution 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 1.35%.
PART 3 -ANNUITY UNIT VALUES
The annuity unit value for each Investment Fund was fixed at $1.00 on May 1,
1997 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 or period certain).
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 Investment Funds. 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 Investment 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 each trust owned by the Separate
Account.
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years ended December 31, 1996 included in the SAI have been audited by
Price Waterhouse LLP.
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years ended December 31, 1996 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 -ALLIANCE MONEY
MARKET FUND YIELD
INFORMATION
The Alliance 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 Alliance
Money Market Fund but do not reflect any withdrawal charges, the optional
benefit charge or charges for applicable taxes such as state or local premium
taxes. Under the Special Dollar Cost Averaging program, Accumulation Unit Values
also do not reflect the mortality and expense risks charge and the
administration charge.
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
3
<PAGE>
nature of the Alliance 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 Alliance 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 Alliance Money Market Fund will fluctuate and not remain constant.
The Alliance 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. Alliance 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 Equitable Accumulator Certificates described in the prospectus are
being offered for the first time in 1997, 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 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, 1956
(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 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceeding 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 1996.
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
------ ---------
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, 1996 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 trusts and Separate Account charges), see "Part 9: 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 U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
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 1969-1996, 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 1969-1996;
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 7: KEY FACTORS IN
RETIREMENT PLANNING
INTRODUCTION
The Equitable 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.
5
<PAGE>
In addition, unless otherwise noted, none of the illustrations reflect any
charges that may be applied under a particular investment vehicle. 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 7: 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
section (other than charts 1, 2, 3, 4 and 7) is Ibbotson Associates, Inc.
Chicago. Stocks, Bonds, Bills and Inflation 1997 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 1966 and 1996, 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.
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]
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
1966-1996 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.
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.
6
<PAGE>
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
MONTHLY YEAR YEAR YEAR YEAR YEAR
CONTRIBUTION 10 15 20 25 30
- -------------- -------- -------- --------- --------- ---------
$ 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 52,976 97,804 162,160 254,552 387,193
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.
Consider an example. For the type of retirement program that offers both pre-tax
contributions and tax-deferral, assume that a $2,000
7
<PAGE>
annual pre-tax contribution is made for thirty years. In this example, the
retirement funds would be $172,339 after thirty years (assuming a 7.5% rate of
return, no withdrawals and assuming the deduction of the 1.35% 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 $124,084 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
$124,084 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 $101,436 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 1966-1997 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 11.85% over this period, in contrast to 7.75% and 6.73%
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 $157,783 in 1996. Had
the interest been reinvested in the fixed investment, the fixed investment would
have grown to $65,623. As illustrated in Chart 5, significant opportunities for
growth exist while preserving principal. See "Notes" below.
CHART 5
$157,783 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 37,809 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 45,203 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 84,753 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 55,895
J 94,136 56,033
J 93,836 56,167
A 96,699 56,308
S 97,774 56,578
O 97,093 56,720
N 98,087 56,850
D 100,753 56,992
1994 J 98,615 57,112
F 95,249 57,266
M 96,281 57,421
A 97,589 57,605
M 95,734 57,783
J 98,297 57,945
J 101,558 58,159
A 99,666 58,375
S 101,566 58,596
O 98,647 58,813
N 99,883 59,072
D 102,044 59,320
1995 J 105,307 59,557
F 107,925 59,831
M 110,571 60,095
A 114,257 60,419
M 116,566 60,703
J 119,871 60,976
J 120,235 61,263
A 124,521 61,526
S 124,249 61,816
O 128,920 62,075
N 131,033 63,379
D 157,783 63,623
$65,623 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).
8
<PAGE>
The total investment, given this strategy, would have grown to $167,238 in 1996.
In contrast, had the principal not been transferred, the fixed investment would
have grown to $65,623. See "Notes" below.
CHART 6
$167,238 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 20,540 20,160
F 20,702 20,339
M 20,770 20,586
A 21,068 20,845
M 21,425 21,014
J 22,000 21,142
J 22,149 21,254
A 22,394 21,390
S 22,623 21,550
O 23,406 21,755
N 23,372 21,964
D 23,246 22,252
1981 J 23,569 22,483
F 24,053 22,724
M 24,031 22,999
A 24,246 23,247
M 24,324 23,514
J 24,514 23,832
J 24,051 24,127
A 23,651 24,436
S 24,397 24,739
O 25,087 25,039
N 24,857 25,306
D 24,193 25,527
1982 J 23,594 25,731
F 23,618 25,968
M 24,248 26,222
A 23,995 26,518
M 23,892 26,799
J 23,731 27,057
J 25,407 27,341
A 25,647 27,549
S 27,281 27,689
O 28,031 27,852
N 28,386 28,028
D 29,041 28,216
1983 J 29,568 28,410
F 30,282 28,587
M 31,737 28,767
A 31,721 28,971
M 32,549 29,171
J 32,000 29,366
J 32,424 29,584
A 32,790 29,808
S 32,616 30,035
O 33,176 30,263
N 33,142 30,475
D 33,104 30,698
1984 J 32,544 30,931
F 32,969 31,150
M 33,202 31,378
A 32,246 31,632
M 32,767 31,879
J 32,593 32,118
J 34,841 32,381
A 34,959 32,650
S 35,133 32,931
O 35,058 33,260
N 35,692 33,503
D 37,434 33,717
1985 J 37,844 33,936
F 37,970 34,133
M 37,984 34,345
A 39,531 34,592
M 40,023 34,820
J 40,038 35,012
J 39,976 35,229
A 39,254 35,423
S 40,428 35,635
O 42,341 35,867
N 43,701 36,086
D 43,926 36,320
1986 J 46,184 36,524
F 47,968 36,717
M 47,659 36,938
A 49,498 37,130
M 50,136 37,312
J 48,265 37,506
J 50,769 37,701
A 47,982 37,874
S 49,830 38,045
O 50,767 38,220
N 49,918 38,369
D 54,519 38,557
1987 J 56,165 38,719
F 57,317 38,885
M 57,035 39,068
A 57,525 39,240
M 59,630 39,389
J 61,849 39,578
J 63,662 39,760
A 62,711 39,947
S 52,932 40,127
O 50,090 40,367
N 52,585 40,509
D 54,165 40,667
1988 J 55,951 40,785
F 54,862 40,972
M 55,344 41,152
A 55,720 41,342
M 57,582 41,553
J 57,509 41,756
J 56,280 41,969
A 58,018 42,217
S 59,225 42,478
O 58,749 42,738
N 59,588 42,981
D 62,695 43,252
1989 J 61,691 43,490
F 62,824 43,755
M 65,234 44,048
A 67,232 44,343
M 67,118 44,694
J 71,581 45,011
J 72,728 45,326
A 72,661 45,662
S 71,544 45,958
O 72,760 46,271
N 74,150 46,590
D 70,617 46,874
1990 J 71,385 47,142
F 72,851 47,410
M 71,676 47,714
A 76,833 48,043
M 76,576 48,370
J 76,526 48,674
J 71,611 49,005
A 69,246 49,329
S 69,192 49,625
O 72,438 49,962
N 73,964 50,247
D 76,420 50,548
1991 J 80,470 50,811
F 81,977 51,055
M 82,241 51,280
A 84,947 51,552
M 82,165 51,794
J 85,076 52,011
J 86,666 52,266
A 85,709 52,507
S 86,662 52,748
O 84,157 52,970
N 91,300 53,176
D 90,106 53,378
1992 J 91,047 53,560
F 89,770 53,710
M 91,798 53,892
A 92,244 54,065
M 91,302 54,216
J 94,130 54,390
J 92,765 54,558
A 93,626 54,700
S 93,940 54,842
O 96,377 54,969
N 97,388 55,095
D 97,994 55,249
1993 J 99,055 55,376
F 100,732 55,498
M 98,899 55,637
A 100,989 55,770
M 101,297 55,895
J 100,991 56,033
J 103,992 56,167
A 103,458 56,308
S 105,136 56,578
O 104,425 56,720
N 105,474 56,850
D 108,259 56,992
1994 J 106,046 57,112
F 102,533 57,266
M 103,617 57,421
A 104,976 57,605
M 103,062 57,783
J 105,741 57,945
J 109,118 58,159
A 107,170 58,375
S 109,151 58,596
O 106,146 58813
N 107,426 59,072
D 109,681 59,320
1995 J 113,071 59,557
F 115,775 59,831
M 118,526 60,095
A 122,319 60,419
M 124,733 60,703
J 128,155 60,967
J 128,547 61,263
A 132,973 61,526
S 132,710 61,816
O 137,525 62,075
N 139,695 62,379
D 167,238 65,623
$65,623 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 Alliance 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 "Annuity Benefits and Payout Annuity Options," in
Part 4. 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*
---------------------------------
PRINCIPAL
INTEREST AND
ONLY INTEREST FOR SINGLE 50% TO 66.67% TO 100% TO
ANNUITANT FOR 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 Joint and Survivor Annuity Forms are based on male and female
Annuitants of the same age.
- ------------
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%.
PART 8 -FINANCIAL
STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society of
the United
9
<PAGE>
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 the Certificates
offered under the prospectus and SAI are being offered for the first time in
1997.
10
<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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, 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 long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995 and for
postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
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.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
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.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</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 is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. 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 & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("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 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
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 Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. 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).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 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
(the "Superintendent"). 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.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") 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 Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect of
accounting change by $19.2 million, net of Federal income taxes of $10.3
million for 1996. The financial statements for 1995 and 1994 have been
retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million, and $(2.6)
million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in investment
gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were
computed using the forecasted cash flows of the respective properties
discounted at a rate equal to the Company's cost of funds. The adoption
of the statement resulted in the release of valuation allowances of
$152.4 million and recognition of impairment losses of $144.0 million on
real estate held and used. Real estate which management has committed to
disposing of by sale or abandonment is classified as real estate to be
disposed of. Valuation allowances on real estate to be disposed of
continue to be computed using the lower of estimated fair value or
depreciated cost, net of disposition costs. Implementation of the SFAS
No. 121 impairment requirements relative to other assets to be disposed
of resulted in a charge for the cumulative effect of an accounting
change of $23.1 million, net of a Federal income tax benefit of $12.4
million, due to the writedown to fair value of building improvements
relating to facilities being vacated beginning in 1996.
In the first quarter of 1995, the Company adopted 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.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," 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 $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
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.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Companies which elect to
continue to apply APB Opinion No. 25 must provide pro forma net income
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock option plans sponsored by the
Holding Company, DLJ and Alliance in accordance with the provisions of
APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
------------------------
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. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
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 which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
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, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
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 participating and non-participating 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. DAC is 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, DAC is
amortized over the expected total life of the contract group (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 DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
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 participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC 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.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is 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 total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
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.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit 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,
include 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, DAC is 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.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as claim
incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a reasonable
basis and are adequate, there can be no assurance reserves will be
sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding $175.0 million of reserve strengthening in
1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
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, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes were 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 were
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.
F-12
<PAGE>
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 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to 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-13
<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, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
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
================= ================= ================ ===============
</TABLE>
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 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, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost of
$3,915.7 million and $3,748.9 million, respectively, had estimated fair
values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
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.
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,
1996, approximately 14.20% of the $17,563.7 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 includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
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 $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, 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 $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, 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 $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% 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 $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, 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 $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to 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
F-16
<PAGE>
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 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 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 $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
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,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(258.0) million, $1,077.2 million and $(742.2)
million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. 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 costs 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 shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
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 $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million 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 excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an investment
gain of $20.6 million as a result of the issuance of Alliance Units in
this transaction. At December 31, 1996, the Company's ownership of
Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. 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.
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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
F-21
<PAGE>
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 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, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
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-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. 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, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 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,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</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, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<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,
1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$174.1 million was reclassified as short-term debt.
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 (together, the "Surplus Notes"). 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 $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,406.4 million and $1,629.7 million at December 31, 1996
and 1995, respectively, as collateral for certain long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</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 no longer is 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.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. 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 $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, 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. Equitable Life's and EREIM's 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. Alliance's
benefits are based on years of credited service, average final base
salary and primary social security benefits. 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 cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
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.
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 $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, 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 1996, 1995 and 1994, the Company made
estimated postretirement benefits payments of $18.9 million, $31.1
million and $29.8 million, respectively.
F-29
<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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
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 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
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.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with
F-30
<PAGE>
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, 1996 of contracts purchased and sold were $5,050.0 million
and $500.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $22.5 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 to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
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, 1996 and 1995.
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 universal life type contracts are measured at the
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-31
<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,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
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.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</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
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 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, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has 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, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), 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, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight 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 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 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. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
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. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These 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. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigations, the
Company's management cannot make an estimate of loss, if any, or predict
whether or not such litigations 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, 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. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley and Dillon litigations should
not have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigations, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated v.
The Equitable Life Assurance Society of the United States, and Equitable
Variable Life Insurance Company, was filed in Massachusetts state court
making claims similar to those in the Franze action and alleging
violations of the Massachusetts securities laws. The plaintiff purports
to represent all persons in Massachusetts who purchased variable life
insurance contracts from Equitable Life and EVLICO from January 9, 1993
to the present. The Massachusetts action seeks rescission of the
contracts or compensatory damages, attorneys' fees, expenses and
injunctive relief. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action,
the Company's management believes that the ultimate resolution of the
litigations discussed in this paragraph should not have a material
adverse effect on the financial position of the Company. Due to the
early stages of such litigation, the Company's management cannot make an
estimate of loss, if any, or predict whether or not any such litigation
will have a material adverse effect on the Company's results of
operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on the Company's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
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. 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
F-36
<PAGE>
were not permitted by the Fund's 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, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
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") 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 issued
by Rickel in October 1994. The complaint alleges violations of Federal
securities laws and common law fraud against DLJSC, as the underwriter
of 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, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
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 Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. 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, if any, 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, if any, 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 1997 and the succeeding four years are $113.7 million, $110.6
million, $100.3 million, $72.3 million, $59.3 million and $427.3 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1997 and the succeeding four years are $9.8 million, $6.0
million, $4.5 million, $2.4 million, $.8 million and $.1 million
thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
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. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
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
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 1996, 1995 and 1994, statutory net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. 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 Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and 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. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect the Company's accounting change adopted in the fourth quarter
of 1996 for long-duration participating life contracts in accordance
with the provisions prescribed by SFAS No. 120. Net earnings for the
three months ended December 31, 1996 includes a charge of $339.3 million
related to writeoffs of DAC on DI contracts of $94.3 million, reserve
strengthening on DI business of $113.7 million, pension par of $47.5
million and the discontinued GIC Segment of $83.8 million.
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. 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 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.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in APB Opinion No. 25. Had compensation expense of the Company's stock
option incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, the Company's pro forma net earnings for 1996
and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
ACCUMULATOR
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 49
EQ/PUTNAM GROWTH & INCOME VALUE
EQ/PUTNAM INVESTORS GROWTH
EQ/PUTNAM INTERNATIONAL EQUITY
MFS RESEARCH
MFS EMERGING GROWTH COMPANIES
ALLIANCE MONEY MARKET
ALLIANCE HIGH YIELD
ALLIANCE COMMON STOCK
ALLIANCE AGGRESSIVE STOCK
ALLIANCE GROWTH INVESTORS
ALLIANCE GLOBAL
ALLIANCE SMALL CAP GROWTH
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Post Office Box 1547, Secaucus, NJ 07096-1547
Office:
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 49 prospectus supplement
for the Accumulator, dated May 1, 1997 and the 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 Alliance Money Market Fund Yield Information 3
- ------------------------------------------------------ --------
Part 5 Long-Term Market Trends 4
- ------------------------------------------------------ --------
Part 6 Financial Statements 6
- ------------------------------------------------------ --------
</TABLE>
Copyright 1997
The Equitable Life Assurance Society of the United States, New York, New York
10104.
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 HR Trust or EQ Trust, as applicable.
(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 Alliance 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 Alliance
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
2
<PAGE>
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 3 -CUSTODIAN AND
INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of HR Trust and EQ Trust owned by
the Separate Account.
The financial statements of the Separate Account for the period ended
December 31, 1996, and the consolidated financial statements and consolidated
financial statement schedules of Equitable Life at December 31, 1996 and 1995
and for each of the three years ended December 31, 1996 included in the SAI
have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended
December 31, 1996, and the consolidated financial statements and consolidated
financial statement schedules of Equitable Life for the years ended December
31, 1996 and 1995 and for each of the three years ended December 31, 1996
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 -ALLIANCE MONEY
MARKET FUND YIELD
INFORMATION
The Alliance 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 Alliance
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 Alliance 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 Alliance 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 Alliance Money Market Fund will fluctuate and not
remain constant.
Alliance 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. Alliance 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.
The seven-day current yield for the Alliance Money Market Fund was 3.73% for
the period ended December 31, 1996. The effective yield for that period was
3.80%.
Because the above yields reflect the deduction of Separate Account expenses,
they are lower than the corresponding yield figures for the Alliance Money
Market Portfolio which reflect only the deduction of HR Trust-level expenses.
3
<PAGE>
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 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, 1956
(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 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 .14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
Source: Ibbotson Associates, Inc. See discusssion and information preceding and
following chart on next page.
[END OF GRAPHICALLY REPRESENTED DATA]
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 1996.
<PAGE>
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
------ ---------
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.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 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 trusts and Separate Account charges), see the supplement
to the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
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 1969-1996, 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 1969-1996; 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 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 In-
vestment Funds of the Separate Account investing in the Alliance Small Cap
Growth Portfolio of HR Trust and Class IB shares of EQ Trust as the Separate
Account did not invest in such shares prior to the date of the prospectus
supplement and SAI.
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 49
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market Fund,
Common Stock Fund, Global Fund, High Yield Fund, Aggressive Stock Fund and
Growth Investors Fund, separate investment funds of The Equitable Life
Assurance Society of the United States ("Equitable Life") Separate Account No.
49 at December 31, 1996, the results of each of their operations and changes in
each of their net assets for the period indicated, 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 financial 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, which included confirmation of shares in The Hudson River Trust at
December 31, 1996 with the transfer agent, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1997
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 49
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY COMMON
MARKET STOCK GLOBAL HIGH
FUND FUND FUND YIELD
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $3,213,742 ....................... $3,183,659
1,314,501........................ $1,243,509
293,690 ......................... $289,858
714,557 ......................... $684,992
641,343 .........................
477,851 .........................
Receivable for policy related transactions .. 340,636 13,257 (21) --
------------ ------------ ---------- ----------
Total Assets ................................. 3,524,295 1,256,766 289,837 684,992
------------ ------------ ---------- ----------
LIABILITIES
Payable for The Hudson River Trust shares
purchased ................................... 340,908 13,380 -- --
Amount retained by Equitable Life in Separate
Account 49 (Note 4) ......................... 51,693 54,735 52,600 51,844
------------ ------------ ---------- ----------
Total Liabilities ............................ 392,601 68,115 52,600 51,844
------------ ------------ ---------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS ... $3,131,694 $1,188,651 $237,237 $633,148
============ ============ ========== ==========
Units Outstanding at December 31, 1996
(Note 5) .................................... 126,916 7,859 9,444 24,268
============ ============ ========== ==========
Unit Value at December 31, 1996 .............. $ 24.68 $ 151.23 $ 25.12 $ 26.09
============ ============ ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
STOCK INVESTORS
FUND FUND
------------ -----------
<S> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $3,213,742 .......................
1,314,501 .......................
293,690 .........................
714,557 .........................
641,343 ......................... $612,533
477,851 ......................... $472,113
Receivable for policy related transactions .. (39) 13,407
------------ -----------
Total Assets ................................. 612,494 485,520
------------ -----------
LIABILITIES
Payable for The Hudson River Trust shares
purchased ................................... -- 13,466
Amount retained by Equitable Life in Separate
Account 49 (Note 4) ......................... 51,333 52,562
------------ -----------
Total Liabilities ............................ 51,333 66,028
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS ... $561,161 $419,492
============ ===========
Units Outstanding at December 31, 1996
(Note 5) .................................... 8,562 16,042
============ ===========
Unit Value at December 31, 1996 .............. $ 65.53 $ 26.15
============ ===========
</TABLE>
- ------------
See Notes to Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 49
STATEMENTS OF OPERATIONS
FOR THE PERIOD OCTOBER 1 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY COMMON
MARKET STOCK GLOBAL HIGH
FUND FUND FUND YIELD
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .. $ 34,431 $ 2,166 $ 1,920 $ 17,975
Expenses (Note 3):
Mortality and expense risk charges ...... 1,085 490 $ 84 --
---------- ---------- --------- ----------
NET INVESTMENT INCOME ..................... 33,346 $ 1,676 1,836 17,975
---------- ---------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain on investments ............. 1,288 -- -- --
Realized gain distribution from
The Hudson River Trust .................. -- 75,083 6,285 19,424
---------- ---------- --------- ----------
Net Realized Gain ....................... 1,288 75,083 6,285 19,424
---------- ---------- --------- ----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... -- -- -- --
End of period ............................ (30,083) (70,992) (3,832) (29,565)
---------- ---------- --------- ----------
Change in unrealized appreciation/
(depreciation) during the period ....... (30,083) (70,992) (3,832) (29,565)
---------- ---------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. (28,795) 4,091 2,453 (10,141)
---------- ---------- --------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................ $ 4,551 $ 5,767 $ 4,289 $ 7,834
========== ========== ========= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
STOCK INVESTORS
FUND FUND
------------ -----------
<S> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .. $ 427 $ 2,994
Expenses (Note 3):
Mortality and expense risk charges ...... $ 154 $ 235
------------ -----------
NET INVESTMENT INCOME ..................... 273 2,759
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain on investments ............. -- 4
Realized gain distribution from
The Hudson River Trust .................. 36,435 6,856
------------ -----------
Net Realized Gain ....................... 36,435 6,860
------------ -----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... -- --
End of period ............................ (28,810) (5,738)
------------ -----------
Change in unrealized appreciation/
(depreciation) during the period ....... (28,810) (5,738)
------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 7,625 1,122
------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................ $ 7,898 $ 3,881
============ ===========
</TABLE>
- ------------
See Notes to Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 49
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 1 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY COMMON
MARKET STOCK GLOBAL HIGH
FUND FUND FUND YIELD
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................ $ 33,346 $ 1,676 $ 1,836 $ 17,975
Net realized gain ............................ 1,288 75,083 6,285 19,424
Change in unrealized
appreciation/(depreciation) on investments . (30,083) (70,992) (3,832) (29,565)
------------ ------------- ---------- ----------
Net increase in net assets resulting from
operations . ................................ 4,551 5,767 4,289 7,834
------------ ------------- ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions ............................... 3,595,368 933,695 214,102 625,155
Transfers from other Funds and Guaranteed
Interest Rate Account
(Note 1) ................................... -- 253,738 21,535 2,003
------------ ------------- ---------- ----------
Total ...................................... 3,595,368 1,187,433 235,637 627,158
------------ ------------- ---------- ----------
Withdrawals and Transfers:
Withdrawal and administrative charges ...... -- 182 151 --
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ............. 467,345 -- -- --
------------ ------------- ---------- ----------
Total ...................................... 467,345 182 151 --
------------ ------------- ---------- ----------
Net increase in net assets from Contract
Owner transactions .......................... 3,128,023 1,187,251 235,486 627,158
------------ ------------- ---------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 49
(NOTE 4)..................................... (880) (4,367) (2,538) (1,844)
------------ ------------- ---------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS .............................. 3,131,694 1,188,651 237,237 633,148
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE
TO CONTRACT OWNERS ........................... -- -- -- --
------------ ------------- ---------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS .............................. $3,131,694 $1,188,651 $237,237 $633,148
============ ============= ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
STOCK INVESTORS
FUND FUND
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................ $ 273 $ 2,759
Net realized gain ............................ 36,435 6,860
Change in unrealized
appreciation/(depreciation) on investments . (28,810) (5,738)
------------ -----------
Net increase in net assets resulting from
operations . ................................ 7,898 3,881
------------ -----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions ............................... 497,290 285,385
Transfers from other Funds and Guaranteed
Interest Rate Account
(Note 1) ................................... 57,368 132,701
------------ -----------
Total ...................................... 554,658 418,086
------------ -----------
Withdrawals and Transfers:
Withdrawal and administrative charges ...... 177 90
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ............. -- --
------------ -----------
Total ...................................... 177 90
------------ -----------
Net increase in net assets from Contract
Owner transactions .......................... 554,481 417,996
------------ -----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 49
(NOTE 4)..................................... (1,218) (2,385)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS .............................. 561,161 419,492
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE
TO CONTRACT OWNERS ........................... -- --
------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS .............................. $561,161 $419,492
============ ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 49 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account consists of six investment funds (Funds): the Money Market Fund, the
Common Stock Fund, the Global Fund, the High Yield Fund, the Aggressive
Stock Fund and the Growth Investors Fund. The assets in each Fund are
invested in Class IB shares of a corresponding portfolio (Portfolio) of a
mutual fund, The Hudson River Trust (the Trust). The Trust is an open-end,
diversified, management investment company that invests the assets of
separate accounts of insurance companies. Each Portfolio has separate
investment objectives. The Account commenced operation on October 1, 1996.
The Account is used to fund benefits for the Income Manager Accumulator, a
non-qualified deferred variable annuity, which combines the Portfolios in
the Account with guaranteed fixed rate options, and the Income Manager
Rollover IRA, which offers the same investment options as the Accumulator
for the qualified market. The Income Manager Accumulator and the Income
Manager Rollover IRA, collectively referred to as the Contracts, are offered
under group and individual variable deferred annuity forms. All Contracts
are issued by Equitable Life. The assets of the Account are the property of
Equitable Life. However, the portion of the Account's assets attributable to
the Contracts will not be chargeable with liabilities arising out of any
other business Equitable Life may conduct.
Contract owners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate of
the contract owners' accounts allocated to that Fund. Additional assets are
set aside in Equitable Life's General Account to provide for other policy
benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). 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.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded at the end of each quarter on the ex-dividend date.
Capital gains are distributed by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life deducts mortality and expense risks at
an annual rate of 0.90%. In addition, asset based administrative charges are
also deducted from the net assets at an annual rate of 0.30%. The charges
may be retained in the Account by Equitable Life and, to the extent
retained, participate in the net investment results of the trust ratably
with assets attributable to the Contracts. The aggregate of these charges
may not exceed a total effective annual rate of 1.20%.
4. Amounts retained by Equitable Life in Separate Account No. 49
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not subject
to charges for mortality and expense risks and asset based administrative
expenses.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the net surplus contributions from Equitable Life
by investment fund:
<TABLE>
<CAPTION>
INVESTMENT FUND 1996
- ----------------- ---------
<S> <C>
Money Market ..... $ 50,000
Common Stock ..... 50,000
Global ........... 50,000
High Yield........ 50,000
Aggressive Stock 50,000
Growth Investors 50,000
---------
$300,000
=========
</TABLE>
F-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period October 1 through December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
MONEY MARKET FUND
- -------------------
Unit value, beginning of period $ 24.43
Unit value, end of period........ $ 24.68
Number of units outstanding,
end of period (000's) .......... 127
COMMON STOCK FUND
- -------------------
Unit value, beginning of period $139,82
Unit value, end of period ...... $151.23
Number of units outstanding,
end of period (000's) .......... 8
GLOBAL FUND
- ---------------
Unit value, beginning of period $ 26.00
Unit value, end of period ...... $ 25.12
Number of units outstanding,
end of period (000's) .......... 9
HIGH YIELD FUND
- -------------------
Unit value, beginning of period $25.33
Unit value, end of period ...... $26.09
Number of units outstanding,
end of period (000's) .......... 24
AGGRESSIVE STOCK FUND
- ----------------------
Unit value, beginning of period $64.24
Unit value, end of period ...... $65.53
Number of units outstanding,
end of period (000's) .......... 9
GROWTH INVESTORS FUND
- ---------------------- 0
Unit value, beginning of period $25.06
Unit value, end of period ...... $26.15
Number of units outstanding,
end of period (000's) .......... 16
</TABLE>
F-7
<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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, 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 long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
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.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
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.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</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 is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. 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 & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("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 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
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 Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. 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).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 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
(the "Superintendent"). 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.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") 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 Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted 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.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," 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 $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
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.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
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. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
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 which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
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, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
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 participating and non-participating 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. DAC is 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, DAC is
amortized over the expected total life of the contract group (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 DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
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 participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC 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.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is 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 total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
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.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit 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, include 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, DAC is 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.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
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, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were 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 were 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.
F-12
<PAGE>
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 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to 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-13
<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, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
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
================= ================= ================ ===============
</TABLE>
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 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, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
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.
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,
1996, approximately 14.20% of the $17,563.7 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 includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
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 $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, 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 $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, 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 $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% 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
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
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 $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to 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
F-16
<PAGE>
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 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 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
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
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,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. 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 costs 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 shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
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 $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million 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 excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. 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.
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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
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 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, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
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-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
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, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 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,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</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, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<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, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
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 (together, the "Surplus Notes"). 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 $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</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 no longer is 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.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. 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 $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, 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. Equitable Life's and EREIM's 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.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. 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 cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
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.
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 $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
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 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
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 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
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.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
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, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 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 to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
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, 1996 and 1995.
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 universal life type contracts are measured at the
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-31
<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,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
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.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</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
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 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, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has 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, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), 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, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight 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 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 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. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
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. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These 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. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
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, 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. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
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. 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
F-36
<PAGE>
were not permitted by the Fund's 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, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
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") 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 issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of 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, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
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 Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. 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, if any, 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, if
any, 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 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
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. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
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
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 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. 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 Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and 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. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
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. 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 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.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-05593
ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 49
EQ/PUTNAM GROWTH & INCOME VALUE ALLIANCE HIGH YIELD
EQ/PUTNAM INVESTORS GROWTH ALLIANCE COMMON STOCK
EQ/PUTNAM INTERNATIONAL EQUITY ALLIANCE AGGRESSIVE STOCK
MFS RESEARCH ALLIANCE GROWTH INVESTORS
MFS EMERGING GROWTH COMPANIES ALLIANCE GLOBAL
ALLIANCE MONEY MARKET ALLIANCE SMALL CAP GROWTH
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
- -------------------------------------------------------------------------------
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Post Office Box 1547, Secaucus, NJ 07096-1547
Office:
- -------------------------------------------------------------------------------
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 49 prospectus supplement
for the Rollover IRA, dated May 1, 1997 and the 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
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 Alliance Money Market Fund Yield Information 3
- ------------------------------------------------------ --------
Part 6 Long-Term Market Trends 4
- ------------------------------------------------------ --------
Part 7 Financial Statements 6
- ------------------------------------------------------ --------
Copyright 1997
The Equitable Life Assurance Society of the United States, New York, New York
10104.
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 HR Trust or EQ Trust, as applicable.
(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.
The amounts of variable annuity payments are determined as follows:
2
<PAGE>
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 Alliance 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 Alliance
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 HR Trust and EQ Trust owned
by the Separate Account.
The financial statements of the Separate Account for the period ended
December 31, 1996, and the consolidated financial statements and consolidated
financial statement schedules of Equitable Life at December 31, 1996 and 1995
and for each of the three years ended December 31, 1996 included in the SAI
have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended
December 31, 1996, and the consolidated financial statements and consolidated
financial statement schedules of Equitable Life at December 31, 1996 and 1995
and for each of the three years ended December 31, 1996 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 -ALLIANCE MONEY
MARKET FUND YIELD
INFORMATION
The Alliance 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 Alliance
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 Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by
3
<PAGE>
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 Alliance 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 Alliance Money Market Fund will fluctuate
and not remain constant.
The Alliance 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. Alliance 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.
The seven-day current yield for the Alliance Money Market Fund was 3.73% for
the period ended December 31, 1996. The effective yield for that period was
3.80%.
Because the above yields reflect the deduction of Separate Account expenses,
they are lower than the corresponding yield figures for the Alliance Money
Market Portfolio which reflect only the deduction of HR Trust-level expenses.
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 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, 1956
(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 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
[END OF GRAPHICALLY REPRESENTED DATA]
CAPTION:
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 1996.
4
<PAGE>
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
------ ---------
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
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, 1996 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 trusts and Separate Account charges), see the supplement
to the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
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 1969-1996, 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 1969-1996; 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 Investment Funds of
the Separate Account investing in the Alliance Small Cap Growth Portfolio of
HR Trust and Class IB shares of EQ Trust as the Separate Account did not
invest in such shares prior to the date of the prospectus supplement and SAI.
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 49
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market Fund,
Common Stock Fund, Global Fund, High Yield Fund, Aggressive Stock Fund and
Growth Investors Fund, separate investment funds of The Equitable Life
Assurance Society of the United States ("Equitable Life") Separate Account No.
49 at December 31, 1996, the results of each of their operations and changes in
each of their net assets for the period indicated, 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 financial 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, which included confirmation of shares in The Hudson River Trust at
December 31, 1996 with the transfer agent, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1997
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 49
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY COMMON
MARKET STOCK GLOBAL HIGH
FUND FUND FUND YIELD
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $3,213,742 ....................... $3,183,659
1,314,501........................ $1,243,509
293,690 ......................... $289,858
714,557 ......................... $684,992
641,343 .........................
477,851 .........................
Receivable for policy related transactions .. 340,636 13,257 (21) --
------------ ------------ ---------- ----------
Total Assets ................................. 3,524,295 1,256,766 289,837 684,992
------------ ------------ ---------- ----------
LIABILITIES
Payable for The Hudson River Trust shares
purchased ................................... 340,908 13,380 -- --
Amount retained by Equitable Life in Separate
Account 49 (Note 4) ......................... 51,693 54,735 52,600 51,844
------------ ------------ ---------- ----------
Total Liabilities ............................ 392,601 68,115 52,600 51,844
------------ ------------ ---------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS ... $3,131,694 $1,188,651 $237,237 $633,148
============ ============ ========== ==========
Units Outstanding at December 31, 1996
(Note 5) .................................... 126,916 7,859 9,444 24,268
============ ============ ========== ==========
Unit Value at December 31, 1996 .............. $ 24.68 $ 151.23 $ 25.12 $ 26.09
============ ============ ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
STOCK INVESTORS
FUND FUND
------------ -----------
<S> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $3,213,742 .......................
1,314,501 .......................
293,690 .........................
714,557 .........................
641,343 ......................... $612,533
477,851 ......................... $472,113
Receivable for policy related transactions .. (39) 13,407
------------ -----------
Total Assets ................................. 612,494 485,520
------------ -----------
LIABILITIES
Payable for The Hudson River Trust shares
purchased ................................... -- 13,466
Amount retained by Equitable Life in Separate
Account 49 (Note 4) ......................... 51,333 52,562
------------ -----------
Total Liabilities ............................ 51,333 66,028
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS ... $561,161 $419,492
============ ===========
Units Outstanding at December 31, 1996
(Note 5) .................................... 8,562 16,042
============ ===========
Unit Value at December 31, 1996 .............. $ 65.53 $ 26.15
============ ===========
</TABLE>
- ------------
See Notes to Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 49
STATEMENTS OF OPERATIONS
FOR THE PERIOD OCTOBER 1 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY COMMON
MARKET STOCK GLOBAL HIGH
FUND FUND FUND YIELD
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .. $ 34,431 $ 2,166 $ 1,920 $ 17,975
Expenses (Note 3):
Mortality and expense risk charges ...... 1,085 490 $ 84 --
---------- ---------- --------- ----------
NET INVESTMENT INCOME ..................... 33,346 $ 1,676 1,836 17,975
---------- ---------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain on investments ............. 1,288 -- -- --
Realized gain distribution from
The Hudson River Trust .................. -- 75,083 6,285 19,424
---------- ---------- --------- ----------
Net Realized Gain ....................... 1,288 75,083 6,285 19,424
---------- ---------- --------- ----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... -- -- -- --
End of period ............................ (30,083) (70,992) (3,832) (29,565)
---------- ---------- --------- ----------
Change in unrealized appreciation/
(depreciation) during the period ....... (30,083) (70,992) (3,832) (29,565)
---------- ---------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. (28,795) 4,091 2,453 (10,141)
---------- ---------- --------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................ $ 4,551 $ 5,767 $ 4,289 $ 7,834
========== ========== ========= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
STOCK INVESTORS
FUND FUND
------------ -----------
<S> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .. $ 427 $ 2,994
Expenses (Note 3):
Mortality and expense risk charges ...... $ 154 $ 235
------------ -----------
NET INVESTMENT INCOME ..................... 273 2,759
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain on investments ............. -- 4
Realized gain distribution from
The Hudson River Trust .................. 36,435 6,856
------------ -----------
Net Realized Gain ....................... 36,435 6,860
------------ -----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... -- --
End of period ............................ (28,810) (5,738)
------------ -----------
Change in unrealized appreciation/
(depreciation) during the period ....... (28,810) (5,738)
------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 7,625 1,122
------------ -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................ $ 7,898 $ 3,881
============ ===========
</TABLE>
- ------------
See Notes to Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 49
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD OCTOBER 1 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY COMMON
MARKET STOCK GLOBAL HIGH
FUND FUND FUND YIELD
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................ $ 33,346 $ 1,676 $ 1,836 $ 17,975
Net realized gain ............................ 1,288 75,083 6,285 19,424
Change in unrealized
appreciation/(depreciation) on investments . (30,083) (70,992) (3,832) (29,565)
------------ ------------- ---------- ----------
Net increase in net assets resulting from
operations . ................................ 4,551 5,767 4,289 7,834
------------ ------------- ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions ............................... 3,595,368 933,695 214,102 625,155
Transfers from other Funds and Guaranteed
Interest Rate Account
(Note 1) ................................... -- 253,738 21,535 2,003
------------ ------------- ---------- ----------
Total ...................................... 3,595,368 1,187,433 235,637 627,158
------------ ------------- ---------- ----------
Withdrawals and Transfers:
Withdrawal and administrative charges ...... -- 182 151 --
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ............. 467,345 -- -- --
------------ ------------- ---------- ----------
Total ...................................... 467,345 182 151 --
------------ ------------- ---------- ----------
Net increase in net assets from Contract
Owner transactions .......................... 3,128,023 1,187,251 235,486 627,158
------------ ------------- ---------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 49
(NOTE 4)..................................... (880) (4,367) (2,538) (1,844)
------------ ------------- ---------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS .............................. 3,131,694 1,188,651 237,237 633,148
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE
TO CONTRACT OWNERS ........................... -- -- -- --
------------ ------------- ---------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS .............................. $3,131,694 $1,188,651 $237,237 $633,148
============ ============= ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
STOCK INVESTORS
FUND FUND
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................ $ 273 $ 2,759
Net realized gain ............................ 36,435 6,860
Change in unrealized
appreciation/(depreciation) on investments . (28,810) (5,738)
------------ -----------
Net increase in net assets resulting from
operations . ................................ 7,898 3,881
------------ -----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions ............................... 497,290 285,385
Transfers from other Funds and Guaranteed
Interest Rate Account
(Note 1) ................................... 57,368 132,701
------------ -----------
Total ...................................... 554,658 418,086
------------ -----------
Withdrawals and Transfers:
Withdrawal and administrative charges ...... 177 90
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ............. -- --
------------ -----------
Total ...................................... 177 90
------------ -----------
Net increase in net assets from Contract
Owner transactions .......................... 554,481 417,996
------------ -----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 49
(NOTE 4)..................................... (1,218) (2,385)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS .............................. 561,161 419,492
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE
TO CONTRACT OWNERS ........................... -- --
------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS .............................. $561,161 $419,492
============ ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 49 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account consists of six investment funds (Funds): the Money Market Fund, the
Common Stock Fund, the Global Fund, the High Yield Fund, the Aggressive
Stock Fund and the Growth Investors Fund. The assets in each Fund are
invested in Class IB shares of a corresponding portfolio (Portfolio) of a
mutual fund, The Hudson River Trust (the Trust). The Trust is an open-end,
diversified, management investment company that invests the assets of
separate accounts of insurance companies. Each Portfolio has separate
investment objectives. The Account commenced operation on October 1, 1996.
The Account is used to fund benefits for the Income Manager Accumulator, a
non-qualified deferred variable annuity, which combines the Portfolios in
the Account with guaranteed fixed rate options, and the Income Manager
Rollover IRA, which offers the same investment options as the Accumulator
for the qualified market. The Income Manager Accumulator and the Income
Manager Rollover IRA, collectively referred to as the Contracts, are offered
under group and individual variable deferred annuity forms. All Contracts
are issued by Equitable Life. The assets of the Account are the property of
Equitable Life. However, the portion of the Account's assets attributable to
the Contracts will not be chargeable with liabilities arising out of any
other business Equitable Life may conduct.
Contract owners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate of
the contract owners' accounts allocated to that Fund. Additional assets are
set aside in Equitable Life's General Account to provide for other policy
benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). 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.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded at the end of each quarter on the ex-dividend date.
Capital gains are distributed by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life deducts mortality and expense risks at
an annual rate of 0.90%. In addition, asset based administrative charges are
also deducted from the net assets at an annual rate of 0.30%. The charges
may be retained in the Account by Equitable Life and, to the extent
retained, participate in the net investment results of the trust ratably
with assets attributable to the Contracts. The aggregate of these charges
may not exceed a total effective annual rate of 1.20%.
4. Amounts retained by Equitable Life in Separate Account No. 49
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not subject
to charges for mortality and expense risks and asset based administrative
expenses.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the net surplus contributions from Equitable Life
by investment fund:
<TABLE>
<CAPTION>
INVESTMENT FUND 1996
- ----------------- ---------
<S> <C>
Money Market ..... $ 50,000
Common Stock ..... 50,000
Global ........... 50,000
High Yield........ 50,000
Aggressive Stock 50,000
Growth Investors 50,000
---------
$300,000
=========
</TABLE>
F-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period October 1 through December 31, 1996.
<TABLE>
<CAPTION>
<S> <C>
MONEY MARKET FUND
- -------------------
Unit value, beginning of period $ 24.43
Unit value, end of period........ $ 24.68
Number of units outstanding,
end of period (000's) .......... 127
COMMON STOCK FUND
- -------------------
Unit value, beginning of period $139,82
Unit value, end of period ...... $151.23
Number of units outstanding,
end of period (000's) .......... 8
GLOBAL FUND
- ---------------
Unit value, beginning of period $ 26.00
Unit value, end of period ...... $ 25.12
Number of units outstanding,
end of period (000's) .......... 9
HIGH YIELD FUND
- -------------------
Unit value, beginning of period $25.33
Unit value, end of period ...... $26.09
Number of units outstanding,
end of period (000's) .......... 24
AGGRESSIVE STOCK FUND
- ----------------------
Unit value, beginning of period $64.24
Unit value, end of period ...... $65.53
Number of units outstanding,
end of period (000's) .......... 9
GROWTH INVESTORS FUND
- ---------------------- 0
Unit value, beginning of period $25.06
Unit value, end of period ...... $26.15
Number of units outstanding,
end of period (000's) .......... 16
</TABLE>
F-7
<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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, 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 long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995 and for
postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
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.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</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, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
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.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</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 is
conducted principally by Equitable Life and its wholly owned life
insurance subsidiary, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which will continue to conduct the Company's insurance business.
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 & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate. AXA-UAP ("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 60.8% at December 31, 1996 (63.6%
assuming conversion of Series E Convertible Preferred Stock held by AXA
and 54.4% if all securities convertible into, and 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 Equitable Life or its subsidiaries has control
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. 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).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 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
(the "Superintendent"). 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.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") 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 Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect of
accounting change by $19.2 million, net of Federal income taxes of $10.3
million for 1996. The financial statements for 1995 and 1994 have been
retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million, and $(2.6)
million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in investment
gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were
computed using the forecasted cash flows of the respective properties
discounted at a rate equal to the Company's cost of funds. The adoption
of the statement resulted in the release of valuation allowances of
$152.4 million and recognition of impairment losses of $144.0 million on
real estate held and used. Real estate which management has committed to
disposing of by sale or abandonment is classified as real estate to be
disposed of. Valuation allowances on real estate to be disposed of
continue to be computed using the lower of estimated fair value or
depreciated cost, net of disposition costs. Implementation of the SFAS
No. 121 impairment requirements relative to other assets to be disposed
of resulted in a charge for the cumulative effect of an accounting
change of $23.1 million, net of a Federal income tax benefit of $12.4
million, due to the writedown to fair value of building improvements
relating to facilities being vacated beginning in 1996.
In the first quarter of 1995, the Company adopted 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.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," 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 $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
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.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Companies which elect to
continue to apply APB Opinion No. 25 must provide pro forma net income
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock option plans sponsored by the
Holding Company, DLJ and Alliance in accordance with the provisions of
APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
------------------------
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. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
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 which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
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, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
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 participating and non-participating 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. DAC is 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, DAC is
amortized over the expected total life of the contract group (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 DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
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 participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC 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.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is 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 total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
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.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit 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,
include 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, DAC is 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.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as claim
incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a reasonable
basis and are adequate, there can be no assurance reserves will be
sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding $175.0 million of reserve strengthening in
1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
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, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes were 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 were
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.
F-12
<PAGE>
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 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to 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-13
<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, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
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
================= ================= ================ ===============
</TABLE>
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 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, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost of
$3,915.7 million and $3,748.9 million, respectively, had estimated fair
values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
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.
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,
1996, approximately 14.20% of the $17,563.7 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 includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
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 $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, 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 $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, 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 $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% 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 $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, 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 $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to 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
F-16
<PAGE>
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 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 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 $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
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,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(258.0) million, $1,077.2 million and $(742.2)
million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. 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 costs 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 shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
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 $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million 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 excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an investment
gain of $20.6 million as a result of the issuance of Alliance Units in
this transaction. At December 31, 1996, the Company's ownership of
Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. 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.
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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
F-21
<PAGE>
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 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, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
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-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. 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, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 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,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</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, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<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,
1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$174.1 million was reclassified as short-term debt.
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 (together, the "Surplus Notes"). 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 $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,406.4 million and $1,629.7 million at December 31, 1996
and 1995, respectively, as collateral for certain long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</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 no longer is 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.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's 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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. 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 $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, 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. Equitable Life's and EREIM's 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. Alliance's
benefits are based on years of credited service, average final base
salary and primary social security benefits. 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 cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
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.
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 $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, 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 1996, 1995 and 1994, the Company made
estimated postretirement benefits payments of $18.9 million, $31.1
million and $29.8 million, respectively.
F-29
<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>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
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 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
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.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with
F-30
<PAGE>
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, 1996 of contracts purchased and sold were $5,050.0 million
and $500.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $22.5 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 to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
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, 1996 and 1995.
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 universal life type contracts are measured at the
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-31
<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,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
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.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</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
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 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, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has 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, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), 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, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight 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 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 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. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
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. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These 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. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigations, the
Company's management cannot make an estimate of loss, if any, or predict
whether or not such litigations 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, 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. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley and Dillon litigations should
not have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigations, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated v.
The Equitable Life Assurance Society of the United States, and Equitable
Variable Life Insurance Company, was filed in Massachusetts state court
making claims similar to those in the Franze action and alleging
violations of the Massachusetts securities laws. The plaintiff purports
to represent all persons in Massachusetts who purchased variable life
insurance contracts from Equitable Life and EVLICO from January 9, 1993
to the present. The Massachusetts action seeks rescission of the
contracts or compensatory damages, attorneys' fees, expenses and
injunctive relief. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action,
the Company's management believes that the ultimate resolution of the
litigations discussed in this paragraph should not have a material
adverse effect on the financial position of the Company. Due to the
early stages of such litigation, the Company's management cannot make an
estimate of loss, if any, or predict whether or not any such litigation
will have a material adverse effect on the Company's results of
operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on the Company's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
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. 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
F-36
<PAGE>
were not permitted by the Fund's 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, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
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") 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 issued
by Rickel in October 1994. The complaint alleges violations of Federal
securities laws and common law fraud against DLJSC, as the underwriter
of 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, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
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 Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. 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, if any, 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, if any, 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 1997 and the succeeding four years are $113.7 million, $110.6
million, $100.3 million, $72.3 million, $59.3 million and $427.3 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1997 and the succeeding four years are $9.8 million, $6.0
million, $4.5 million, $2.4 million, $.8 million and $.1 million
thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
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. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
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
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 1996, 1995 and 1994, statutory net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. 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 Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and 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. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect the Company's accounting change adopted in the fourth quarter
of 1996 for long-duration participating life contracts in accordance
with the provisions prescribed by SFAS No. 120. Net earnings for the
three months ended December 31, 1996 includes a charge of $339.3 million
related to writeoffs of DAC on DI contracts of $94.3 million, reserve
strengthening on DI business of $113.7 million, pension par of $47.5
million and the discontinued GIC Segment of $83.8 million.
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. 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 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.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in APB Opinion No. 25. Had compensation expense of the Company's stock
option incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, the Company's pro forma net earnings for 1996
and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
