SUPPLEMENT TO
EQUITABLE ACCUMULATOR(SM) SELECT
(IRA AND NQ)
PROSPECTUS DATED DECEMBER 31, 1997
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This prospectus supplement describes the baseBUILDER(SM) Combined Guaranteed
Minimum Income Benefit and Guaranteed Minimum Death Benefit offered to Annuitant
issue ages 76 through 83 under the Equitable Accumulator Select (IRA and NQ)
prospectus. The baseBUILDER Benefits are not available for Annuitant issue ages
84 and 85. Capitalized terms in this supplement have the same meaning as in the
prospectus.
A different version of the Combined Guaranteed Minimum Income Benefit and
Guaranteed Minimum Death Benefit than the versions discussed on page 20 of the
prospectus under "baseBUILDER Benefits" is available for Annuitant issue ages 76
through 83. The charge for this benefit is still 0.30% of the Guaranteed Minimum
Income Benefit benefit base in effect on a Processing Date. The versions of the
baseBUILDER Benefits described in the prospectus are not available at these
Annuitant issue ages. The benefit for Annuitant issue ages 76 through 83 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% Roll Up to Age 85 - 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 27 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.
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Accumulator and baseBUILDER are service marks of The
Equitable Life Assurance Society of the United States.
SUPPLEMENT DATED DECEMBER 31, 1997
PROS 4ACS SUPP1(1/98)
<PAGE>
DECEMBER 31, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF THE EQUITABLE ACCUMULATOR(SM) SELECT (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 Select Certificate is a
combination variable and fixed deferred annuity issued by Equitable Life.
Certificates can be issued as individual retirement annuities (IRAS, which can
be either TRADITIONAL IRAS or ROTH IRAS) or as non-qualified annuities (NQ) for
after-tax contributions only. The Equitable Accumulator Select 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 for your class of
Certificate 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 Select
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.
--------------
Accumulator and baseBUILDER are service marks, and Income Manager is a
registered service mark of The Equitable Life Assurance
Society of the United States.
1
PROS 4ACS(1/98) CATALOG. NO. 127469
<PAGE>
You can elect the baseBUILDER(SM) 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 Manager(R) (Life
Annuity with a Period Certain) payout annuity certificate.
2. ANNUITY PAYMENTS. When you are ready to start receiving income, annuity
income is available by applying your Certificate's value to an Income Manager
payout annuity certificate. 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 Select IRA Certificate by
rolling over or transferring at least $25,000 or more from one or more
individual retirement arrangements. Under a Traditional IRA Certificate you may
add additional amounts of $1,000 or more at any time (subject to certain
restrictions). Additional amounts under a Traditional IRA Certificate are
limited to $2,000 per year, but additional rollover or IRA transfer amounts are
unlimited. In certain cases, additional amounts may not be added to a Roth IRA
Certificate.
An Equitable Accumulator Select NQ Certificate can be purchased with $25,000 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 The Hudson River
Trust (HR TRUST) and EQ Advisors Trust (EQ TRUST). The portfolios are described
in the prospectuses for HR Trust and EQ Trust.
<TABLE>
<CAPTION>
HR TRUST INVESTMENT FUNDS EQ TRUST INVESTMENT FUNDS
- ------------------------- -------------------------------------------------
<S> <C> <C>
o Alliance Money Market o BT Equity 500 Index o MFS Research
o Alliance High Yield o BT Small Company Index o MFS Emerging Growth Companies
o Alliance Common Stock o BT International Equity Index o Morgan Stanley Emerging Markets Equity
o Alliance Aggressive Stock o JPM Core Bond o EQ/Putnam Growth & Income Value
o Alliance Small Cap Growth o Lazard Large Cap Value o EQ/Putnam Investors Growth
o Lazard Small Cap Value o EQ/Putnam International Equity
</TABLE>
You may also invest in one or more Guaranteed Fixed Interest Accounts currently
maturing in years 1999 through 2008.
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%, a daily charge is deducted for administration expenses at an annual
rate of 0.25%, and a daily distribution charge is deducted for sales 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 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 charges for the portfolios of EQ Trust range from 0.55%
to 1.75% of the average daily net assets of EQ Trust portfolios, depending upon
EQ Trust portfolios selected. 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), and the amounts for EQ Trust are based on current expense caps. The
12b-1 fee for the portfolios of HR Trust and EQ Trust are 0.25% of the average
daily assets of HR Trust and EQ Trust, respectively. Charges for state premium
and other applicable taxes may also apply at the time you elect to start
receiving annuity payments.
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. For year 10, the example shows the aggregate of all the annual charges
assessed for the 10 years. No charges for state premium and other applicable
taxes are assumed in the examples.
<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> <C>
Alliance Money Market 1.60% 0.64% 2.24% $25.93 $294.91
Alliance High Yield 1.60% 0.91% 2.51% $28.61 $321.24
Alliance Common Stock 1.60% 0.66% 2.26% $26.13 $296.88
Alliance Aggressive Stock 1.60% 0.83% 2.43% $27.81 $313.50
Alliance Small Cap Growth 1.60% 1.20% 2.80% $31.48 $348.77
BT Equity 500 Index 1.35% 0.55% 1.90% $25.04 $285.99
BT Small Company Index 1.35% 0.60% 1.95% $25.53 $290.95
BT International Equity Index 1.35% 0.80% 2.15% $27.52 $310.62
JPM Core Bond 1.35% 0.80% 2.15% $27.52 $310.62
Lazard Large Cap Value 1.35% 0.90% 2.25% $28.51 $320.30
Lazard Small Cap Value 1.35% 1.20% 2.55% $31.48 $348.77
MFS Research 1.60% 0.85% 2.45% $28.01 $315.46
MFS Emerging Growth
Companies 1.60% 0.85% 2.45% $28.01 $315.46
Morgan Stanley Emerging
Markets Equity 1.35% 1.75% 3.10% $36.94 $398.94
EQ/Putnam Growth & Income
Value 1.60% 0.85% 2.45% $28.01 $315.46
EQ/Putnam Investors Growth 1.60% 0.85% 2.45% $28.01 $315.46
EQ/Putnam International
Equity 1.60% 1.20% 2.80% $31.48 $348.76
</TABLE>
3
<PAGE>
Total annual portfolio charges may vary from year to year. 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.
We also offer other Equitable Accumulator certificates that do not have a
distribution charge, but certain withdrawals are subject to a charge which
declines to zero after seven years for each contribution. These other
certificates may also provide higher guaranteed interest rates for Guaranteed
Fixed Interest Accounts. A current prospectus for the Equitable Accumulator with
a withdrawal charge instead of a distribution charge may be obtained from your
registered representative.
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, in addition to income tax you may be charged a 10% Federal
tax penalty on the taxable 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 both The Traditional IRA and Roth 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 under Traditional IRA Certificates only (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. Withdrawals and surrenders are not subject to withdrawal charges,
but 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.
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. Past performance is not a guarantee
of future results.
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% Roll Up
to Age 80" 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 85 a return of the
money you have invested under the Certificate will be the Guaranteed Minimum
Death Benefit.
4
<PAGE>
6% Roll Up to Age 80 (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 due to interest rate changes) in the Guaranteed Fixed Interest Accounts
reflecting guaranteed interest.
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. A
baseBUILDER benefit (which is different than the one described below) may be
available for annuitant issue ages 76 through 83. The baseBUILDER benefit 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) payout annuity certificate 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 purchase 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% Roll Up to Age 80 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. In the case of a complete
conversion of an existing Traditional IRA Certificate to a Roth IRA, you may
cancel your Roth IRA and return to a Traditional IRA by following the
instructions in the request for full conversion form available from the
Processing Office or your registered representative.
5
<PAGE>
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, administration, and distribution 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 Money
Market Fund will apply. Dollar cost averaging does not assure a profit or
protect against a loss should market prices decline.
REBALANCING. You can have your money automatically readjusted among the
Investment Funds quarterly, semi-annually or annually in order to retain the
investments percentage allocations you select. Rebalancing does not assure a
profit or protect against a loss should market prices decline and should be
reviewed periodically, as your needs may change.
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 HR Trust and EQ 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
6
<PAGE>
EQUITABLE ACCUMULATOR(SM) SELECT
(IRA AND NQ)
PROSPECTUS DATED DECEMBER 31, 1997
----------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
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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
(IRAS, which can be either TRADITIONAL IRAS or ROTH IRAS), 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 $25,000 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. There
are no withdrawal charges under the Certificates; however an asset-based
distribution charge applies for the life of the Certificate.
The Certificates offer investment options (INVESTMENT OPTIONS) that permit you
to create your own strategies. These Investment Options include 17 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 The Hudson River Trust (HR TRUST), and EQ Advisors Trust (EQ
TRUST), mutual funds whose shares are purchased by separate accounts of
insurance companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this prospectus, describe the investment objectives, policies and
risks, of the Portfolios.
<TABLE>
<CAPTION>
INVESTMENT FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
O ALLIANCE MONEY MARKET O BT EQUITY 500 INDEX O MFS RESEARCH
O ALLIANCE HIGH YIELD O BT SMALL COMPANY INDEX O MFS EMERGING GROWTH COMPANIES
O ALLIANCE COMMON STOCK O BT INTERNATIONAL EQUITY INDEX O MORGAN STANLEY EMERGING MARKETS
O ALLIANCE AGGRESSIVE STOCK O JPM CORE BOND EQUITY
O ALLIANCE SMALL CAP GROWTH O LAZARD LARGE CAP VALUE O EQ/PUTNAM GROWTH & INCOME VALUE
O LAZARD SMALL CAP VALUE O EQ/PUTNAM INVESTORS GROWTH
O EQ/PUTNAM INTERNATIONAL EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set for your class of Certificate
(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 1999 through 2008.
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 HR Trust and EQ 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 December 31, 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. Accumulator and baseBUILDER are service marks
and Income Manager is a registered service mark
of The Equitable Life Assurance Society of the United States.
PROS 4ACS (1/98)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996, its quarterly reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1997, and a current report on Form 8-K dated July 10,
1997 are 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).
- --------------------------------------------------------------------------------
This prospectus dated December 31, 1997 is a revision of Equitable Life's
prospectus dated October 1, 1997 for the Equitable Accumulator Select (IRA and
NQ) Certificates, and reflects limited changes in the Certificates and features
described in the October prospectus. These Certificates were first offered on
October 1, 1997. For convenience, in lieu of a supplement to the October
prospectus, the prospectus has been reprinted in its entirety.
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2
<PAGE>
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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
HR Trust 9
HR Trust's Manager and Adviser 10
EQ Trust 10
EQ Trust's Manager and Advisers 10
Investment Policies and Objectives of HR Trust's
Portfolios and EQ Trust's Portfolios 11
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 13
Guarantee Periods 13
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior
to the Expiration Date 14
Investments 14
PART 3: PROVISIONS OF THE CERTIFICATES
AND SERVICES WE PROVIDE PAGE 16
What Is the Equitable Accumulator Select? 16
Availability of the Certificates 16
Joint Ownership 16
Contributions under the Certificates 16
Methods of Payment 16
Allocation of Contributions 17
Free Look Period 18
Annuity Account Value 18
Transfers among Investment Options 19
Dollar Cost Averaging 19
Rebalancing 20
baseBUILDER Benefits 20
Guaranteed Minimum Income Benefit 20
Death Benefit 22
How Death Benefit Payment Is Made 22
When an NQ Certificate Owner Dies
before the Annuitant 23
Cash Value 23
Surrendering the Certificates to Receive
the Cash Value 23
When Payments Are Made 23
Assignment 23
Services We Provide 24
Distribution of the Certificates 24
PART 4: DISTRIBUTION METHODS
UNDER THE CERTIFICATES PAGE 25
Withdrawal Options 25
How Withdrawals Affect Your Guaranteed
Minimum Income Benefit and Guaranteed
Minimum Death Benefit 27
Annuity Benefits and Payout Annuity Options 27
PART 5: DEDUCTIONS AND CHARGES PAGE 30
Charges Deducted from the Annuity
Account Value 30
Charges Deducted from the Investment
Funds 30
HR Trust Charges to Portfolios 30
EQ Trust Charges to Portfolios 31
Group or Sponsored Arrangements 31
PART 6: VOTING RIGHTS PAGE 33
HR Trust and EQ Trust Voting Rights 33
Voting Rights of Others 33
Separate Account Voting Rights 33
Changes in Applicable Law 33
PART 7: TAX ASPECTS OF THE
CERTIFICATES PAGE 34
Tax Changes 34
Taxation of Non-Qualified Annuities 34
Charitable Remainder Trusts 35
Special Rules for NQ Certificates Issued
in Puerto Rico 35
IRA Tax Information 35
Traditional Individual Retirement
Annuities (Traditional IRAs) 36
Roth Individual Retirement Annuities
(Roth IRAs) 41
Federal and State Income Tax Withholding 45
Other Withholding 45
Impact of Taxes to Equitable Life 45
Transfers among Investment Options 45
PART 8: INDEPENDENT ACCOUNTANTS PAGE 46
PART 9: INVESTMENT PERFORMANCE PAGE 47
Adjusted Historical Performance Data 47
Rate of Return Data for Investment Funds 48
Communicating Performance Data 50
Alliance Money Market Fund Yield
Information 51
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 52
APPENDIX II: QUALIFIED PLAN
CERTIFICATES -- NQ CERTIFICATES PAGE 53
APPENDIX III: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 54
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE 55
3
<PAGE>
- --------------------------------------------------------------------------------
GENERAL TERMS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT -- Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE -- The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT -- The individual who is the measuring life for determining benefits
under the Certificate. Under NQ Certificates, the Annuitant can be different
from the Certificate Owner; under both Traditional and Roth 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(SM) -- 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 Cash Value is equal to the Annuity Account Value.
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 both Traditional
and Roth 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. There are two types of IRAs, a Traditional IRA, and a Roth IRA which must
also meet the requirements of Section 408A of the Code.
JOINT OWNER -- The person who owns an undivided interest in the entire
Certificate in conjunction with the Certificate Owner. If a Joint Owner is
named, reference to "Certificate Owner," "you" or "your" will apply to both the
Certificate Owner and Joint Owner or either of them. Joint Owners may be
selected only for NQ Certificates.
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, but is not a Roth IRA.
PORTFOLIOS -- The portfolios of HR Trust and EQ Trust that correspond to the
Investment Funds of the Separate Account.
4
<PAGE>
PROCESSING DATE -- The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on the
next succeeding Business Day. The Processing Date will be once each year on each
anniversary of the Contract Date.
PROCESSING OFFICE -- The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 3.
ROTH IRA -- An IRA which must be funded on an after-tax basis, the distributions
from which may be tax free under specified circumstances.
SAI -- The statement of additional information for the Separate Account under
the Certificates.
SEPARATE ACCOUNT -- Equitable Life's Separate Account No. 49.
TRADITIONAL IRA -- An IRA which is generally purchased with pretax
contributions, the distributions from which are treated as taxable.
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 HR Trust and EQ 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 HR Trust and EQ 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. 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."
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
<S> <C>
MORTALITY AND EXPENSE RISKS(1).............................................................................. 1.10%
ADMINISTRATION(2)........................................................................................... 0.25%
DISTRIBUTION(3)............................................................................................. 0.25%
====
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES................................................................... 1.60%
====
<CAPTION>
OPTIONAL BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- --------------------------------------------------------------
<S> <C>
BASEBUILDER BENEFIT EXPENSE (calculated as a percentage of the Guaranteed Minimum Income
Benefit benefit base)(4)................................................................................. 0.30%
</TABLE>
<TABLE>
<CAPTION>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO)
- -----------------------------------------------------------------------------------------------------
INVESTMENT TOTAL
MANAGEMENT & OTHER ANNUAL
PORTFOLIOS ADVISORY FEES 12B-1 FEE (5) EXPENSES EXPENSES
---------- ------------- --------- -------- --------
<S> <C> <C> <C> <C>
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 Small Cap Growth(6) 0.90% 0.25%(8) 0.10% 1.20%(8)
EQ TRUST
BT Equity 500 Index(7) 0.25% 0.25% 0.05% 0.55%
BT Small Company Index(7) 0.25% 0.25% 0.10% 0.60%
BT International Equity Index(7) 0.35% 0.25% 0.20% 0.80%
JPM Core Bond(7) 0.45% 0.25% 0.10% 0.80%
Lazard Large Cap Value(7) 0.55% 0.25% 0.10% 0.90%
Lazard Small Cap Value(7) 0.80% 0.25% 0.15% 1.20%
MFS Research(7) 0.55% 0.25% 0.05% 0.85%
MFS Emerging Growth Companies(7) 0.55% 0.25% 0.05% 0.85%
Morgan Stanley Emerging Markets Equity(7) 1.15% 0.25% 0.35% 1.75%
EQ/Putnam Growth & Income Value(7) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Investors Growth(7) 0.55% 0.25% 0.05% 0.85%
EQ/Putnam International Equity(7) 0.70% 0.25% 0.25% 1.20%
</TABLE>
- -------------------
See footnotes on next page.
6
<PAGE>
- -------------------
Notes:
(1) A portion of this charge is for providing the Guaranteed Minimum Death
Benefit. See "Mortality and Expense Risks Charge" in Part 5.
(2) We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
(3) The deduction of this charge is subject to regulatory limits. See
"Distribution Charge" in Part 5.
(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 HR Trust and EQ Trust are subject to fees imposed
under distribution plans (herein, the "Rule 12b-1 Plans") adopted by HR
Trust and EQ Trust pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended. The Rule 12b-1 Plans provide that HR Trust and 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. The 12b-1 fee will not be increased for the life of the
Certificates.
(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 average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 1997 (see footnote 8). The investment
management and advisory fees 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 management and 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.
(7) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown as "Other Expenses" for these Portfolios are estimated.
The MFS Research, MFS Emerging Growth Companies, EQ/Putnam Growth & Income
Value, EQ/Putnam Investors Growth, and EQ/Putnam International Equity
Portfolios of EQ Trust commenced operations on May 1, 1997. The Morgan
Stanley Emerging Markets Equity Portfolio commenced operations on August
20, 1997 (and is offered under this prospectus as of December 31, 1997).
The BT Equity 500 Index, BT Small Company Index, BT International Equity
Index, JPM Core Bond, Lazard Large Cap Value, and Lazard Small Cap Value
Portfolios commenced operations on December 31, 1997. The maximum
investment management and advisory fees for each EQ Trust Portfolio cannot
be increased without a vote of that Portfolio's shareholders. The amounts
shown as "Other Expenses" will fluctuate from year to year depending on
actual expenses, but pursuant to agreement, cannot together with other fees
exceed total annual expense limitations (which are the respective amounts
shown in the "Total Annual Expenses" column). Absent the expense
limitation, we estimate that the other expenses for 1998 for each Portfolio
would be 0.285% for BT Equity 500 Index; 0.231% for BT Small Company Index;
0.472% for BT International Equity Index; 0.411% for JPM Core Bond; 0.285%
for Lazard Large Cap Value; 0.231% for Lazard Small Cap Value; 0.234% for
MFS Research; 0.242% for MFS Emerging Growth Companies; 0.461% for Morgan
Stanley Emerging Markets Equity; 0.262% for EQ/Putnam Growth & Income
Value; 0.273% for EQ/Putnam Investors Growth; and 0.459% for EQ/Putnam
International Equity. See "EQ 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. Absent the fee waiver, we estimate that
the annual expenses for 1997 for the Alliance Small Cap Growth Portfolio
would have been 1.21%.
We also offer other Equitable Accumulator certificates that do not have a
distribution charge, but withdrawals of contributions are subject to a charge
which declines to zero after seven years for each contribution. These other
certificates may also provide higher Guaranteed Rates for the Guarantee Periods.
A current prospectus for the Equitable Accumulator with a withdrawal charge
instead of a distribution charge may be obtained from your registered
representative.
7
<PAGE>
EXAMPLE
- -------
The example below shows the expenses that a hypothetical Certificate Owner (who
has elected the baseBUILDER benefit) would pay assuming a $1,000 contribution
invested in one of the Investment Funds listed, and a 5% annual return on
assets.(1)
This example 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
example is not an estimate or guarantee of future investment performance.
- --------------------------------------------------------------------------------
AT THE END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS
- --------------------------------------------------------------------------------
HR TRUST
Alliance Money Market $25.93 $80.00
Alliance High Yield 28.61 88.02
Alliance Common Stock 26.13 80.60
Alliance Aggressive Stock 27.81 85.64
Alliance Small Cap Growth 31.48 96.58
EQ TRUST
BT Equity 500 Index 25.04 77.32
BT Small Company Index 25.53 78.80
BT International Equity Index 27.52 84.77
JPM Core Bond 27.52 84.77
Lazard Large Cap Value 28.51 87.73
Lazard Small Cap Value 31.48 96.58
MFS Research 28.01 86.24
MFS Emerging Growth Companies 28.01 86.24
Morgan Stanley Emerging Markets Equity 36.94 112.70
EQ/Putnam Growth & Income Value 28.01 86.24
EQ/Putnam Investors Growth 28.01 86.24
EQ/Putnam International Equity 31.48 96.58
- -------------------
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
example. 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 example does 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 September 30, 1997, AXA beneficially owned 59.0%
of the outstanding common stock of the Holding Company. 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
$272.7 billion of assets as of September 30, 1997.
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 HR Trust and EQ 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.
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
9
<PAGE>
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 the HR Trust prospectus which accompanies this prospectus
or in the HR Trust 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 September 30, 1997, Alliance was managing approximately
$217.3 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.
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 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 the EQ Trust prospectus which accompanies this prospectus or in the EQ Trust
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 Bankers Trust
Company, who serves as adviser to the BT Equity 500 Index, BT Small Company
Index, and BT International Equity Index Portfolios; J.P. Morgan Investment
Management Inc., adviser to the JPM Core Bond Portfolio; Lazard Asset
Management, adviser to the Lazard Large Cap Value and Lazard Small Cap Value
Portfolios; Massachusetts Financial Services Company, adviser to the MFS
Research and MFS Emerging Growth Companies Portfolios; Morgan Stanley Asset
Management Inc., adviser to the Morgan Stanley Emerging Markets Equity
Portfolio; and Putnam Investments, adviser to the EQ/Putnam Growth & Income
Value, EQ/Putnam Investors Growth and EQ/Putnam International Equity Portfolios.
10
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF HR TRUST'S PORTFOLIOS AND EQ 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 HR Trust and EQ Trust, both of
which accompany this prospectus. Please read the prospectuses for each of the
trusts carefully before investing.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Money Market Primarily high-quality U.S. dollar-denominated High level of current income
money market instruments. while preserving assets and
maintaining liquidity
- -------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield Primarily a diversified mix of high-yield, High return by maximizing current
fixed-income securities which generally involve income and, to the extent
greater volatility of price and risk of consistent with that objective,
principal and income than higher-quality capital appreciation
fixed-income securities. Lower-quality debt
securities are commonly known as "junk bonds."
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Common Stock Primarily common stock and other equity-type Long-term growth of capital and
instruments. 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 Growth Primarily U.S. common stocks and other Long-term growth of capital
equity-type securities issued by smaller
companies that, in the opinion of the adviser,
have favorable growth prospects.
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Invest in a statistically selected sample of Replicate as closely as possible
the 500 stocks included in the Standard (before the deduction of
& Poor's 500 Composite Stock Price Index Portfolio expenses) the total
("S&P 500"). return of the S&P 500
- -------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index Invest in a statistically selected sample of Replicate as closely as possible
the 2,000 stocks included in the Russell 2000 (before the deduction of
Small Stock Index ("Russell 2000"). Portfolio expenses) the total
return of the Russell 2000
- -------------------------------------------------------------------------------------------------------------------------------
BT International Equity Index Invest in a statistically selected sample of Replicate as closely as possible
the securities of companies included in the (before the deduction of
Morgan Stanley Capital International Europe, Portfolio expenses) the total
Australia, Far East Index ("EAFE"), although return of the EAFE
not all companies within a country will be
represented in the Portfolio at the same time.
- -------------------------------------------------------------------------------------------------------------------------------
JPM Core Bond Under normal circumstances, all of the High total return consistent with
Portfolio's assets will, at the time of moderate risk of capital and
purchase, consist of investment grade maintenance of liquidity
fixed-income securities rated
BBB or better by Standard and Poor's or
Baa or better by Moody's Investors
Service, Inc. or unrated securities
of comparable quality.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lazard Large Cap Value Primarily equity securities of United States Capital appreciation
companies with relatively large market
capitalizations (i.e., companies having market
capitalizations of greater than $1 billion)
that the Portfolio adviser considers to be
inexpensively priced and financially productive.
- -------------------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value Primarily equity securities of United States Capital appreciation
companies with small market
capitalizations (i.e., companies having
market capitalizations of $1 billion or
less) that the Portfolio adviser considers
inexpensively priced and financially
productive.
- -------------------------------------------------------------------------------------------------------------------------------
MFS Research A substantial portion of assets invested in Long-term growth of capital and
common stock or securities convertible future income
into common stock of companies believed by
the Portfolio adviser to possess better
than average prospects for long-term
growth.
- -------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Primarily (i.e., at least 80% of its assets Long-term growth of capital
Companies under 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.
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Primarily equity securities of emerging market Long-term capital appreciation
Markets Equity country issuers with a focus on those in which
the Portfolio's adviser believes the
economies are developing strongly and in
which the markets are becoming more
sophisticated.
- -------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth Primarily common stocks that offer potential Capital growth and, secondarily,
& Income Value for capital growth and may, consistent with the 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 Long-term growth of capital and
adviser believes afford the best opportunity any increased income that results
for long-term capital growth. from this growth
- -------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam International Primarily a diversified portfolio of equity Capital appreciation
Equity securities of companies organized under laws of
countries other than the United States.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
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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 under your class of
Certificate 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 each such Guarantee Period on such date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1999 through 2008. 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 December 10, 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 DECEMBER 10, PER $100 OF
MATURITY YEAR 1997 MATURITY VALUE
- -------------------------------------------------------------
1999 4.53% $94.89
2000 4.63 90.59
2001 4.70 86.39
2002 4.73 82.41
2003 4.78 78.49
2004 4.84 74.65
2005 4.86 71.09
2006 4.87 67.75
2007 4.89 64.49
2008 4.83 61.84
- -------------------------------------------------------------
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
1999 through 2003, then according to the above table the lump sum contribution
you would have to make as of December 10, 1997 would be $432.77 (the sum of the
prices per $100 of Maturity Value for each maturity year from 1999 through
2003).
The above example is provided to illustrate the use of present value
calculations. It does not take into account
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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
of a portion of the amount in a Guarantee Period will be a percentage of the
market value adjustment that would be applicable upon a withdrawal of all funds
from a Guarantee Period. This percentage is determined by (i) dividing the
amount of the withdrawal or transfer from the Guarantee Period by (ii) the
Annuity Account Value in such Guarantee Period prior to the withdrawal or
transfer. See Appendix I for an example.
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose even if new allocations to that Guarantee Period
would not be accepted at the time. This rate will not be less than 3%. If we do
not have a Guaranteed Rate in effect for a Guarantee Period to which the
"current Guaranteed Rate" in (1)(c) would apply, we will use the rate at the
next closest Expiration Date. If we are no longer offering new Guarantee
Periods, the "current Guaranteed Rate" will be determined in accordance with our
procedures then in effect. For purposes of calculating the market value
adjustment only, we reserve the right to add up to 0.25% to the current rate in
(1)(c) above.
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
14
<PAGE>
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.
15
<PAGE>
- --------------------------------------------------------------------------------
PART 3: PROVISIONS OF THE CERTIFICATES AND SERVICES WE PROVIDE
- --------------------------------------------------------------------------------
WHAT IS THE EQUITABLE ACCUMULATOR SELECT?
The Equitable Accumulator Select 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 Select Certificates can be issued as two different types of
individual retirement annuities (IRAS), TRADITIONAL IRAS and ROTH IRAS, or
non-qualified annuities (NQ). The provisions of your Certificate may be
restricted by applicable laws or regulations. The Certificates may not be
available in all states. Your registered representative can provide information
about state availability, or you may contact our Processing Office
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to 59 1/2 may also be
subject to tax penalty.
AVAILABILITY OF THE CERTIFICATES
The Certificates are available for Annuitant issue ages 20 through 85. IRA
Certificates are not available in Puerto Rico.
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.
JOINT OWNERSHIP
If a Joint Owner is named under an NQ Certificate, both Owners must be of legal
age, and joint ownership with non-natural persons is not permitted. Unless
otherwise provided in writing, the exercise of any ownership right in the
Certificate must be in a written form satisfactory to us and signed by both
Owners. A Joint Owner designation supersedes any beneficiary designation (see
"Death Benefit" below). This feature may not currently be available in your
state. Your registered representative can provide information about state
availability, or you may contact our Processing Office.
CONTRIBUTIONS UNDER THE CERTIFICATES
The minimum initial contribution is $25,000. Under Traditional 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 traditional
individual retirement arrangements. Under Roth IRA Certificates, we will only
accept rollover contributions from Traditional IRAs, or Roth IRAs, or direct
custodian-to-custodian transfers from other Roth IRAs. See "Part 7: Tax Aspects
of the Certificates."
Under NQ Certificates, you may make subsequent contributions of at least $1,000
at any time until the Annuitant attains age 86.
Under Traditional IRA Certificates, your subsequent contributions of at least
$1,000 may be made at any time until you attain age 86. Subsequent Traditional
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" contributions to Traditional IRAs 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 "Traditional Individual Retirement Annuities
(Traditional IRAs)" in Part 7. For the consequences of making a "regular" IRA
contribution to your IRA Certificate, also see Part 7.
We will not accept "regular" IRA contributions to Roth IRAs. Rollover and direct
custodian-to-custodian transfer contributions can be made any time during your
lifetime provided you meet certain requirements. See "Roth Individual Retirement
Annuities (Roth IRAs)" in 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.
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<PAGE>
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 applicant, 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.
Section 1035 Exchanges
You may apply the values of an existing NQ life insurance or deferred annuity
contract to purchase an Equitable Accumulator Select NQ Certificate in a
tax-deferred exchange, if you follow certain procedures. For further
information, consult your tax adviser. See also "Taxation of Non-Qualified
Annuities: Withdrawals" in Part 7. In the case of joint ownership, 1035
exchanges will not be permitted unless both owners authorize the exchange.
Automatic Investment Program
Our Automatic Investment Program (AIP) provides for a specified amount to be
automatically deducted from a checking account, bank money market account, or
credit union checking account and to be contributed as a subsequent contribution
into an NQ or a Traditional IRA Certificate on a monthly or quarterly basis. The
minimum amount that will be deducted is $100 monthly and $300 quarterly (subject
to the maximum $2,000 annually for Traditional IRAs). AIP subsequent
contributions may be made to any Investment Option available under your
Certificate. You may elect AIP by properly completing the appropriate form,
which is available from your registered representative, and returning it to our
Processing Office. You elect which day of the month (other than the 29th, 30th,
or 31st) you wish to have your account debited. That date, or the next Business
Day if that day is a non-Business Day, will be the Transaction Date. AIP is not
available for Roth IRA Certificates.
You may cancel AIP at any time by notifying our Processing Office in writing at
least two business days prior to the next scheduled transaction. Equitable Life
is not responsible for any debits made to your account prior to the time written
notice of revocation is received at our Processing Office.
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.
17
<PAGE>
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 Allocation
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 a Traditional 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 Traditional IRA funds that you may have or from the Investment Funds
to the extent possible. See "Traditional Individual Retirement Annuities
(Traditional IRAs): Required Minimum Distributions" in Part 7.
Dollar Cost Averaging Allocation
A Special Dollar Cost Averaging program is available for allocation of your
initial contribution. Also, a General Dollar Cost Averaging program is available
for allocation of your initial contribution, or if elected at a later date, your
Annuity Account Value. Both programs are more fully described later in this Part
3 under "Dollar Cost Averaging."
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 period 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.
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.
In the case of a complete conversion of an existing Equitable Accumulator Select
Traditional IRA Certificate to an Equitable Accumulator Select Roth IRA
Certificate, you may cancel your Equitable Accumulator Select Roth IRA
Certificate and return to an Equitable Accumulator Select Traditional IRA
Certificate by following the instructions in the request for full conversion
form available from our Processing Office or your registered representative.
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.
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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:
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 calendar 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.
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.
Dollar Cost Averaging may not be elected while the rebalancing program
(discussed below) or the Systematic Withdrawal option (described under
"Withdrawal Options" in Part 4) is in effect.
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 charge, the administration charge, and the distribution charge 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 $25,000 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 program is elected, divided by
the number of transfers scheduled to be made each Contract Year.
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The transfer date will be the same calendar day of the month as the Contract
Date (other than the 29th, 30th or 31st). 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 program will end. You may change the
transfer amount once each Contract Year, or cancel this program by sending us
satisfactory notice to our Processing Office at least seven calendar days before
the next transfer date.
REBALANCING
We currently offer a rebalancing program under which you authorize us to
automatically transfer your Annuity Account Value among the Investment Funds
selected by you in order to maintain a particular percentage allocation (which
you specify) in such Investment Funds. Such percentages must be in whole
numbers. You select the period of time at the end of which the transfers will
take place. The period of time may be quarterly, semiannually, or annually on a
Contract Year basis on the same day of the month as the Contract Date (other
than the 29th, 30th or 31st). The Annuity Account Value allocated to each
selected Investment Fund will grow or decline in value at different rates during
each time period. Rebalancing automatically reallocates the Annuity Account
Value in the chosen Investment Funds at the end of each period to the specified
allocation percentages. Rebalancing is intended to transfer specified portions
of the Annuity Account Value from those chosen Investment Funds that have
increased in value to those chosen Investment Funds that have declined in value.
The transfers to and from each chosen Investment Fund will be made at the
Accumulation Unit Value next computed after the Transaction Date. Rebalancing is
not available for amounts in the Guaranteed Period Account.
Rebalancing does not assure a profit or protect against a loss in declining
markets and should be periodically reviewed as your needs may change. You may
want to discuss the rebalancing program with your financial adviser before
electing such program.
You may elect the rebalancing program at any time by properly completing the
appropriate form, which is available from your registered representative or our
Processing Office.
You may change your rebalancing allocation percentages or cancel this program at
any time by submitting a request in a form satisfactory to us. Such request must
be received at our Processing Office at least seven days before the next
scheduled rebalancing date. A transfer request from you while the rebalancing
program is in effect, will cancel the rebalancing program.
Rebalancing may not be elected if a Dollar Cost Averaging program (discussed
above) is in effect.
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%
Roll Up to Age 80 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.
For Annuitant issue ages 76 through 83, if 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 baseBUILDER benefit is not available for Annuitant issue ages
84 and 85.
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 Manager(R) (Life Annuity with a Period
Certain) payout annuity certificate during the periods of time indicated below.
This Income Manager payout annuity certificate 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) payout annuity certificate will be the greater of
(i) your Guaranteed Minimum Income Benefit, and (ii) the income provided by
application of your Annuity
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Account Value at our then current annuity purchase factors. The Guaranteed
Minimum Income Benefit does not provide an Annuity 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 purchase 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
CONTRACT DATE INCOME BENEFIT -- ANNUAL INCOME
ANNIVERSARY AT PAYABLE FOR LIFE WITH
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 Income Benefit and Guaranteed Minimum
Death 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 Select 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
and extinguish your rights in your Equitable Accumulator Select 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 TRADITIONAL AND
AGE AT ELECTION ROTH 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. For Traditional IRA
Certificates, please see "Traditional Individual Retirement Annuities
(Traditional IRAs): Required Minimum Distributions" in Part 7 to see how this
option may be affected if exercised after age 70 1/2.
- --------------------------------------------------------------------------------
Payments will start one payment mode from the Contract Date of the Income
Manager payout annuity 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 Select 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) payout annuity certificate, 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 annuity certificates and may provide higher or lower income
levels, but do not have all the features of the Income Manager payout annuity
certificates. You may request an illustration from your registered
representative.
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The Income Manager (Life Annuity with a Period Certain) payout annuity
certificates are 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 (discussed below) elects to
continue the Certificate after your death, the Guaranteed Minimum Income Benefit
will continue to be available on Contract Date anniversaries specified above
based on the Contract Date of your Equitable Accumulator Select Certificate,
provided the Guaranteed Minimum Income Benefit is exercised as specified above
based on the age of the successor Annuitant/Certificate Owner.
DEATH BENEFIT
When the Annuitant Dies
Generally, upon receipt of proof satisfactory to us of the Annuitant's death
prior to the Annuity Commencement Date, we will pay the death benefit to the
beneficiary named in your Certificate. You designate the beneficiary at the time
you apply for the Certificate. While the Certificate is in effect, you may
change your beneficiary by writing to our Processing Office. The change will be
effective on the date the written submission was signed. If the Certificate is
jointly owned, the surviving Owner will be deemed the beneficiary, superseding
any other beneficiary designations. (The Joint Owner feature may not currently
be available in your state.) 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% Roll Up to Age 80" 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% Roll Up 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 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% Roll Up to Age 80 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 85
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 Income Benefit and Guaranteed Minimum
Death 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/Certificate Owner
If you are both the Certificate Owner and the Annuitant, and if your spouse is
the sole primary beneficiary or the Joint Owner under the Certificate, then upon
your death your spouse beneficiary may elect to receive the death benefit, or to
continue the Certificate and
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become the successor Annuitant/Certificate Owner by completing the appropriate
form and sending it to our Processing Office.
If the successor Annuitant/Certificate Owner elects to continue the Certificate,
then on the Contract Date anniversary following your death, the Annuity Account
Value will be reset to the then current Guaranteed Minimum Death Benefit if it
is higher than the Annuity Account Value as of such date. 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 AN 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). If the Certificate is
jointly owned and the first Owner to die is not the Annuitant, the surviving
Owner becomes the sole Certificate Owner and will be deemed the "beneficiary"
for purposes of the distribution rules described in this section, automatically
superseding any other beneficiary designation.
Unless the surviving spouse of the deceased Owner (or in the case of a joint
ownership situation, the surviving spouse of the first Owner to die) is the
designated beneficiary for this purpose, the entire interest in the Certificate
must be distributed under these rules.
The Cash Value in the Certificate must be fully paid to the designated
beneficiary (new Owner) by December 31st of the fifth calendar year after your
death (or in a joint ownership situation, the death of the first Owner to die).
A permissible alternative is for the new Owner to elect to receive such amounts
as a life annuity (or payments for a period certain of not longer than the new
Owner's life expectancy), with payments beginning no later than December 31st
following the calendar year of the non-Annuitant Owner's death. If such an
annuity benefit or payments for a period certain is not elected, we will pay any
Cash Value in the Certificate on December 31st of the fifth calendar year
following the year of your death (or the death of the first Owner to die).
Where a surviving spouse is designated beneficiary or Joint Owner, the spouse
may elect to continue the Certificate. No distributions are required as long as
the surviving spouse and 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.
SURRENDERING THE CERTIFICATES TO RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while the
Annuitant is living and before the Annuity Commencement Date. For a surrender to
be effective, we must receive your written request and the Certificate at our
Processing Office. The Cash Value will be determined on the Transaction Date.
All benefits under the Certificate will be terminated as of that date.
You may receive the Cash Value in a single sum payment or apply it under one or
more of the 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 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.
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ASSIGNMENT
Traditional IRA and Roth 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 semiannual 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. 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
P.O. 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 affiliated and unaffiliated broker-dealers with which EDI has entered into
selling agreements. Broker-dealer sales compensation will not exceed 1.0%
annually of the Annuity Account Value on a Contract Date anniversary. 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. Traditional IRA and Roth IRA Certificates permit Lump
Sum Withdrawals, Substantially Equal Payment Withdrawals, and Systematic
Withdrawals. Minimum Distribution Withdrawals are available only under
Traditional IRA Certificates. NQ Certificates permit Lump Sum Withdrawals and
Systematic Withdrawals. The Certificates also offer fixed and variable annuity
benefits and Income Manager payout annuity options. Traditional 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 Traditional 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.
Withdrawals are not subject to a withdrawal charge. 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 Traditional IRA, Roth 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.
SYSTEMATIC WITHDRAWALS
(Available under Traditional IRA, Roth IRA and NQ Certificates)
Under Traditional IRA and Roth 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 Withdrawals once in each Contract Year. However, you may not
change the amount or percentage in any Contract Year where you
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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.
SUBSTANTIALLY EQUAL PAYMENT WITHDRAWALS
(Available under Traditional IRA and Roth 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 "Part
7: Tax Aspects of the Certificates." 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. As indicated
in the preceding paragraph, you may be liable for the 10% penalty tax on
Substantially Equal Payment Withdrawals made before cancellation.
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.
MINIMUM DISTRIBUTION WITHDRAWALS
(Available under Traditional 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.
Example
- -------
The chart below illustrates the pattern of payments, under Minimum Distribution
Withdrawals for a male who purchases a Traditional IRA Certificate at age 70
with a single contribution of $100,000, with payments commencing at the end of
the first Contract Year.
PATTERN OF MINIMUM DISTRIBUTION WITHDRAWALS
$100,000 SINGLE CONTRIBUTION FOR A
SINGLE LIFE -- MALE AGE 70
[THE FOLLOWING TABLE WAS REPRESENTED AS AN AREA
GRAPH IN THE PROSPECTUS]
AGE AMOUNT WITHDRAWN
70 $6,250
75 $7,653
80 $8,667
85 $8,770
90 $6,931
95 $3,727
100 $1,179
Assumes 6.0% Rate of Return
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 -- Traditional IRA Certificates" in the
SAI.) Payments are
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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
Traditional 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% Roll Up to Age 80, 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 $30,000 and you
withdraw $12,000 you have withdrawn 40% ($12,000/$30,000) of your Annuity
Account Value. If your Guaranteed Minimum Death Benefit was $40,000 prior to the
withdrawal, it would be reduced by $16,000 ($40,000 x .40) and your new
Guaranteed Minimum Death Benefit after the withdrawal would be $24,000 ($40,000
- - $16,000).
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%.
Your Guaranteed Minimum Income Benefit benefit base is applied to guaranteed
minimum annuity purchase factors to determine the Guaranteed Minimum Income
Benefit. The guaranteed minimum annuity purchase 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 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 purchase 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 Select Certificates offer annuity benefits and Income
Manager payout annuity options, described below, for providing retirement
income.
ANNUITY BENEFITS
Annuity benefits under the Equitable Accumulator Select Certificates 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 anytime
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
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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 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.
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 Select Certificates, you may apply your Annuity
Account Value to an Income Manager (Life Annuity with a Period Certain) payout
annuity certificate, or an Income Manager (Period Certain) payout annuity
certificate. The Income Manager (Life Annuity with a Period Certain) payout
annuity certificates provide guaranteed payments for the Annuitant's life or for
the Annuitant's life and the life of a joint Annuitant. Income Manager (Period
Certain) payout annuity certificates provide payments for a specified period.
The Certificate Owner and Annuitant must meet the issue age and payment
requirements. Income Manager payout annuity certificates provide guaranteed
level (Traditional, Roth IRA and NQ Certificates) payments under both forms of
certificate, or guaranteed increasing (NQ Certificates) payments under only
Income Manager (Life Annuity with a Period Certain) payout annuity certificates.
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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. See
"Withdrawal Options" above. Amounts received under the Income Manager payout
annuity certificates in such case will be taxable as withdrawals. See Part 7,
"Tax Aspects of the Certificates."
No subsequent contributions will be permitted under an Income Manager (Life
Annuity with a Period Certain) 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 certificate we also
require the return of your Equitable Accumulator Select 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 group or sponsored arrangements. See "Group or Sponsored
Arrangements" below.
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 in your state. Generally, we deduct this charge from the
amount applied to provide an annuity benefit. 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 Traditional and
Roth 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.
Distribution Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for sales expenses. The daily charge is at a rate of 0.000695%
(equivalent to an annual rate of 0.25%) on the assets in each Investment Fund.
This charge will never exceed applicable regulatory limitations.
We also offer other Equitable Accumulator certificates that do not have a
distribution charge, but withdrawals of contributions are subject to a charge
which declines to zero after seven years for each contribution. These other
certificates may also provide higher Guaranteed Rates for the Guarantee Periods.
A current prospectus for the Equitable Accumulator with a withdrawal charge
instead of a distribution charge may be obtained from your registered
representative.
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
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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 ASSETS
----------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5 THERE-
MILLION MILLION BILLION BILLION AFTER
- -------------------------------------------------------------
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 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.
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
---------------------
BT Equity 500 Index 0.25%
BT Small Company Index 0.25%
BT International Equity Index 0.35%
JPM Core Bond 0.45%
Lazard Large Cap Value 0.55%
Lazard Small Cap Value 0.80%
MFS Research 0.55%
MFS Emerging Growth Companies 0.55%
Morgan Stanley Emerging
Markets Equity 1.15%
EQ/Putnam Growth & Income Value 0.55%
EQ/Putnam Investors Growth 0.55%
EQ/Putnam International Equity 0.70%
- -------------------------------------------------------------
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 to assume other expenses so that the total operating expenses
of each Portfolio are limited to: 0.55% of the respective average daily net
assets of the BT Equity 500 Index Portfolio; 0.60% for the BT Small Company
Index Portfolio; 0.80% for the BT International Equity Index and JPM Core Bond
Portfolios; 0.85% for the MFS Research, MFS Emerging Growth Companies, EQ/Putnam
Growth & Income Value, and EQ/Putnam Investors Growth Portfolios; 0.90% for the
Lazard Large Cap Portfolio; 1.20% for the Lazard Small Cap Value and EQ/Putnam
International Equity Portfolios; and 1.75% for the Morgan Stanley Emerging
Markets 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.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the mortality and
expense risks charge, the distribution 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. Group arrangements include those in which a trustee or
an employer, for example, purchases contracts covering a group of individuals on
a group basis. Group arrangements are not available for
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Traditional IRA and Roth IRA Certificates. 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 variations 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.
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PART 6: VOTING RIGHTS
- --------------------------------------------------------------------------------
HR TRUST AND EQ TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of HR Trust and EQ 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 HR Trust is a Massachusetts business trust and EQ Trust is a Delaware
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, Traditional IRA, and Roth IRA
Certificates owned by United States taxpayers.
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, Federal income tax and withholding
rules for non-U.S. taxpayers, or Federal gift and estate taxes. A gift or estate
tax transfer may arise whenever payments or contract rights are provided to
someone other than the original owner of the Certificates. 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 and, if you are not a
United States resident, foreign tax laws, may also 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 and not subject to any special retirement plan rules.
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, for example, 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 NQ 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 NQ Certificate equals the contributions made, less any amounts
previously withdrawn which were not taxable. If your Equitable Accumulator
Select NQ Certificate was issued as a result of a tax-free exchange of another
NQ life insurance or deferred annuity contract as described in "Methods of
Payment: Section 1035 Exchanges" in Part 3, your investment in that original
contract generally is treated as the basis in the Equitable Accumulator Select
NQ Certificate regardless of the value of that original contract at the time of
the exchange. 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 NQ Certificate, the distribution is taxable to
the extent it exceeds the investment in the NQ 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
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expected return under the NQ 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.
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 taxable distribution of the contract
within a specified period of time. This includes the surviving Joint Owner in a
nonspousal joint ownership situation. See "When an NQ Certificate Owner Dies
before the Annuitant" in Part 3.
CHARITABLE REMAINDER TRUSTS
On April 17, 1997, the IRS issued proposed regulations concerning charitable
remainder trusts (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
The term "IRA" may generally refer to all individual retirement arrangements,
including individual retirement accounts and individual retirement annuities. In
addition to being available in both trusteed or custodial account form or
individual annuity form, there are many varieties of IRAs. There are
"Traditional IRAs" which are generally funded on a pretax basis. There are Roth
IRAs, newly available in 1998, which must be funded on an after-tax basis.
SEP-IRAs (including SARSEP-IRAs) and SIMPLE-IRAs are issued and funded in
connection with employer-sponsored retire-
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ment plans. There are also Education IRAs, which are not discussed herein
because they are not available in individual retirement annuity form. As the
Equitable Accumulator Select Roth IRA is an individual retirement annuity, the
term "Roth IRA" refers to a Roth individual retirement annuity unless the
context requires otherwise.
There is no limit to the number of IRAs (including Roth IRAs) you may establish
or maintain as long as you meet the requirements for establishing and funding
the IRA. However, if you maintain multiple IRAs, you may be required to
aggregate IRA values or contributions for tax purposes. You should be aware that
all types of IRAs are subject to certain restrictions in order to qualify for
special treatment under the Federal tax law.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (TRADITIONAL IRAS)
This prospectus contains the information which the Internal Revenue Service
(IRS) requires to be disclosed to an individual before he or she purchases a
Traditional IRA.
The Equitable Accumulator Select IRA Certificate is designed to qualify as a
Traditional 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 a Traditional IRA is subject
to certain restrictions in order to qualify for its special treatment under the
Federal tax law.
This prospectus provides our general understanding of applicable Federal income
tax rules, but does not provide detailed tax information and does not address
issues such as state income and other taxes or Federal gift and estate taxes.
Please consult a tax adviser when considering the tax aspects of the Traditional
IRA Certificates.
Further information on Traditional 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 Equitable Accumulator Select IRA Certificate has been approved by the IRS as
to form for use as a Traditional 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
Equitable Accumulator Select IRA Certificate.
Cancellation
You can cancel a Certificate issued as a Traditional 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 Traditional 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 Traditional IRAs
Individuals may make three different types of contributions to purchase a
Traditional IRA, or as later additions to an existing Traditional IRA: "regular"
contributions out of earnings, tax-free "rollover" contributions from
tax-qualified plans, or direct custodian-to-custodian transfers from other
traditional 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" Traditional IRA contributions. See "Contributions
under the Certificates" in Part 3. The immediately following discussion relates
to "regular" Traditional 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 a Traditional 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 (including Roth 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 a Traditional IRA.
Where married individuals file joint income tax returns, their compensation
effectively can be aggregated for purposes of determining the permissible amount
of regular contributions to Traditional IRAs (and Roth IRAs discussed below).
Even if one spouse has no compensation or compensation under $2,000, married
individuals filing jointly can contribute up to $4,000 for any taxable year to
any combination of traditional IRAs and Roth IRAs. (Any contributions to Roth
IRAs reduce the ability to contribute to Traditional IRAs and vice versa.) The
maximum amount may be less if earnings are less and the other spouse has made
IRA contributions. No more than a combined total of $2,000 can be contributed
annually to either spouse's traditional and
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Roth individual retirement arrangements. Each spouse owns his or her individual
retirement arrangements (Traditional and Roth IRA) even if contributions were
fully funded by the other spouse.
The amount of Traditional IRA contributions for a tax year that an individual
can deduct depends on whether the individual is covered by an employer-sponsored
tax-favored retirement plan. An employer-sponsored tax-favored retirement plan
includes a qualified plan, a tax-sheltered account or annuity under Section
403(b) of the Code (TSA) or a simplified employee pension plan. 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.
Regardless of adjusted gross income (AGI), you may make deductible contributions
to a Traditional IRA for each tax year up to the lesser of $2,000 or 100% of
compensation (MAXIMUM PERMISSIBLE DOLLAR DEDUCTION) if not covered by a
retirement plan.
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 $30,000 and $40,000. This amount will be indexed every year until 2005.
If the individual is married and files a joint return, and the individual is
covered by a tax-favored retirement plan during any part of the taxable year,
the deduction for Traditional IRA contributions phases out with AGI between
$50,000 and $60,000. This amount will be indexed every year until 2007.
Married individuals filing separately and living apart at all times are not
treated as being married for purposes of this deductible contribution
calculation. Generally, the active participation in an employer-sponsored
retirement plan of an individual is determined independently for each spouse.
Where spouses have "married filing jointly" status, however, the maximum
deductible Traditional IRA contribution for an individual who is not an active
participant (but whose spouse is an active participant) is phased out for
taxpayers with AGI of between $150,000 and $160,000. To determine the deductible
amount of the contribution with the phase out, the individual determines AGI and
subtracts $30,000 if the individual is a single person, $50,000 if the
individual is married and files a joint return with the spouse. The resulting
amount is the individual's Excess AGI. The individual then determines the limit
on the deduction for Traditional IRA contributions using the following formula:
Maximum Adjusted
$10,000 - Excess AGI x Permissible = Dollar
-------------------- Dollar Deduction
$10,000 Deduction Limit
Traditional IRA 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 Traditional 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 Traditional IRA (or the nonworking spouse's
Traditional 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 Traditional IRA Certificates" below.
An individual making nondeductible contributions in any taxable year, or any
individual who has made nondeductible contributions to a Traditional IRA in
prior years and is receiving amounts from any Traditional IRA must file the
required information with the IRS. Moreover, individuals making nondeductible
Traditional IRA contributions must retain all income tax returns and records
pertaining to such contributions until interests in all Traditional IRAs are
fully distributed.
EXCESS CONTRIBUTIONS
Excess contributions to a Traditional 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" Traditional 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 Traditional 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
Traditional 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
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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 Traditional 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.
TAX-FREE TRANSFERS AND ROLLOVERS
Tax-free rollover contributions may be made to a Traditional IRA from these
sources: (i) qualified plans, (ii) TSAs (including 403(b)(7) custodial accounts)
and (iii) other traditional 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 traditional 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 a Traditional 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. Any
amount contributed to a Traditional IRA 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.
Under some circumstances, amounts from a Certificate may be rolled over on a
tax-free basis to a qualified plan. To get this "conduit" Traditional IRA
treatment, the source of funds used to establish the Traditional IRA must be a
rollover contribution from the qualified plan and the entire amount received
from the Traditional 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 Traditional 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 traditional individual retirement arrangements unless
the distribution was received under an inherited Traditional 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, Traditional 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 TRADITIONAL IRA CERTIFICATES
Income or gains on contributions under Traditional 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 a
Traditional IRA is fully includable as ordinary income by the individual in
gross income.
If the individual has made nondeductible IRA contributions to any Traditional
IRA (whether or not this particular arrangement), those contributions are
recovered tax free when distributions are received. The individual must keep
records of all such nondeductible contributions. At the end of each tax year in
which the individual has received a distribution from any traditional individual
retirement arrangement, the individual determines a ratio of the total
nondeductible
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Traditional IRA contributions (less any amounts previously withdrawn tax free)
to the total account balances of all Traditional IRAs held by the individual at
the end of the tax year (including rollover Traditional IRAs) plus all
Traditional IRA distributions made during such tax year. The resulting ratio is
then multiplied by all distributions from the Traditional 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
traditional individual retirement arrangement (see "Tax-Free Transfers and
Rollovers" above) or (3) in certain limited circumstances, where the Traditional
IRA acts as a "conduit," the entire amount is paid into a qualified plan or TSA
that permits rollover contributions.
Distributions from a Traditional 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 Traditional IRA owners to start taking
annual distributions from their retirement plans by age 70 1/2. The distribution
requirements are designed to provide for distribution of the 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 traditional
individual retirement arrangements. The IRS, however, does not require that you
make the required distribution from each traditional 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 traditional 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.
An individual who has been computing minimum distributions with respect to
Traditional IRA funds on an account-based approach (discussed above) may
subsequently apply such funds to a life annuity-based payout, provided that the
individual had elected to recalculate life expectancy annually (and the spouse's
life expectancy if a spousal joint annuity is selected). For example, if you
anticipate exercising your Guaranteed Minimum Income Benefit or selecting any
other form of life annuity payout after you are age 70 1/2, you must have
elected to recalculate life expectancies.
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
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may result in disqualification of your Traditional 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 Traditional IRA is the
surviving spouse. In some circumstances, the surviving spouse may elect to "make
the Traditional 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
Traditional IRA into the surviving spouse's own Traditional IRA.
TAXATION OF DEATH BENEFITS
Distributions received by a beneficiary are generally given the same tax
treatment the individual would have received if distribution had been made to
the individual.
If your spouse is the sole primary beneficiary and elects to become the
successor Annuitant and Certificate Owner, 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 a Traditional 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
A Traditional 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 Traditional
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 Traditional 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 (5)
certain extraordinary medical expenses or medical insurance premiums for defined
unemployed individuals, (6) qualified first-time home buyer expense payments, or
(7) higher educational expense payments, all as defined in the Code.
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)
payout annuity certificates, both of which are described in Part 4. The version
of the Income Manager payout annuity certificates which would meet this
exception must provide level payments for life. If you are a Traditional 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 With-
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drawals and Income Manager payments are not subject to the 10% penalty tax, they
are taxable as discussed in "Distributions from Traditional 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 a traditional individual retirement
annuity contract calling for substantially equal periodic payments during a
fixed period, continuing afterwards under a joint life contingent annuity with a
reduced payment to the survivor (e.g., a joint and 50% to survivor), the
question might be raised whether payments will not be substantially equal for
the joint lives of the taxpayer and survivor, as the payments will be reduced at
some point. In issuing our information returns, we code the substantially equal
periodic payments from such a contract as eligible for an exception from the
early distribution penalty. We believe that any change in payments to the
survivor would come within the statutory provision covering change of payments
on account of death. As there is no direct authority on this point, however, if
you are under age 59 1/2, you should discuss this item with your own tax adviser
when electing a reduced survivorship option.
TAX PENALTY FOR INSUFFICIENT DISTRIBUTIONS
Failure to make required distributions discussed above in "Required Minimum
Distributions" may cause the disqualification of the Traditional 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 Traditional IRA
that you maintain. You should consult with your tax adviser concerning these
rules and their proper application to your situation.
ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRAS)
This prospectus contains the information which the IRS requires to be disclosed
to you before you purchase a Roth IRA. This section of Part 7 covers some of the
special tax rules that apply to Roth IRAs.
The Equitable Accumulator Select Roth IRA is designed to qualify as a Roth
individual retirement annuity under Sections 408A and 408(b) of the Code. Your
interest in the Roth IRA cannot be forfeited. You or your beneficiaries who
survive you are the only ones who can receive the benefits or payments.
Further information regarding individual retirement arrangements generally can
be found in Internal Revenue Service Publication 590, entitled "Individual
Retirement Arrangements (IRAs)," which is generally updated annually, and can be
obtained from any IRS district office.
We have received favorable opinion letters from the IRS approving the forms of
the individual Contract and group certificates for the Equitable Accumulator
Select as a Traditional IRA. Such IRS approval is a determination only that the
form of the contract or certificate meets the requirements for an individual
retirement annuity and does not represent a determination of the merits of the
contract or certificate as an investment. The IRS does not yet have a procedure
in place for approving the form of Roth IRAs.
Cancellation
You can cancel a Certificate issued as a Roth IRA by following the directions in
Part 3 under "Free Look Period." In addition, you can cancel an Equitable
Accumulator Select Roth IRA Certificate issued as a result of a full conversion
of an Equitable Accumulator Select Traditional IRA Certificate by following the
instructions in the request for full conversion form available from our
Processing Office or your registered representative. 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.
Contributions to Roth IRAs
The following discussion relates to contributions to Roth IRAs. Contributions to
Traditional IRAs are discussed above.
Individuals may make four different types of contributions to purchase a Roth
IRA, or as later additions to an existing Roth IRA: (1) "regular" after-tax
contributions out of earnings, (2) taxable "rollover" contributions from
Traditional IRAs ("conversion" contributions), (3) tax-free rollover
contributions from other Roth IRAs, or (4) tax-free direct
custodian-to-custodian transfers from other Roth IRAs ("direct transfers"). See
"Contributions
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under the Certificates" in Part 3. Since only direct transfer and rollover
contributions are permitted under the Roth IRA Certificate, regular after-tax
contributions are not discussed here.
ROLLOVERS AND DIRECT TRANSFERS -- WHAT IS THE DIFFERENCE BETWEEN ROLLOVER AND
DIRECT TRANSFER TRANSACTIONS?
Rollover contributions may be made to a Roth IRA from only two sources: (i)
another Roth IRA ("tax-free rollover contribution"), or (ii) another Traditional
IRA in a taxable "conversion" rollover ("conversion contribution"). No
contribution may be made to a Roth IRA from a qualified plan under Section
401(a) of the Code, or a tax-sheltered arrangement under Section 403(b) of the
Code. Currently we also do not accept rollover contributions from SEP-IRAs,
SARSEP-IRAs or SIMPLE-IRAs. The rollover contribution must be applied to the new
Roth IRA Certificate within 60 days of the date the proceeds from the other Roth
IRA or the Traditional IRA was received by you.
Direct transfer contributions may be made to a Roth IRA only from another Roth
IRA. The difference between a rollover transaction and a direct transfer
transaction is that in a rollover transaction the individual actually takes
possession of the funds rolled over, or constructively receives them in the case
of a change from one type of plan to another. In a direct transfer transaction,
the individual never takes possession of the funds, but directs the first Roth
IRA custodian, trustee or issuer to transfer the first Roth IRA funds directly
to Equitable Life, as the Roth IRA issuer. Direct transfer transactions can only
be made between identical plan types (for example, Roth IRA to Roth IRA);
rollover transactions may be made between identical plan types but must be made
between different plan types (for example, Traditional IRA to Roth IRA).
Although the economic effect of a Roth IRA to Roth IRA rollover transaction and
a Roth IRA to Roth IRA direct transfer transaction is the same -- both can be
accomplished on a completely tax-free basis -- Roth IRA to Roth IRA rollover
transactions are limited to once every 12-month period for the same funds.
Trustee-to-trustee or custodian-to-custodian direct transfers are not rollover
transactions and can be made more frequently than once a year.
The surviving spouse beneficiary of a deceased individual can roll over or
directly transfer an inherited Roth IRA to one or more other Roth IRAs. Also, in
some cases, Roth IRAs can be transferred on a tax-free basis between spouses or
former spouses incidental to a judicial decree of divorce or separation.
CONVERSION CONTRIBUTIONS TO ROTH IRAS
In a conversion rollover transaction, you withdraw (or are deemed to withdraw)
all or a portion of funds from a Traditional IRA you maintain and convert it to
a Roth IRA within 60 days after you receive (or are deemed to receive) the
Traditional IRA proceeds. Unlike a rollover from a Traditional IRA to another
Traditional IRA, the conversion rollover transaction is not tax exempt; the
distribution from the Traditional IRA is generally fully taxable. (If you have
ever made nondeductible regular contributions to any Traditional IRA -- whether
or not it is the Traditional IRA you are converting -- a pro rata portion of the
distribution is tax exempt.)
However, even if you are under age 59 1/2 there is no premature distribution
penalty on the Traditional IRA withdrawal that you are converting to a Roth IRA.
Also, a special rule applies to Traditional IRA funds converted to a Roth IRA in
calendar year 1998 only. For 1998 Roth IRA conversion rollover transactions, you
include the gross income from the Traditional IRA conversion ratably over the
four-year period 1998-2001. See discussion of the pre-age 59 1/2 withdrawal
penalty and the special penalties that may apply to premature withdrawals of
converted funds under "Additional Taxes and Penalties" and "Penalty Tax on
Premature Distributions" below.
YOU CANNOT MAKE CONVERSION CONTRIBUTIONS TO A ROTH IRA FOR ANY TAXABLE YEAR IN
WHICH YOUR ADJUSTED GROSS INCOME EXCEEDS $100,000. (For this purpose, your
adjusted gross income is computed without the gross income stemming from the
Traditional IRA conversion.) You also cannot make conversion contributions to a
Roth IRA for any taxable year in which your Federal income tax filing status is
"married filing separately."
Finally, you cannot make conversion contributions to a Roth IRA to the extent
that the funds in your Traditional IRA are subject to the annual required
minimum distribution rule applicable to Traditional IRAs beginning at age 70
1/2. For the potential effects of violating these rules, see discussion of
"Additional Taxes and Penalties" and "Excess Contributions" below.
WITHDRAWALS, PAYMENTS AND TRANSFERS OF FUNDS OUT OF ROTH IRAS
NO RESTRICTIONS ON WITHDRAWALS. You can withdraw any or all of your funds from a
Roth IRA at any time; you do not need to wait for a special event like
retirement. However, these withdrawals may be subject to a withdrawal charge as
stated in your Certificate. See discussion in Part 5. Also, the withdrawal may
be taxable to an extent and, even if not taxable, may be subject to tax penalty
in certain circumstances. See the discussion below under "Distributions from
Roth IRAs," "Additional Taxes and Penalties," and "Penalty Tax on Premature
Distributions."
DISTRIBUTIONS FROM ROTH IRAS
Distributions include withdrawals from your Certificate, surrender of your
Certificate and annuity
42
<PAGE>
payments from your Certificate. Death benefits are also distributions.
The following distributions from Roth IRAs are free of income tax:
(1) Rollovers from a Roth IRA to another Roth IRA.
(2) Direct transfers from a Roth IRA to another Roth IRA (see "Rollovers and
Direct Transfers" above).
(3) "Qualified Distributions" from Roth IRAs (see "Qualified Distributions from
Roth IRAs" below).
(4) Return of excess contributions (see "Additional Taxes and Penalties," and
"Excess Contributions" below).
Qualified Distributions from Roth IRAs
Distributions from Roth IRAs made because of one of four following qualifying
events or reasons are not includable in income, provided a specified five-year
holding or aging period is met. The qualifying events or reasons are (1) you
attain age 59 1/2, (2) your death, (3) your disability, or (4) a "qualified
first-time homebuyer distribution" (as defined in the Code). Qualified
first-time homebuyer distributions are limited to $10,000 lifetime in the
aggregate from all Roth and Traditional IRAs of the taxpayer.
Five-Year Holding or Aging Period
The applicable five-year holding or aging period depends on the type of
contribution made to the Roth IRA. For Roth IRAs funded by regular
contributions, or rollover or direct transfer contributions which are not
directly or indirectly attributable to converted Traditional IRAs, any
distribution made after the five-taxable year period beginning with the first
taxable year for which you made a regular contribution to any Roth IRA (whether
or not the one from which the distribution is being made) meets the five-year
holding or aging period. The Equitable Accumulator Roth IRA does not accept
"regular" contributions. However, it does accept Roth IRA to Roth IRA rollovers
and direct transfers. If the source of your contribution is (indirectly) regular
contributions made to another Roth IRA and not conversion contributions, the
five-year holding or aging period discussed in the prior sentence applies to
you.
For Roth IRAs funded directly or indirectly by converted Traditional IRAs, the
applicable five-year holding period begins with the year of the conversion
rollover transaction to a Roth IRA.
Although there is currently no statutory prohibition against commingling regular
contributions and conversion contributions in any Roth IRA, or against
commingling conversion contributions made in more than one taxable year to Roth
IRAs, the IRS strongly encourages individuals to maintain separate Roth IRAs for
regular contributions and conversion contributions. It also strongly encourages
individuals to differentiate conversion Roth IRAs by conversion year. Under
pending legislation which could be enacted with a retroactive effective date,
aggregation of Roth IRAs by conversion year may be required. In the case of a
Roth IRA which contains conversion contributions and regular contributions, or
conversion contributions from more than one year, the five-year holding period
would be reset to begin with the most recent taxable year for which a conversion
contribution is made.
Non-Qualified Distributions from Roth IRAs
Non-qualified distributions from Roth IRAs are any distributions which do not
meet the qualifying event and five-year holding or aging period tests described
above and are potentially taxable as ordinary income. In contrast to Traditional
IRA distributions, which are assumed to be fully taxable, non-qualified
distributions receive return-of-investment-first treatment. That is, the
recipient is taxed only on the difference between the amount of the distribution
and the amount of Roth IRA contributions (less any distributions previously
recovered tax free).
Like Traditional IRAs, taxable distributions from a Roth 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.
Although the IRS has not yet issued complete guidance on all aspects of Roth
IRAs, it is highly possible that you will be required to keep your own records
of regular and conversion contributions to all Roth IRAs in order to assure
appropriate taxation. An individual making contributions to a Roth IRA in any
taxable year, or receiving amounts from any Roth IRA may be required to file the
information with the IRS and retain all income tax returns and records
pertaining to such contributions until interests in Roth IRAs are fully
distributed.
REQUIRED MINIMUM DISTRIBUTIONS AT DEATH
If you die before annuitization or before the entire amount of the Roth IRA has
been distributed to you, distributions of your entire interest under the Roth
IRA must be completed to your designated beneficiary by December 31 of the fifth
year after your death, unless payments to a designated beneficiary begin by
December 31 of the year after your death and are made over the beneficiary's
life or over a period which does not extend beyond the beneficiary's life
expectancy. If your surviving spouse is the designated beneficiary, no
distributions to a beneficiary are required until after the surviving spouse's
death.
43
<PAGE>
TAXATION OF DEATH BENEFIT
Distributions received by a beneficiary are generally given the same tax
treatment you would have received if distribution had been made to you.
ADDITIONAL TAXES AND PENALTIES
You are subject to additional taxation for using your Roth IRA funds in
prohibited transactions (as described below). There are also additional taxes
for making excess contributions and making certain pre-age 59 1/2 distributions.
Prohibited Transactions
A Roth IRA may not be borrowed against or used as collateral for a loan or other
obligation. If the Roth 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, you may be required to include in your Federal
gross income for that year an amount equal to the fair market value of your Roth
IRA Certificate as of the first day of that tax year. Also, an early
distribution penalty tax of 10% could apply if you have not reached age 59 1/2
before the first day of that tax year. See "Penalty Tax on Premature
Distributions" below.
EXCESS CONTRIBUTIONS
Excess contributions to a Roth 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
rollover Roth IRA contributions, "excess contributions" are amounts which are
not eligible to be rolled over (for example, conversion contributions from a
Traditional IRA if your adjusted gross income is in excess of $100,000 in the
conversion year).
As of the date of this prospectus, there is some uncertainty regarding the
adjustment of excess contributions to Roth IRAs. The rules applicable to
Traditional IRAs, which may apply, provide that an excess contribution
("regular" or rollover) which is withdrawn before the time for filing your
Federal income tax return for the tax year (including extensions) is not
includable in income and is not subject to the 10% penalty tax on early
distributions (discussed below under "Penalty Tax on Premature Distributions"),
provided any earnings attributable to the excess contribution are also
withdrawn. The withdrawn earnings on the excess contribution, however, could be
includable in your gross income for the tax year in which the excess
contribution from which they arose was made and could be subject to the 10%
penalty tax.
As of the date of this prospectus, pending legislation, if enacted, would
provide that a taxpayer has up until the due date of the Federal income tax
return for a tax year (including extensions) to correct an excess contribution
to a Roth IRA by doing a trustee-to-trustee transfer to a Traditional IRA of the
excess contribution and the applicable earnings, as long as no deduction is
taken for the contribution. There can be no assurance that such pending
legislation will be enacted or will not be modified. Please consult your tax
adviser for information on the status of any legislation concerning Roth IRAs.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
The taxable portion of distributions from a Roth IRA made before you reach age
59 1/2 will be subject to an additional 10% Federal income tax penalty unless
one of the following exceptions applies. There are exceptions for:
o Your death,
o Your disability,
o Distributions used to pay certain extraordinary medical expenses,
o Distributions used to pay medical insurance premiums for certain unemployed
individuals,
o Substantially equal payments made at least annually over your life (or your
life expectancy), or over the lives of you and your beneficiary (or your
joint life expectancies) using an IRS-approved distribution method,
o "Qualified first-time homebuyer distributions" as defined in the Code, and
o Distributions used to pay specified higher education expenses as defined in
the Code.
Under legislation pending as of the date of this prospectus, if amounts
converted from a Traditional IRA to a Roth IRA are withdrawn in the five-year
period beginning with the year of conversion, to the extent attributable to
amounts that were includable in income due to the conversion transaction, the
amount withdrawn from the Roth IRA would be subject to the 10% early withdrawal
penalty, EVEN IF THE AMOUNT WITHDRAWN FROM THE ROTH IRA IS NOT INCLUDABLE IN
INCOME BECAUSE OF THE RECOVERY-OF-INVESTMENT FIRST RULE. However, if the
recipient is eligible for one of the penalty exceptions described above (e.g.,
being age 59 1/2 or older) no penalty will apply.
Such pending legislation also provides that an additional 10% penalty applies,
apparently without exception, to withdrawals allocable to 1998 conversion
transactions before the five-year exclusion date, in order to recapture the
benefit of the prorated inclusion of Traditional IRA conversion income over the
four-year period. See "Contributions to Roth IRAs," and "Conversion
Contributions to Roth IRAs" above. It is not known whether this legislation will
be enacted in its current form, but it may be retroactive to January 1, 1998.
44
<PAGE>
Because Roth IRAs have only been recently approved, you should consult with your
tax adviser as to whether they are an appropriate investment vehicle for you.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Equitable Life is required to withhold Federal income tax from Traditional IRA
distributions and the taxable portion of payments from annuity contracts, unless
the recipient elects not to be subject to income tax withholding. Withholding
may also apply to taxable amounts paid under a free look or cancellation. No
withholding is required on distributions which are not taxable (for example, a
direct transfer from one Roth IRA to another Roth IRA you own). In the case of
distributions from a Roth IRA, we may not be able to calculate the portion of
the distribution (if any) subject to tax. We may be required to withhold on the
gross amount of the distribution unless you elect out of withholding as
described below.
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. See your tax adviser if you think you may be affected by such rules.
Any income tax withheld is a credit against your income tax liability. 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 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.
45
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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.
46
<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 "Adjusted Historical 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 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.
The Certificates were not offered prior to October 1, 1997. Accordingly, the
performance data for the Investment Funds have been adjusted for expenses, as
described herein, that would have been incurred had these Certificates been
available prior to such date.
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. EQ Trust commenced
operations on May 1, 1997. 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.
ADJUSTED HISTORICAL PERFORMANCE DATA
The 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 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.
47
<PAGE>
ADJUSTED HISTORICAL 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**
- -------------------------------------------------------------------------------------------------------------------------------
HR TRUST
<S> <C> <C> <C> <C> <C>
Alliance Money Market 3.57% 3.11% 2.36% 3.90% 5.11%
Alliance High Yield 20.83 10.67 12.56 -- 9.33
Alliance Common Stock 22.20 15.09 13.60 13.73 13.15
Alliance Aggressive Stock 20.16 13.56 9.75 16.48 17.91
</TABLE>
- -------------------
See footnotes below.
- --------------------------------------------------------------------------------
The table below illustrates the growth of an assumed investment of $1,000, with
fees and charges deducted on the basis described above for the first method of
calculation.
ADJUSTED HISTORICAL 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**
- -------------------------------------------------------------------------------------------------------------------------------
HR TRUST
<S> <C> <C> <C> <C> <C>
Alliance Money Market $1,036 $1,096 $1,124 $1,466 $ 2,218
Alliance High Yield 1,208 1,355 1,807 -- 2,440
Alliance Common Stock 1,222 1,525 1,892 3,620 13,394
Alliance Aggressive Stock 1,202 1,464 1,592 4,598 6,125
</TABLE>
- -------------------
* The tables reflect the optional benefit charge.
** The "Since Inception" dates for 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); and 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. 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.
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.
48
<PAGE>
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, distribution charge, 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 Select performance relative to other variable annuity
products.
<TABLE>
<CAPTION>
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
- -------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
HR TRUST
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 3.57% 3.33% 2.64% 4.20% 5.39% -- 5.59%
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 20.83 10.90 12.81 -- -- -- 9.62
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
ALLIANCE COMMON STOCK 22.20 15.32 13.86 13.96 14.64 13.64% 13.38
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 20.16 13.79 10.03 16.69 -- -- 18.25
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.
- --------------------------------------------------------------------------------
49
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
- -------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
HR TRUST
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 3.57% 10.31% 13.89% 50.89% 119.78% -- 131.84%
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 16.99 23.86 73.61 185.31 -- 184.26
ALLIANCE HIGH YIELD 20.83 36.40 82.67 -- -- -- 150.53
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
ALLIANCE COMMON STOCK 22.20 53.37 91.34 269.51 676.19 1,190.82% 1,290.50
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 20.16 47.32 61.27 368.29 -- -- 524.09
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR-BY-YEAR RATES OF RETURN*
- ----------------------------------------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
----------------------------------------------------------------------------------------------------------------
HR TRUST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY
MARKET** 9.09% 6.74% 4.91% 4.93% 5.60% 7.44% 6.50% 4.49% 1.90% 1.32% 2.36% 4.06% 3.57%
ALLIANCE HIGH
YIELD -- -- -- 3.03 7.98 3.46 (2.71) 22.47 10.51 21.18 (4.34) 18.01 20.83
ALLIANCE COMMON
STOCK** (3.53) 31.30 15.49 5.72 20.48 23.59 (9.59) 35.68 1.57 22.83 (3.70) 30.34 22.20
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.27 5.58 (0.48) 41.21 6.43 83.89 (4.71) 14.88 (5.35) 29.54 20.16
</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 7.72% (10.69)% 6.51% 27.77% 47.73% (7.37)% 15.70% 24.11%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.49 11.22 7.21
</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
50
<PAGE>
Week, Chicago Tribune, Forbes, Fortune, Institutional Investor, Investment
Adviser, Investment Dealer's Digest, Investment Management Weekly, Los Angeles
Times, Money, Money Management Letter, Kiplinger's Personal Finance, Financial
Planning, National Underwriter, Pension & Investments, USA Today, Investor's
Daily, The New York Times, and The Wall Street Journal.
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 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.
51
<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 was allocated on
February 15, 1999 to a Guarantee Period with an Expiration Date of February 15,
2008 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
was made on February 15, 2003.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ASSUMED
GUARANTEED RATE ON FEBRUARY 15, 2003
5.00% 9.00%
-----------------------------------------------------------
As of February 15, 2003 (Before Withdrawal)
- -------------------------------------------
<S> <C> <C>
(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)
<CAPTION>
On February 15, 2003 (After Withdrawal)
- ---------------------------------------
<S> <C> <C>
(4) Portion of (3) Associated
with Withdrawal: (3) x [$50,000/(1)]........................ $ 4,501 $ (4,851)
(5) Reduction in Guaranteed
Period Amount: [$50,000 - (4)].............................. 45,499 54,851
(6) Guaranteed Period Amount: (2) - (5)......................... 85,581 76,229
(7) Maturity Value.............................................. 120,032 106,915
(8) Present Value of (7), also
Annuity Account Value....................................... 94,048 69,487
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should note that under this example if a withdrawal is made when rates have
increased (from 7.00% to 9.00% in the example), a portion of a negative market
value adjustment is realized. On the other hand, if a withdrawal is made when
rates have decreased (from 7.00% to 5.00% in the example), a portion of a
positive market value adjustment is realized.
52
<PAGE>
APPENDIX II: QUALIFIED PLAN CERTIFICATES -- NQ CERTIFICATES
- --------------------------------------------------------------------------------
AVAILABILITY OF THE CERTIFICATES
When issued in connection with a qualified plan, NQ Certificates are available
for Annuitant issue ages 20 through 70.
CONTRIBUTIONS UNDER THE CERTIFICATES
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.
Such Certificates will be referred to as qualified plan (QP)Certificates.
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 pretax
and employer matching or other employer contributions, but not employee
after-tax contributions to the plan.
The minimum initial contribution is $25,000. Subsequent Contributions of at
least $1,000 may be made at any time until the Annuitant attains age 71.
METHODS OF PAYMENT
Automatic Investment Program
AIP, discussed in Part 3 of the prospectus, is not available for subsequent
contributions under Certificates issued to qualified plans.
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 QP Certificate must be the Certificate Owner.
PURCHASE CONSIDERATIONS
Any trustee considering a purchase of a QP 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 QP 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 recordkeeping
services with respect to this QP 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 QP 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 QP Certificates and the features
of the QP Certificates may appeal more to plan participants who are older and
tend to be highly paid, and because certain features of the QP 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 QP Certificates would cause the plan to engage in prohibited
discrimination in contributions, benefits or otherwise.
BASEBUILDER BENEFITS
If the Combined Guaranteed Minimum Income Benefit and Guaranteed Minimum Death
Benefit described in Part 3 of the prospectus is elected, the Guaranteed Minimum
Income Benefit may be exercised only after the trustee of the qualified plan
changes ownership of the QP Certificate to the Annuitant and the Annuitant, as
the new Owner, converts such QP Certificate in a direct rollover to a
Traditional IRA Certificate according to our rules at the time of the change.
The change of ownership and rollover to a Traditional IRA Certificate may only
occur when the Annuitant will no longer be a participant in the qualified plan.
ANNUITY BENEFITS AND PAYOUT ANNUITY OPTIONS
The only annuity benefits available under a Certificate issued in connection
with a qualified plan are a Life Annuity 10 Year Period Certain, or a Joint and
Survivor Life Annuity 10 Year Period Certain. Income Manager payout annuity
options are available only after the QP Certificate is rolled over into a
Traditional IRA Certificate. See "Annuity Benefits and Payout Annuity Options"
in Part 4 of the prospectus.
53
<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 Alliance 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:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
END OF 6% ROLL UP TO AGE 80 ANNUAL RATCHET TO AGE 80
CONTRACT ANNUITY GUARANTEED MINIMUM GUARANTEED MINIMUM
YEAR ACCOUNT VALUE DEATH BENEFIT(1) DEATH BENEFIT
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
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% ROLL UP TO AGE 80
(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.
54
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
- --------------------------------------------------------------------------------
Part 1: Minimum Distribution Withdrawals -- Traditional 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 SELECT 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 Select SAI dated December 31, 1997:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
(SELSAI)
55
<PAGE>
EQUITABLE ACCUMULATOR(SM) SELECT
(IRA AND NQ)
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 1997
--------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 49
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
O ALLIANCE MONEY MARKET O BT EQUITY 500 INDEX O MFS RESEARCH
O ALLIANCE HIGH YIELD O BT SMALL COMPANY INDEX O MFS EMERGING GROWTH COMPANIES
O ALLIANCE COMMON STOCK O BT INTERNATIONAL EQUITY INDEX O MORGAN STANLEY EMERGING MARKETS EQUITY
O ALLIANCE AGGRESSIVE STOCK O JPM CORE BOND O EQ/PUTNAM GROWTH & INCOME VALUE
O ALLIANCE SMALL CAP GROWTH O LAZARD LARGE CAP VALUE O EQ/PUTNAM INVESTORS GROWTH
O LAZARD SMALL CAP VALUE O EQ/PUTNAM INTERNATIONAL EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
- --------------------------------------------------------------------------------
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
- --------------------------------------------------------------------------------
This statement of additional information (SAI) is not a prospectus. It should be
read in conjunction with the Separate Account No. 49 prospectus for the
Equitable Accumulator Select, dated December 31, 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 -- Traditional 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This SAI dated December 31, 1997 is a revision of Equitable Life's SAI dated
October 1, 1997 for the Equitable Accumulator Select (IRA and NQ) Certificates
and reflects limited changes to the information provided in the October SAI. The
Certificates were first offered on October 1, 1997. For convenience, in lieu of
a supplement to the October SAI, the SAI has been reprinted in its entirety.
- --------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Accumulator is a service mark of
The Equitable Life Assurance Society of the United States.
(SELSAI)
<PAGE>
- --------------------------------------------------------------------------------
PART 1 -- MINIMUM DISTRIBUTION WITHDRAWALS -- TRADITIONAL 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 Traditional 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 Select.
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/b) - c
where:
(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 1.60%.
- --------------------------------------------------------------------------------
PART 3 -- ANNUITY UNIT VALUES
The annuity unit value for each Investment Fund was fixed at $1.00 on each
Fund's respective effective date (as shown in the prospectus) 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 or period certain).
If the
2
<PAGE>
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 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 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 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, the administration charge and the
distribution 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 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 Select Certificates described in the
prospectus were first offered in 1997, no yield information is presented.
3
<PAGE>
- --------------------------------------------------------------------------------
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
- -----------------
[WHITE] Inflation [BLACK] Common Stock
[END OF GRAPHICALLY REPRESENTED DATA]
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.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
S&P 500
U.S. IT TOTAL
GVT TR RETURN
------ ---------
INDEX INDEX
------ ---------
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
Black dots = Intermediate-Term Govt. Bonds
White dots = Common Stocks
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding and
following chart on next 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 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 nor 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.
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.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM 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,(TM) 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 Select 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.
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" of the prospectus. 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.
5
<PAGE>
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.
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.
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
[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]
STARTING EARLY
The impact of inflation accentuates the need to begin a retirement program
early. The value of starting early is illustrated in the following charts.
As shown in Chart 3, if an individual makes annual contributions of $2,500 to
his or her retirement program beginning at age 30, he or she would accumulate
$414,551 by age 65 under the assumptions described earlier. If that individual
waited until age 50, he or she would only accumulate $70,193 by age 65 under the
same assumptions.
CHART 3
[THE FOLLOWING TABLE WAS REPRESENTED AS
A STACKED AREA GRAPH IN THE PROSPECTUS:]
30 ................. $414,551
40 ................. $182,691
50 ................. $ 70,193
GRAY - Age 30 WHITE - Age 40 BLACK - 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
CONTRI- YEAR YEAR YEAR YEAR YEAR
BUTION 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 (pretax)
by age 65. If he or she starts at age 30, under our assumptions he or she could
reach the
6
<PAGE>
goal by making a monthly pretax 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 pretax contribution of $767
(equivalent to $552 after taxes) to attain the goal, illustrating the importance
of starting early.
CHART 4
[THE FOLLOWING TABLE WAS REPRESENTED
AS A BAR GRAPH IN THE PROSPECTUS:]
START
AT AGE 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 Savings and 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 pretax dollars or are tax deductible and earnings grow income tax deferred.
An example of this type of program is the deductible Traditional 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 nonqualified 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 pretax
contributions and tax deferral, assume that a $2,000 annual pretax contribution
is made for thirty years. In this example, the retirement funds would be
$164,527 after thirty years (assuming a 7.5% rate of return, no withdrawals and
assuming the deduction of the 1.60% Separate Account daily asset charge -- but
no 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 $118,460 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
$118,460 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 $97,387 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.
7
<PAGE>
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 37,089 34,592
M 38,272 34,820
J 38,673 35,012
J 38,748 35,229
A 38,744 35,423
S 38,262 35,635
O 39,208 35,867
N 40,706 36,086
D 41,803 36,320
1986 J 42,011 36,524
F 43,792 36,717
M 45,230 36,938
A 45,021 37,130
M 46,493 37,312
J 47,036 37,506
J 45,602 37,701
A 47,609 37,874
S 45,430 38,045
O 46,935 38,220
N 47,703 38,369
D 47,070 38,557
1987 J 50,789 38,719
F 52,147 38,885
M 53,115 39,068
A 52,912 39,240
M 53,327 39,389
J 55,086 39,578
J 56,925 39,760
A 58,441 39,947
S 57,685 40,127
O 49,695 40,367
N 47,333 40,509
D 49,428 40,667
1988 J 50,743 40,785
F 52,280 40,972
M 51,393 41,152
A 51,824 41,342
M 52,174 41,553
J 53,765 41,756
J 53,732 41,969
A 52,733 42,217
S 54,245 42,478
O 55,302 42,738
N 54,915 42,981
D 55,673 43,252
1989 J 58,362 43,490
F 57,529 43,755
M 58,548 44,048
A 60,672 44,343
M 62,465 44,694
J 62,377 45,011
J 66,323 45,326
A 67,365 45,662
S 67,310 45,958
O 66,344 46,271
N 67,446 46,590
D 68,687 46,874
1990 J 65,533 47,142
F 66,234 47,410
M 67,578 47,714
A 66,541 48,043
M 71,214 48,370
J 70,982 48,674
J 70,955 49,005
A 66,481 49,329
S 64,314 49,625
O 64,286 49,962
N 67,252 50,247
D 68,667 50,548
1991 J 70,922 50,811
F 74,664 51,055
M 76,053 51,280
A 76,316 51,552
M 78,820 51,794
J 76,216 52,011
J 78,945 52,266
A 80,422 52,507
S 79,523 52,748
O 80,405 52,970
N 78,042 53,176
D 84,752 53,378
1992 J 83,616 53,560
F 84,486 53,710
M 83,290 53,892
A 85,196 54,065
M 85,604 54,216
J 84,717 54,390
J 87,387 54,558
A 86,078 54,700
S 86,890 54,842
O 87,176 54,969
N 89,486 55,095
D 90,453 55,249
1993 J 91,013 55,376
F 92,016 55,498
M 93,614 55,637
A 91,858 55,770
M 93,843 55,893
J 94,136 56,033
J 93,836 56,167
A 96,699 56,308
S 96,183 56,454
O 97,774 56,578
N 97,093 56,720
D 98,087 56,850
1994 J 100,753 56,992
F 98,615 57,112
M 95,249 57,266
A 96,281 57,421
M 97,589 57,605
J 95,734 57,783
J 98,297 57,945
A 101,558 58,159
S 99,666 58,375
O 101,566 58,596
N 98,647 58,813
D 99,883 59,072
1995 J 102,044 59,320
F 105,307 59,557
M 107,925 59,831
A 110,571 60,095
M 114,257 60,419
J 116,566 60,703
J 119,871 60,976
A 120,235 61,263
S 124,521 61,526
O 124,249 61,816
N 128,920 62,075
D 131,003 62,379
1996 J 157,783 65,623
$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).
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 21,659 21,142
J 22,000 21,254
A 22,149 21,390
S 22,394 21,550
O 22,623 21,755
N 23,446 21,964
D 23,372 22,252
1981 J 23,246 22,483
F 23,569 22,724
M 24,053 22,999
A 24,031 23,247
M 24,246 23,514
J 24,324 23,832
J 24,514 24,127
A 24,051 24,436
S 23,651 24,739
O 24,397 25,039
N 25,087 25,306
D 24,857 25,527
1982 J 24,193 25,731
F 23,594 25,968
M 23,618 26,222
A 24,248 26,518
M 23,995 26,799
J 23,892 27,057
J 23,731 27,341
A 25,407 27,549
S 25,647 27,689
O 27,281 27,852
N 28,031 28,028
D 28,386 28,216
1983 J 29,041 28,410
F 29,568 28,587
M 30,282 28,767
A 31,737 28,971
M 31,721 29,171
J 32,549 29,366
J 32,000 29,584
A 32,424 29,808
S 32,790 30,035
O 32,616 30,263
N 33,176 30,475
D 33,142 30,698
1984 J 33,104 30,931
F 32,544 31,150
M 32,969 31,378
A 33,202 31,632
M 32,246 31,879
J 32,767 32,118
J 32,593 32,381
A 34,841 32,650
S 34,959 32,931
O 35,133 33,260
N 35,058 33,503
D 35,692 33,717
1985 J 37,434 33,936
F 37,844 34,133
M 37,970 34,345
A 37,984 34,592
M 39,531 34,820
J 40,023 35,012
J 40,038 35,229
A 39,976 35,423
S 39,254 35,635
O 40,428 35,867
N 42,341 36,086
D 43,701 36,320
1986 J 43,926 36,524
F 46,184 36,717
M 47,968 36,938
A 47,659 37,130
M 49,498 37,312
J 50,136 37,506
J 48,265 37,701
A 50,769 37,874
S 47,982 38,045
O 49,830 38,220
N 50,767 38,369
D 49,918 38,557
1987 J 54,519 38,719
F 56,165 38,885
M 57,317 39,068
A 57,035 39,240
M 57,525 39,389
J 59,630 39,578
J 61,849 39,760
A 63,662 39,947
S 62,711 40,127
O 52,932 40,367
N 50,090 40,509
D 52,585 40,667
1988 J 54,165 40,785
F 55,951 40,972
M 54,862 41,152
A 55,344 41,342
M 55,720 41,553
J 57,582 41,756
J 57,509 41,969
A 56,280 42,217
S 58,018 42,478
O 59,225 42,738
N 58,749 42,981
D 59,588 43,252
1989 J 62,695 43,490
F 61,691 43,755
M 62,824 44,048
A 65,234 44,343
M 67,232 44,694
J 67,118 45,011
J 71,581 45,326
A 72,728 45,662
S 72,661 45,958
O 71,544 46,271
N 72,760 46,590
D 74,150 46,874
1990 J 70,617 47,142
F 71,385 47,410
M 72,851 47,714
A 71,676 48,043
M 76,833 48,370
J 76,576 48,674
J 76,526 49,005
A 71,611 49,329
S 69,246 49,625
O 69,192 49,962
N 72,438 50,247
D 73,964 50,548
1991 J 76,420 50,811
F 80,470 51,055
M 81,977 51,280
A 82,241 51,552
M 84,947 51,794
J 82,165 52,011
J 85,076 52,266
A 86,666 52,507
S 85,709 52,748
O 86,662 52,970
N 84,157 53,176
D 91,300 53,378
1992 J 90,106 53,560
F 91,047 53,710
M 89,770 53,892
A 91,798 54,065
M 92,244 54,216
J 91,302 54,390
J 94,130 54,558
A 92,765 54,700
S 93,626 54,842
O 93,940 54,969
N 96,377 55,095
D 97,388 55,249
1993 J 97,994 55,376
F 99,055 55,498
M 100,732 55,637
A 98,899 55,770
M 100,989 55,893
J 101,297 56,033
J 100,991 56,167
A 103,992 56,308
S 103,458 56,454
O 105,136 56,578
N 104,425 56,720
D 105,474 56,850
1994 J 108,259 56,992
F 106,046 57,112
M 102,533 57,266
A 103,617 57,421
M 104,976 57,605
J 103,062 57,783
J 105,741 57,945
A 109,118 58,159
S 107,170 58,375
O 109,151 58,596
N 106,146 58,813
D 107,426 59,072
1995 J 109,681 59,320
F 113,071 59,557
M 115,775 59,831
A 118,526 60,095
M 122,319 60,419
J 124,733 60,703
J 128,155 60,976
A 128,547 61,263
S 132,973 61,526
O 132,710 61,816
N 137,525 62,075
D 139,695 62,379
96 J 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 Equitable Accumulator Select 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.
8
<PAGE>
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 of the prospectus. 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)
- ------------------------------------------------------------------------
PRINCIPAL JOINT AND SURVIVOR*
AND -------------------------------
INTEREST INTEREST 50% 66.67% 100%
ONLY FOR SINGLE TO TO TO
ANNUITANT FOR LIFE 15 YEARS LIFE SURVIVOR SURVIVOR SURVIVOR
- ------------------------------------------------------------------------
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
- -------------------
The numbers are based on 5% interest compounded annually and the 1983 Individual
Annuity Mortality Table "a" projected with modified Scale G. Annuity purchase
rates available at annuitization may vary, depending primarily on the
annuitization interest rate, which may not be less than an annual rate of 2.5%.
* The Joint and Survivor Annuity Forms are based on male and female Annuitants
of the same age.
- --------------------------------------------------------------------------------
PART 8 -- FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society of
the United States included herein should be considered only as bearing upon the
ability of Equitable Life to meet its obligations under the Certificates.
There are no financial statements for the Separate Account as the Certificates
were first offered on October 1, 1997.
9
<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>
22) SUBSEQUENT EVENTS (UNAUDITED)
On June 10, 1997, Equitable Life sold EREIM (other than EQ Services,
Inc. and its interest in Column Financial, Inc.) to Lend Lease
Corporation Limited ("Lend Lease"), a publicly traded, international
property and financial services company based in Sydney, Australia. The
total purchase price was $400.0 million and consisted of $300.0 million
in cash and a $100.0 million note maturing in eight years and bearing
interest at the rate of 7.4%, subject to certain adjustments. The
Company recognized an investment gain of $162.4 million, net of Federal
income tax of $87.4 million as a result of this transaction. Equitable
Life entered into long-term advisory agreements pursuant to which EREIM
will continue to provide to Equitable Life's General Account and
Separate Accounts substantially the same services, for substantially the
same fees, as provided prior to the sale.
The businesses sold reported combined revenues of $226.1 million and
combined net earnings of $30.7 million in 1996. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 million, respectively.
On June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's acquisition of Cursitor by $120.9
million. This charge reflected Alliance's view that Cursitor's
continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for the six months ended June 30, 1997 included a
charge of $59.5 million, net of a Federal income tax benefit of $10.0
million and minority interest of $51.4 million.
F-46
