Equitable Accumulator Plus(SM)
A Combination variable and fixed deferred
annuity contract
STATEMENT OF ADDITIONAL INFORMAITON
AUGUST 2, 1999, AS REVISED
SEPTEMBER 2, 1999
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
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This statement of additional information ("SAI") is not a prospectus. It should
be read in conjunction with the related Equitable Accumulator Plus prospectus,
dated August 2, 1999. That prospectus provides detailed information concerning
the contracts and the variable investment options that fund the contracts. Each
variable investment option is a subaccount of Equitable Life's Separate Account
No. 49. 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 (Post Office Box 1547, Secaucus, NJ 07096-1547), by calling
1-800-789-7771 toll-free, or by contacting your registered representative.
TABLE OF CONTENTS
Unit Values 2
Annuity Unit Values 2
Custodian and Independent Accountants 3
Yield Information for the Alliance Money Market
Option and Alliance High Yield Option 3
Long-Term Market Trends 4
Key Factors in Retirement Planning 7
Financial Statements 11
Investment Performance of Variable
Investment Options 12
Copyright 1999 The Equitable Life Assurance Society of the United States
All rights reserved. Accumulator Plus is a service mark of The Equitable
Assurance Society of the United States.
EDIPLUS 8/99
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UNIT VALUES
Unit values are determined at the end of each valuation period for each of the
variable investment options. We may offer other annuity contracts and
certificates which will have their own unit values for the variable investment
options. They may be different from the unit values for the Equitable
Accumulator Plus.
The unit value for a variable investment option for any valuation period is
equal to: (1) the unit value for the preceding valuation period multiplied by
(ii) the net investment factor for that option for that valuation period. A
valuation period is each business day together with any preceding non-business
days. The net investment factor is:
[a/b] - c
where:
(a) is the value of the variable investment option's shares of the
corresponding Portfolio at the end of the valuation period. Any amounts
allocated to or withdrawn from the option for the valuation period are not
taken into account. For this purpose, we use the share value reported to us
by The Hudson River Trust or EQ Advisors Trust.
(b) is the value of the variable investment option's shares of the
corresponding Portfolio at the end of the preceding valuation period. (Any
amounts allocated or withdrawn for that valuation period are taken into
account.)
(c) is the daily mortality and expense risks charge, administrative charge, and
distribution charge relating to the contracts, 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%.
ANNUITY UNIT VALUES
The annuity unit value for each variable investment option was fixed at $1.00 on
each option's respective effective date (as shown in the prospectus) for
contracts 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 contract. 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 contracts have a 5% assumed base rate of net investment return, except in
states where that rate is not permitted. Annuity payments under contracts with
an assumed base rate of 3 1/2% will at first be smaller than those under
contracts with a 5% assumed base rate. Payments under the 3 1/2% contracts,
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% contracts.
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 you specify. The payments 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 your contract.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period or period certain).
If the annuity involved is a life
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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 variable investment options. We calculate each
monthly payment 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. We calculate the number of units by dividing the
first monthly payment by the annuity unit value for the valuation period. This
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 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 account value on the date annuity payments are to begin is enough to
fund an annuity with a monthly payment of $363. Also assume 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.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for the shares of The Hudson River Trust and EQ
Advisors Trust owned by Separate Account No. 49.
The financial statements of Separate Account No. 49 as at December 31, 1998 and
for the periods ended December 31, 1998 and 1997, and the consolidated financial
statements of Equitable Life as at December 31, 1998 and 1997 and for each of
the three years ended December 31, 1998 included in this SAI have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
YIELD INFORMATION FOR THE ALLIANCE MONEY MARKET OPTION AND ALLIANCE HIGH YIELD
OPTION
ALLIANCE MONEY MARKET OPTION
The Alliance Money Market option calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
contract with one unit at the beginning of the period. To determine the
seven-day rate of return, the net change in the unit value is computed by
subtracting the unit value at the beginning of the period from a unit value,
exclusive of capital changes, at the end of the period.
Unit values reflect all other accrued expenses of the Alliance Money Market
option but do not reflect any withdrawal charges or charges for applicable taxes
such as state or local premium taxes.
The adjusted net change is divided by the unit value at the beginning of the
period to obtain what is called 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 take into
account the compounding nature of the Alliance Money Market option'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 )[Superscript: 365/7] - 1. The
Alliance Money Market option yields will fluctuate daily. Accordingly, yields
for any given period do not necessarily represent future results. In addition,
the value of units of the
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Alliance Money Market option will fluctuate and not remain constant.
ALLIANCE HIGH YIELD OPTION
The Alliance High Yield option calculates yield information for 30-day periods.
The 30-day current yield calculation is based on a hypothetical contract with
one unit at the beginning of the period. To determine the 30-day rate of return,
the net change in the unit value is computed by subtracting the unit value at
the beginning of the period from a unit value, exclusive of capital changes, at
the end of the period.
Unit values reflect all other accrued expenses of the Alliance High Yield option
but do not reflect any withdrawal charges or charges for applicable taxes such
as state or local premium taxes.
The adjusted net change is divided by the unit value at the beginning of the
period to obtain the adjusted base period rate of return. This 30-day adjusted
base period return is then multiplied by 365/30 to produce an annualized 30-day
current yield figure carried to the nearest one-hundredth of one percent.
The yield for the Alliance High Yield option will fluctuate daily. Accordingly,
the yield for any given period does not necessarily represent future results. In
addition, the value of units of the Alliance High Yield option will fluctuate
and not remain constant.
ALLIANCE MONEY MARKET OPTION AND ALLIANCE HIGH YIELD OPTION YIELD INFORMATION
The yields for the Alliance Money Market option and Alliance High Yield option
reflect charges that are not normally reflected in the yields of other
investments. Therefore, they may be lower when compared with yields of other
investments. The yields for the Alliance Money Market option and Alliance High
Yield option should not be compared to the return on fixed rate investments
which guarantee rates of interest for specified periods. Nor should the yields
be compared to the yields of money market options made available to the general
public.
The seven-day current yield for the Alliance Money Market option was 3.94% for
the period ended December 31, 1998. The effective yield for that period was
4.02%.
The 30-day current yield for the Alliance High Yield option was 12.64% for the
period ended December 31, 1998.
Because the above yields reflect the deduction of variable investment option
expenses, they are lower than the corresponding yield figures for the Alliance
Money Market and Alliance High Yield Portfolios which reflect only the deduction
of The Hudson River Trust-level expenses.
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 variable investment options, 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 (for example, 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 variable investment options.
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 account value to those variable
investment options that invest in stocks.
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GROWTH OF $1 INVESTED ON JANUARY 1, 1958
(VALUES ARE AS OF LAST BUSINESS DAY)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE PRINTED DOCUMENT:]
Common Stock Inflation
1958 1.00 1.00
1959 1.12 1.01
1960 1.12 1.03
1961 1.43 1.04
1962 1.30 1.05
1963 1.60 1.07
1964 1.86 1.08
1965 2.10 1.10
1966 1.88 1.14
1967 2.34 1.17
1968 2.59 1.23
1969 2.37 1.30
1970 2.47 1.37
1971 2.82 1.42
1972 3.36 1.47
1973 2.87 1.60
1974 2.11 1.79
1975 2.89 1.92
1976 3.58 2.01
1977 3.32 2.15
1978 3.54 2.34
1979 4.19 2.65
1980 5.55 2.98
1981 5.28 3.25
1982 6.41 3.37
1983 7.86 3.50
1984 8.35 3.64
1985 11.03 3.78
1986 13.07 3.82
1987 13.75 3.99
1988 16.07 4.16
1989 21.13 4.36
1990 20.46 4.62
1991 26.74 4.76
1992 28.75 4.90
1993 31.63 5.04
1994 32.04 5.17
1995 44.03 5.30
1996 54.19 5.48
1997 72.27 5.57
1998 92.93 5.67
[LIGHT SHADED AREA = COMMON STOCK]
[DARK SHADED AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
Over shorter periods of time, however, common stocks tend to be subject to more
dramatic changes in value than fixed-income (debt) securities. Investors who are
nearing retirement age, or who have a need to limit short-term risk, may find it
preferable to allocate a smaller percentage of their account value to those
variable investment options 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 1998.
GROWTH OF $1 INVESTED ON JANUARY 1, 1990
(VALUES ARE AS OF LAST BUSINESS DAY)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK AND WHITE LINE GRAPH
IN THE PRINTED DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[END OF GRAPHICALLY REPRESENTED DATA]
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1998 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. Investment
management fees or expenses and charges typically associated with deferred
annuity products, are not 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.
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The rates of return illustrated do not represent returns of the variable
investment options. In addition, there is no assurance that the performance of
the variable investment options will correspond to rates of return such as those
illustrated in the chart.
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<TABLE>
<CAPTION>
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MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
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LONG-TERM LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON GOVERNMENT CORPORATE TERM GOV'T. TREASURY CONSUMER
ENDING DECEMBER 31, 1998 STOCKS BONDS BONDS BONDS BILLS PRICE INDEX
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<S> <C> <C> <C> <C> <C> <C>
1 Year 28.58% 13.06% 10.76% 10.21% 4.86% 1.80%
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3 Years 28.27 9.07 8.25 6.84 5.11 2.27
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5 Years 24.06 9.52 8.74 6.20 4.96 2.41
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10 Years 19.19 11.66 10.85 8.74 5.29 3.14
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20 Years 17.75 11.14 10.86 9.85 7.17 4.53
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30 Years 12.67 9.09 9.14 8.71 6.76 5.24
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40 Years 12.00 7.20 7.43 7.39 5.94 4.44
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50 Years 13.56 5.89 6.20 6.21 5.07 3.92
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60 Years 12.49 5.43 5.62 5.50 4.26 4.19
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Since 12/31/26 11.21 5.29 5.78 5.32 3.78 3.15
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Inflation Adjusted Since 1926 7.82 2.08 2.55 2.11 0.62 0.00
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</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills, and Inflation (SBBI), 1982,
updated in Stocks, Bonds, Bills and Inflation 1998
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
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1998,
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 1969-1998; 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.
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KEY FACTORS IN RETIREMENT PLANNING
INTRODUCTION
The Equitable Accumulator Plus 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 receiving annuity payments. Each of these
factors is addressed below.
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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 type of investment.
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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 "Tax information" in 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 [1998] Yearbook.(TM) All rights
reserved.
In reports or other communications or in advertising material, we may make use
of these or other graphic or numerical illustrations that we prepare showing the
impact of inflation, planning early for retirement, tax deferral,
diversification and other concepts important to retirement planning.
INFLATION
Inflation erodes purchasing power. This means that, in an inflationary period,
the dollar is worth less as time passes. Because many people live on a fixed
income during retirement, inflation is of particular concern to them. The charts
that follow illustrate the harmful impact of inflation over an extended period
of time. Between 1968 and 1998, the average annual inflation rate was 5.24%. As
demonstrated in Chart 1, this 5.24% annual rate of inflation would cause the
purchasing power of $35,000 to decrease to only $7,562 after 30 years.
CHART 1
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
(Income)
Today 35,000
10 Years 21,002
20 Years 12,602
30 Years 7,562
[END OF GRAPHICALLY REPRESENTED DATA]
In Chart 2, the impact of inflation is examined from another perspective.
Specifically, the chart illustrates the additional income needed to maintain the
purchasing power of $35,000 over a thirty-year period. Again, the 1968-1998
historical inflation rate of 5.24% is used. In this case, an additional $126,992
would be required to maintain the purchasing power of $35,000 after 30 years.
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CHART 2
[THE FOLLOWING DATA WAS REPRESENTED AS A SHADED
VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
Annual
Income Increase
Needed Needed
Today 35,000 -
10 Years 58,328 23,325
20 Years 97,204 62,204
30 Years 161,992 126,992
[END OF GRAPHICALLY REPRESENTED DATA]
STARTING EARLY
The impact of inflation highlights 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 DATA WAS REPRESENTED AS A SHADED
AREA GRAPH IN THE PRINTED DOCUMENT:]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[BLACK:] Age 50 $0 $0 $0 $0 $0 $15,610 $38,020 $70,193
[WHITE:] Age 40 $0 $0 $0 $15,610 $38,020 $70,193 $116,381 $182,691
[GRAY:] Age 30 $0 $15,610 $38,020 $70,193 $116,381 $182,691 $277,886 $414,551
</TABLE>
[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
$97,804 under our assumptions.
TABLE 1
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MONTHLY
CONTRI- YEAR YEAR YEAR YEAR YEAR
BUTION 10 15 20 25 30
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$ 20 $ 3,532 $ 6,520 $ 10,811 $ 16,970 $ 25,813
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50 8,829 16,301 27,027 42,425 64,532
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100 17,659 32,601 54,053 84,851 129,064
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200 35,317 65,202 108,107 169,701 258,129
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300 52,976 97,804 162,160 254,552 387,193
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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 goal by making a monthly pretax
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contribution of $129 (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
GOAL: $250,000 BY AGE 65
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK AND WHITE
VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
GOAL: $250,000 BY AGE 65
Tax Savings
and Tax-deferred
Net Cost Earnings at 7.5%
$93 per month Age 30 $ 39,265 $ 210,735
$212 per month Age 40 63,641 186,359
$552 per month Age 50 99,383 150,617
[END OF GRAPHICALLY REPRESENTED DATA]
TAX DEFERRAL
Contributing to a retirement plan early is part of an effective strategy for
addressing the impact of inflation. Another part of such a strategy is to
carefully select the types of retirement programs in which to invest. In
deciding where to invest retirement contributions, there are three basic types
of programs.
The first type offers the most tax benefits, and therefore is potentially the
most beneficial for accumulating funds for retirement. Contributions are made
with pre-tax dollars or are tax deductible and earnings grow income tax
deferred. An example of this type of program is the deductible traditional 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 nondeductible traditional IRAs and non-qualified annuities.
The third approach to retirement savings is fully taxable. Contributions are
made with after-tax dollars and earnings are taxed each year. Examples of this
type of program include certificates of deposit, savings accounts, and taxable
stock, bond or mutual fund investments.
Consider an example. For the type of retirement program that offers both pre-tax
contributions and tax deferral, assume that a $2,000 annual pre-tax 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 contract, 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.
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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. It is not
intended to represent a guaranteed or expected rate of return on any type of
investment. Moreover, early withdrawals of tax-deferred investments are
generally subject to a 10% penalty tax.
INVESTMENT FOR RETIREMENT
Selecting an appropriate retirement program is clearly an important part of an
effective retirement planning strategy. Carefully choosing among available
investment options is another essential component.
During the 1968-1998 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). Common stocks earned an average annual
return of 12.67% over this period, in contrast to 9.09% and 6.76% for the other
two investment categories. Significantly, common stock returns also outpaced
inflation, which grew at 5.24% over this period.
The Equitable Accumulator Plus can be an effective program for diversifying
ongoing investments between various asset categories. In addition, the Equitable
Accumulator Plus 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 option to other
variable investment options, dollar cost averaging attempts to shield your
investment from short-term price fluctuations. This, however, does not assure a
profit or protect against a loss in declining markets.
THE BENEFIT OF ANNUITIZATION
An individual may shift the risk of outliving his or her principal by electing a
lifetime income annuity. See "Choosing your annuity payout options" under
"Accessing your money" in the prospectus. Chart 5 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 5
MONTHLY INCOME
($100,000 CONTRIBUTION)
---------------------------------------------------------
PRINCIPAL JOINT AND SURVIVOR*
AND ------------------------
INTEREST INTEREST 50% 66.67%
ANNUIT- ONLY FOR 15 SINGLE TO SUR- TO SUR- 100% TO
ANT FOR LIFE YEARS LIFE VIVOR VIVOR 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.
<PAGE>
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the contracts.
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants..................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998........... FS-3
Statements of Operations for the Year Ended
December 31, 1998............................................... FS-6
Statements of Changes in Net Assets for the
Years Ended December 31, 1998 and 1997 ......................... FS-9
Notes to Financial Statements..................................... FS-14
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants..................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997........... F-2
Consolidated Statements of Earnings, Years Ended
December 31, 1998, 1997 and 1996................................ F-3
Consolidated Statements of Shareholder's Equity,
Years Ended December 31, 1998, 1997 and 1996.................... F-4
Consolidated Statements of Cash Flows, Years Ended
December 31, 1998, 1997 and 1996................................ F-5
Notes to Consolidated Financial Statements........................ F-6
FS-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 49
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Alliance Money Market Fund,
Alliance High Yield Fund, Alliance Common Stock Fund, Alliance Aggressive Stock
Fund, Alliance Small Cap Growth Fund, Alliance Global Fund, Alliance Growth
Investors Fund, Alliance Equity Index Fund ("Hudson River Trust funds") and the
BT Equity 500 Index Fund, BT Small Company Index Fund, BT International Equity
Index Fund, JPM Core Bond Fund, Lazard Large Cap Value Fund, Lazard Small Cap
Value Fund, MFS Research Fund, MFS Emerging Growth Companies Fund, MFS Growth
With Income Fund, Morgan Stanley Emerging Markets Equity Fund, EQ/Putnam Growth
& Income Value Fund, EQ/Putnam Investors Growth Fund and EQ/Putnam International
Equity Fund ("EQ Advisors Trust funds"), 21 of the separate investment funds of
The Equitable Life Assurance Society of the United States ("Equitable Life")
Separate Account No. 49 at December 31, 1998 and the results of each of their
operations and changes in each of their net assets for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of shares owned in The
Hudson River Trust and in The EQ Advisors Trust at December 31, 1998 with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
MONEY ALLIANCE COMMON
MARKET HIGH STOCK
FUND YIELD FUND FUND
------------- ------------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $225,580,555....................... $224,505,500
168,101,566....................... $143,068,233
406,761,148....................... $430,175,252
91,972,683.......................
78,319,196.......................
12,469,240.......................
17,737,959.......................
Receivable for Trust shares sold................. -- -- --
Receivable for policy-related transactions....... 4,332,935 383,395 2,667,305
------------ ------------ ------------
Total Assets..................................... 228,838,435 143,451,628 432,842,557
------------ ------------ ------------
LIABILITIES
Payable for policy-related transactions.......... -- -- --
Payable for Trust shares purchased............... 4,330,788 398,221 2,690,644
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 56,711 12,131 29,663
------------ ------------ ------------
Total Liabilities................................ 4,387,499 410,352 2,720,307
------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ $224,450,936 $143,041,276 $430,122,250
============ ============ ============
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE
AGGRESSIVE SMALL CAP ALLIANCE GROWTH
STOCK GROWTH GLOBAL INVESTORS
FUND FUND FUND FUND
----------- ------------ ------------ ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $225,580,555.......................
168,101,566.......................
406,761,148.......................
91,972,683....................... $85,021,814
78,319,196....................... $75,812,281
12,469,240....................... $14,015,688
17,737,959....................... $19,586,712
Receivable for Trust shares sold................. -- -- -- --
Receivable for policy-related transactions....... 424,488 367,423 -- --
----------- ----------- ----------- -----------
Total Assets..................................... 85,446,302 76,179,704 14,015,688 19,586,712
----------- ----------- ----------- -----------
LIABILITIES
Payable for policy-related transactions.......... -- -- 2,491 3,786
Payable for Trust shares purchased............... 431,647 377,229 225 225
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 19,328 14,543 13,884 21,482
----------- ----------- ----------- -----------
Total Liabilities................................ 450,975 391,772 16,600 25,493
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ $84,995,327 $75,787,932 $13,999,088 $19,561,219
=========== =========== =========== ===========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE
EQUITY BT SMALL
INDEX BT EQUITY 500 COMPANY
FUND INDEX FUND INDEX FUND
-------- ------------- ----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 5,140....................... $7,810
148,924,562....................... $164,809,643
28,054,963....................... $27,509,854
38,187,791.......................
103,171,703.......................
68,051,738.......................
52,206,882.......................
192,883,837.......................
Receivable for Trust shares sold................. -- -- --
Receivable for policy-related transactions....... -- 1,922,002 140,715
------ ------------ -----------
Total Assets..................................... 7,810 166,731,645 27,650,569
------ ------------ -----------
LIABILITIES
Payable for policy-related transactions.......... -- -- --
Payable for Trust shares purchased............... -- 1,922,001 140,715
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 7,810 451,887 9,795,374
------ ------------ -----------
Total Liabilities................................ 7,810 2,373,888 9,936,089
------ ------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ -- $164,357,757 $17,714,480
====== ============= ============
<CAPTION>
BT
INTERNATIONAL LAZARD
EQUITY INDEX JPM CORE LARGE CAP
FUND BOND FUND VALUE FUND
------------- ------------ -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 5,140.......................
148,924,562.......................
28,054,963.......................
38,187,791....................... $42,725,945
103,171,703....................... $103,323,470
68,051,738....................... $74,639,434
52,206,882.......................
192,883,837.......................
Receivable for Trust shares sold................. -- -- --
Receivable for policy-related transactions....... 204,947 1,017,157 571,212
----------- ------------ -----------
Total Assets..................................... 42,930,892 104,340,627 75,210,646
----------- ------------ -----------
LIABILITIES
Payable for policy-related transactions.......... -- -- --
Payable for Trust shares purchased............... 204,947 1,007,157 571,212
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 18,049,105 5,064,229 3,198,959
----------- ------------ -----------
Total Liabilities................................ 18,254,052 6,071,386 3,770,171
----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ $24,676,840 $ 98,269,241 $71,440,475
=========== ============ ===========
<CAPTION>
LAZARD MFS
SMALL CAP RESEARCH
VALUE FUND FUND
----------- ------------
ASSETS
<S> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 5,140.......................
148,924,562.......................
28,054,963.......................
38,187,791.......................
103,171,703.......................
68,051,738....................... $50,968,336
52,206,882....................... $220,852,728
192,883,837.......................
Receivable for Trust shares sold................. -- --
Receivable for policy-related transactions....... 229,801 1,280,613
----------- ------------
Total Assets..................................... 51,198,137 222,133,341
----------- ------------
LIABILITIES
Payable for policy-related transactions.......... 229,801 1,284,748
Payable for Trust shares purchased............... -- --
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 4,194,228 84,931
Total Liabilities 4,424,029 1,369,679
----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ $46,774,108 $220,763,662
=========== ============
</TABLE>
- ----------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS EMERGING MORGAN STANLEY EQ/PUTNAM
GROWTH MFS GROWTH EMERGING GROWTH &
COMPANIES WITH INCOME MARKETS EQUITY INCOME VALUE
FUND FUND (a) FUND FUND
------------- ----------- -------------- -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $125,337,823....................... $152,938,200
1,000....................... $1,000
11,094,471....................... $11,598,378
306,939,965....................... $327,783,967
144,081,047.......................
130,785,497.......................
Receivable for Trust shares sold................. -- -- -- --
Receivable for policy-related transactions....... 462,302 -- 93,637 1,246,390
------------ ----- ----------- ------------
Total Assets..................................... 153,400,502 1,000 11,692,015 329,030,357
------------ ----- ----------- ------------
LIABILITIES
Payable for policy-related transactions.......... -- -- -- --
Payable for Trust shares purchased............... 466,138 -- 92,621 1,250,224
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 99,138 1,000 26,825 145,459
------------ ----- ----------- ------------
Total Liabilities................................ 565,276 1,000 119,446 1,395,683
------------ ----- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ $152,835,226 -- $11,572,569 $327,634,674
============ ====== =========== ============
<CAPTION>
EQ/PUTNAM EQ/PUTNAM
INVESTORS INTERNATIONAL
GROWTH FUND EQUITY FUND
------------ ------------
ASSETS
<S> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $125,337,823.......................
1,000.......................
11,094,471.......................
306,939,965.......................
144,081,047....................... $174,979,286
130,785,497....................... $143,712,431
Receivable for Trust shares sold................. -- --
Receivable for policy-related transactions....... 1,644,116 419,401
------------ ------------
Total Assets..................................... 176,623,402 144,131,832
------------ ------------
LIABILITIES
Payable for policy-related transactions.......... -- --
Payable for Trust shares purchased............... 1,648,214 453,401
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5).............. 335,744 108,935
------------ ------------
Total Liabilities................................ 1,983,958 562,336
------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS........ $174,639,444 $143,569,496
============ ============
</TABLE>
- ----------
See Notes to Financial Statements.
(a) December 31, 1998 initial capital was received.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE
MONEY ALLIANCE COMMON AGGRESSIVE
MARKET HIGH STOCK STOCK
FUND YIELD FUND FUND FUND
---------- ------------ ----------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts......................... $6,709,792 $ 11,775,522 $ 952,116 $ 275,359
Expenses (Note 3):
Asset-based charges............................... 1,118,065 1,381,303 3,268,314 855,772
---------- ------------ ----------- -----------
NET INVESTMENT INCOME (LOSS)............................ 5,591,727 10,394,219 (2,316,198) (580,413)
---------- ------------ ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................. 303,090 (258,448) 277,445 (105,214)
Realized gain distribution from the Trusts........... 5,637 2,718,464 49,605,206 3,824,065
---------- ------------ ----------- -----------
NET REALIZED GAIN (LOSS)................................ 308,727 2,460,016 49,882,651 3,718,851
---------- ------------ ----------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period............................... (404,121) (1,398,277) 4,116,666 (2,440,983)
End of period..................................... (1,075,056) (25,033,332) 23,414,104 (6,950,869)
---------- ------------ ----------- -----------
Change in unrealized appreciation (depreciation)
during the period................................. (670,935) (23,635,055) 19,297,438 (4,509,886)
---------- ------------ ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................................ (362,208) (21,175,039) 69,180,089 (791,035)
---------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................. $5,229,519 $(10,780,820) $66,863,891 $(1,371,448)
========== ============ =========== ===========
<CAPTION>
ALLIANCE ALLIANCE
SMALL ALLIANCE GROWTH
CAP GLOBAL INVESTORS
GROWTH FUND FUND FUND
----------- ---------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts......................... $ -- $ 136,475 $ 338,347
Expenses (Note 3):
Asset-based charges............................... 717,685 160,655 224,047
----------- ---------- ----------
NET INVESTMENT INCOME (LOSS)............................ (717,685) (24,180) 114,300
----------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................. 9,425 224,358 342,546
Realized gain distribution from the Trusts........... -- 892,450 1,579,446
----------- ---------- ----------
NET REALIZED GAIN (LOSS)................................ 9,425 1,116,808 1,921,992
----------- ---------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period............................... (532,878) 221,064 906,877
End of period..................................... (2,506,915) 1,546,448 1,848,754
----------- ---------- ----------
Change in unrealized appreciation (depreciation)
during the period................................. (1,974,037) 1,325,384 941,877
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................................ (1,964,612) 2,442,192 2,863,869
----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................. $(2,682,297) $2,418,012 $2,978,169
=========== ========== ==========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BT SMALL BT INTER-
ALLIANCE COMPANY NATIONAL
EQUITY INDEX BT EQUITY 500 INDEX EQUITY INDEX
FUND INDEX FUND FUND FUND
------------ ------------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts......................... $ 63 $ 768,510 $ 188,913 $ 536,259
Expenses (Note 3):
Asset-based charges............................... -- 738,411 86,164 122,054
------ ----------- --------- ----------
NET INVESTMENT INCOME (LOSS)............................ 63 30,099 102,749 414,205
------ ----------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................. -- 579,907 (196,585) (487,255)
Realized gain distribution from the Trusts........... 2 -- 359,171 --
------ ----------- --------- ----------
NET REALIZED GAIN (LOSS)................................ 2 579,907 162,586 (487,255)
------ ----------- --------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period............................... 1,039 -- -- --
End of period..................................... 2,670 15,885,081 (545,108) 4,538,154
------ ----------- --------- ----------
Change in unrealized appreciation (depreciation)
during the period................................. 1,631 15,885,081 (545,108) 4,538,154
------ ----------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................................ 1,633 16,464,988 (382,522) 4,050,899
------ ----------- --------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................. $1,696 $16,495,087 $(279,773) $4,465,104
====== =========== ========= ==========
<CAPTION>
LAZARD LAZARD
JPM CORE LARGE CAP SMALL CAP
BOND VALUE VALUE
FUND FUND FUND
---------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts......................... $1,942,258 $ 355,224 $ 135,255
Expenses (Note 3):
Asset-based charges............................... 428,389 332,634 248,380
---------- ---------- -----------
NET INVESTMENT INCOME (LOSS)............................ 1,513,869 22,590 (113,125)
---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................. (6,592) (156,900) (707,142)
Realized gain distribution from the Trusts........... 1,048,914 -- --
---------- ---------- -----------
NET REALIZED GAIN (LOSS)................................ 1,042,322 (156,900) (707,142)
---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period............................... -- -- --
End of period..................................... 151,767 6,587,696 (1,238,546)
---------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period................................. 151,767 6,587,696 (1,238,546)
---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................................ 1,194,089 6,430,796 (1,945,688)
---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................. $2,707,958 $6,453,386 $(2,058,813)
========== ========== ===========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MORGAN
STANLEY
EMERGING
MFS EMERGING MARKETS
MFS RESEARCH GROWTH EQUITY
FUND COMPANIES FUND FUND
------------ -------------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts......................... $ 553,891 $ 2,768 $ 38,906
Expenses (Note 3):
Asset-based charges............................... 1,646,014 1,102,263 74,659
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS)............................ (1,092,123) (1,099,495) (35,753)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................. 28,858 305,790 (2,128,521)
Realized gain distribution from the Trusts........... -- -- --
----------- ----------- -----------
NET REALIZED GAIN (LOSS)................................ 28,858 305,790 (2,128,521)
----------- ----------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period............................... 6,734 (858,314) --
End of period..................................... 27,968,891 27,600,377 503,907
----------- ----------- -----------
Change in unrealized appreciation
(depreciation) during the period................... 27,962,157 28,458,691 503,907
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS....................................... 27,991,015 28,764,481 (1,624,614)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................ $26,898,892 $27,664,986 $(1,660,367)
=========== =========== ===========
<CAPTION>
EQ/PUTNAM EQ/PUTNAM
GROWTH & EQ/PUTNAM INTERNATIONAL
INCOME VALUE INVESTORS EQUITY
FUND GROWTH FUND FUND
----------- ----------- -------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts......................... $ 2,771,619 $ 111,391 $ 42,947
Expenses (Note 3):
Asset-based charges............................... 2,560,202 1,074,066 1,173,602
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS)............................ 211,417 (962,675) (1,130,655)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................. 303,706 2,190,787 1,085,258
Realized gain distribution from the Trusts........... 2,503,287 2 --
----------- ----------- -----------
NET REALIZED GAIN (LOSS)................................ 2,806,993 2,190,789 1,085,258
----------- ----------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period............................... 1,251,440 2,286,852 (355,156)
End of period..................................... 20,844,002 30,898,239 12,926,933
----------- ----------- -----------
Change in unrealized appreciation
(depreciation) during the period................... 19,592,562 28,611,387 13,282,089
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS....................................... 22,399,555 30,802,176 14,367,347
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............................ $22,610,972 $29,839,501 $13,236,692
=========== =========== ===========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ALLIANCE MONEY ALLIANCE HIGH
MARKET FUND YIELD FUND
-------------------------------- ------------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)......................... $ 5,591,727 $ 1,422,874 $ 10,394,219 $ 1,935,418
Net realized gain (loss)............................. 308,727 30,245 2,460,016 1,930,121
Change in unrealized appreciation
(depreciation) of investments..................... (670,935) (374,038) (23,635,055) (1,368,712)
------------ ----------- ------------ -----------
Net increase (decrease) in net
assets from operations............................ 5,229,519 1,079,081 (10,780,820) 2,496,827
------------ ----------- ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions..................................... 308,003,451 104,148,675 101,309,392 42,971,395
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1)............................... 117,047,248 11,039,704 28,971,750 6,495,053
------------ ----------- ------------ -----------
Total.......................................... 425,050,699 115,188,379 130,281,142 49,466,448
------------ ----------- ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............... 7,436,997 670,360 3,457,632 327,004
Withdrawal and administrative charges................ 104,554 93,894 173,986 117,245
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1)............................. 265,941,784 50,981,067 23,920,120 1,028,028
------------ ----------- ------------ -----------
Total............................................. 273,483,335 51,745,321 27,551,738 1,472,277
------------ ----------- ------------ -----------
Net increase in net assets from Contractowners
transactions...................................... 151,567,364 63,443,058 102,729,404 47,994,171
------------ ----------- ------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5)... 3,172 (2,952) (2,579) (28,875)
------------ ----------- ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.......................................... 156,800,055 64,519,187 91,946,005 50,462,123
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.................................. 67,650,881 3,131,694 51,095,271 633,148
------------ ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF
PERIOD............................................... $224,450,936 $67,650,881 $143,041,276 $51,095,271
============ =========== ============ ===========
<CAPTION>
ALLIANCE COMMON ALLIANCE AGGRESSIVE
STOCK FUND STOCK FUND
-------------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)......................... $ (2,316,198) $ (480,576) $ (580,413) $ (277,123)
Net realized gain (loss)............................. 49,882,651 9,497,894 3,718,851 3,898,956
Change in unrealized appreciation
(depreciation) of investments..................... 19,297,438 4,187,658 (4,509,886) (2,412,173)
------------ ------------ ----------- -----------
Net increase (decrease) in net
assets from operations............................ 66,863,891 13,204,976 (1,371,448) 1,209,660
------------ ------------ ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions..................................... 225,245,017 107,212,947 41,444,328 42,250,282
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1)............................... 43,818,466 11,247,312 9,547,092 6,703,750
------------ ------------ ----------- -----------
Total.......................................... 269,063,483 118,460,259 50,991,420 48,954,032
------------ ------------ ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............... 9,862,986 744,150 1,928,655 534,703
Withdrawal and administrative charges................ 438,917 428,790 148,718 190,057
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1)............................. 22,819,554 4,156,366 9,292,218 3,266,536
------------ ------------ ----------- -----------
Total............................................. 33,121,457 5,329,306 11,369,591 3,991,296
------------ ------------ ----------- -----------
Net increase in net assets from Contractowners
transactions...................................... 235,942,026 113,130,953 39,621,829 44,962,736
------------ ------------ ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5)... (207,816) (431) 3,308 8,081
------------ ------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS....................................... 302,598,101 126,335,498 38,253,689 46,180,477
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.................................. 127,524,149 1,188,651 46,741,638 561,161
------------ ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF
PERIOD............................................... $430,122,250 $127,524,149 $84,995,327 $46,741,638
============ ============ =========== ===========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ALLIANCE SMALL CAP
GROWTH FUND (a) ALLIANCE GLOBAL FUND
------------------------------- ------------------------------
1998 1997 1998 1997
----------- ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)................. $ (717,685) $ (103,753) $ (24,180) $ 94,464
Net realized gain (loss)..................... 9,425 761,781 1,116,808 986,714
Change in unrealized appreciation
(depreciation) of investments............. (1,974,037) (532,878) 1,325,384 224,896
----------- ------------ ----------- -----------
Net increase (decrease) in net
assets from operations.................... (2,682,297) 125,150 2,418,012 1,306,074
----------- ------------ ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................. 43,397,274 30,538,328 416,404 11,035,782
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1)....................... 12,800,367 2,845,702 712,308 2,538,990
----------- ------------ ----------- -----------
Total.................................. 56,197,641 33,384,030 1,128,712 13,574,772
----------- ------------ ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions....... 1,391,608 77,516 507,389 303,394
Withdrawal and administrative charges........ 86,076 30,958 47,663 121,147
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1)............ 8,974,764 672,314 1,808,151 1,825,805
----------- ------------ ----------- -----------
Total..................................... 10,452,448 780,788 2,363,203 2,250,346
----------- ------------ ----------- -----------
Net increase in net assets from
Contractowners transactions............... 45,745,193 32,603,242 (1,234,491) 11,324,426
----------- ------------ ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN SEPARATE
ACCOUNT NO. 49 (NOTE 5)...................... 2,485 (5,841) (24,608) (27,562)
----------- ------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS............................... 43,065,381 32,722,551 1,158,913 12,602,938
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.......................... 32,722,551 -- 12,840,175 237,237
----------- ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................ $75,787,932 $ 32,722,551 $13,999,088 $12,840,175
=========== ============ =========== ===========
<CAPTION>
ALLIANCE GROWTH ALLIANCE EQUITY
INVESTORS FUND INDEX FUND (a)
------------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)................. $ 114,300 $ 192,366 $ 63 $ 52
Net realized gain (loss)..................... 1,921,992 1,119,576 2 23
Change in unrealized appreciation
(depreciation) of investments............. 941,877 912,616 1,631 1,039
----------- ----------- ------ ------
Net increase (decrease) in net
assets from operations.................... 2,978,169 2,224,558 1,696 1,114
----------- ----------- ------ ------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................. 979,342 14,900,369 -- --
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1)....................... 861,920 2,566,982 -- --
----------- ----------- ------ ------
Total.................................. 1,841,262 17,467,351 -- --
----------- ----------- ------ ------
WITHDRAWAL AND TRANSFERS: -- --
Benefits and other policy transactions....... 692,359 160,368 -- --
Withdrawal and administrative charges........ 62,534 87,200 -- --
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1)............ 2,475,681 1,833,943 -- --
----------- ----------- ------ ------
Total..................................... 3,230,574 2,081,511 -- --
----------- ----------- ------ ------
Net increase in net assets from
Contractowners transactions............... (1,389,312) 15,385,840 -- --
----------- ----------- ------ ------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN SEPARATE
ACCOUNT NO. 49 (NOTE 5)...................... (27,724) (29,804) (1,696) (1,114)
----------- ----------- ------ ------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS............................... 1,561,133 17,580,594 -- --
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.......................... 18,000,086 419,492 -- --
----------- ----------- ------ ------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................ $19,561,219 $18,000,086 -- --
=========== =========== ====== ======
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
BT
BT SMALL INTERNATIONAL
BT EQUITY 500 INDEX COMPANY INDEX EQUITY INDEX JPM CORE BOND
FUND (a) FUND (a) FUND (a) FUND (a)
------------------- ------------- ------------- -------------
1998 1998 1998 1998
------------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)...................... $ 30,099 $ 102,749 $ 414,205 $ 1,513,869
Net realized gain (loss).......................... 579,907 162,586 (487,255) 1,042,322
Change in unrealized appreciation
(depreciation) of investments.................. 15,885,081 (545,108) 4,538,154 151,767
------------ ----------- ----------- ------------
Net increase (decrease) in net assets from
operations..................................... 16,495,087 (279,773) 4,465,104 2,707,958
------------ ----------- ----------- ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 137,742,388 15,585,722 20,850,190 73,102,741
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1).............. 28,395,723 4,179,014 16,741,163 37,948,208
------------ ----------- ----------- ------------
Total....................................... 166,138,111 19,764,736 37,591,353 111,050,949
------------ ----------- ----------- ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 1,738,442 120,912 219,542 1,038,633
Withdrawal and administrative charges............. 14,899 1,784 2,627 18,447
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1)................. 15,478,264 1,873,434 14,133,716 13,947,945
------------ ----------- ----------- ------------
Total.......................................... 17,231,605 1,996,130 14,355,885 15,005,025
------------ ----------- ----------- ------------
Net increase in net assets from
Contractowners transactions.................... 148,906,506 17,768,606 23,235,468 96,045,924
------------ ----------- ----------- ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE ACCOUNT
NO. 49 (NOTE 5)................................... (1,043,836) 225,647 (3,023,732) (484,641)
------------ ----------- ----------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 164,357,757 17,714,480 24,676,840 98,269,241
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. -- -- -- --
------------ ----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $164,357,757 $17,714,480 $24,676,840 $ 98,269,241
============ =========== =========== ============
<CAPTION>
LAZARD LAZARD
LARGE CAP SMALL CAP
VALUE VALUE
FUND (a) FUND (a)
----------- -----------
1998 1998
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss)...................... $ 22,590 $ (113,125)
Net realized gain (loss).......................... (156,900) (707,142)
Change in unrealized appreciation
(depreciation) of investments.................. 6,587,696 (1,238,546)
----------- -----------
Net increase (decrease) in net assets from
operations..................................... 6,453,386 (2,058,813)
----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 60,150,648 44,673,767
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1).............. 9,859,740 8,257,562
----------- -----------
Total....................................... 70,010,388 52,931,329
----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 586,925 436,736
Withdrawal and administrative charges............. 5,537 5,989
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1)................. 3,799,798 4,021,584
----------- -----------
Total.......................................... 4,392,260 4,464,309
----------- -----------
Net increase in net assets from
Contractowners transactions.................... 65,618,128 48,467,020
----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE ACCOUNT
NO. 49 (NOTE 5)................................... (631,039) 365,901
----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 71,440,475 46,774,108
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. -- --
----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $71,440,475 $46,774,108
=========== ===========
</TABLE>
- -------------------------
(a) Commenced operations on January 1, 1998.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MFS EMERGING
MFS GROWTH
RESEARCH COMPANIES
FUND (a) FUND (a)
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) .................... $ (1,092,123) $ (81,799) $ (1,099,495) $ (69,045)
Net realized gain (loss) ........................ 28,858 545,158 305,790 1,070,973
Change in unrealized appreciation
(depreciation) of investments ................ 27,962,157 6,734 28,458,691 (858,314)
------------- ------------- ------------- -------------
Net increase (decrease) in net
assets from operations ....................... 26,898,892 470,093 27,664,986 143,614
------------- ------------- ------------- -------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ................................ 121,807,223 59,357,999 76,639,008 40,227,730
Transfers from other Funds
and Guaranteed Interest
Rate Account (Note 1) ..................... 23,365,292 5,000,723 25,862,262 4,340,105
------------- ------------- ------------- -------------
Total ..................................... 145,172,515 64,358,722 102,501,270 44,567,835
------------- ------------- ------------- -------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .......... 3,681,079 183,523 2,376,229 341,045
Withdrawal and administrative charges ........... 208,060 85,087 133,480 44,128
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ............... 10,792,798 1,051,389 16,923,642 2,114,159
------------- ------------- ------------- -------------
Total ........................................ 14,681,937 1,319,999 19,433,351 2,499,332
------------- ------------- ------------- -------------
Net increase in net assets from
Contractowners transactions .................. 130,490,578 63,038,723 83,067,919 42,068,503
------------- ------------- ------------- -------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 49 (NOTE 5) ................ (131,281) (3,343) (106,304) (3,492)
------------- ------------- ------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS .................................. 157,258,189 63,505,473 110,626,601 42,208,625
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD ............................. 63,505,473 -- 42,208,625 --
------------- ------------- ------------- -------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD .................................. $220,763,662 $63,505,473 $152,835,226 $42,208,625
============= ============= ============= =============
<CAPTION>
MORGAN STANLEY
EMERGING
MARKETS EQUITY
FUND (b)
--------------
1998
--------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C>
Net investment income (loss) ........................... $ (35,753)
Net realized gain (loss) ............................... (2,128,521)
Change in unrealized appreciation
(depreciation) of investments ....................... 503,907
------------
Net increase (decrease) in net
assets from operations .............................. (1,660,367)
------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ....................................... 11,589,726
Transfers from other Funds
and Guaranteed Interest
Rate Account (Note 1) ............................ 12,891,618
------------
Total ............................................ 24,481,344
------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions ................. 83,958
Withdrawal and administrative charges .................. 1,595
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ...................... 11,162,025
------------
Total ............................................... 11,247,578
------------
Net increase in net assets from
Contractowners transactions ......................... 13,233,766
------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 49 (NOTE 5) ....................... (830)
------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ......................................... 11,572,569
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD .................................... --
------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD ......................................... $11,572,569
============
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on December 31, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQ/PUTNAM
GROWTH & INCOME EQ/PUTNAM
VALUE INVESTORS GROWTH
FUND (a) FUND (a)
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss).................... $ 211,417 $ 119,673 $ (962,675) $ (36,575)
Net realized gain (loss)........................ 2,806,993 391,558 2,190,789 364,091
Change in unrealized appreciation
(depreciation) of investments................ 19,592,562 1,251,440 28,611,387 2,286,852
------------ ----------- ------------ -----------
Net increase (decrease) in net
assets from operations....................... 22,610,972 1,762,671 29,839,501 2,614,368
------------ ----------- ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................ 192,282,349 89,354,305 102,305,888 29,499,045
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1).......................... 38,949,363 8,714,901 22,084,671 3,342,187
------------ ----------- ------------ -----------
Total..................................... 231,231,712 98,069,206 124,390,559 32,841,232
------------ ----------- ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions.......... 6,393,934 -- 2,648,953 151,674
Withdrawal and administrative charges........... 306,018 684,612 116,410 70,276
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1)............... 17,366,879 1,112,466 9,084,232 573,939
------------ ----------- ------------ -----------
Total........................................ 24,066,831 1,797,078 11,849,595 795,889
------------ ----------- ------------ -----------
Net increase in net assets from
Contractowners transactions.................. 207,164,881 96,272,128 112,540,964 32,045,343
------------ ----------- ------------ -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 49 (NOTE 5)................ (181,146) 5,168 (1,164,027) (1,236,705)
------------ ----------- ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................. 229,594,707 98,039,967 141,216,438 33,423,006
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD............................. 98,039,967 -- 33,423,006 --
------------ ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................... $327,634,674 $98,039,967 $174,639,444 $33,423,006
============ =========== ============ ===========
<CAPTION>
EQ/PUTNAM
INTERNATIONAL EQUITY
FUND (a)
---------------------------------
1998 1997
------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss).................... $ (1,130,655) $ (102,449)
Net realized gain (loss)........................ 1,085,258 259,624
Change in unrealized appreciation
(depreciation) of investments................ 13,282,089 (355,156)
------------ -----------
Net increase (decrease) in net
assets from operations....................... 13,236,692 (197,981)
------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................ 72,938,890 49,901,207
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1).......................... 29,843,626 4,211,149
------------ -----------
Total..................................... 102,782,516 54,112,356
------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions.......... 2,642,413 155,422
Withdrawal and administrative charges........... 169,696 69,966
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1)............... 21,216,559 1,074,411
------------ -----------
Total........................................ 24,028,668 1,299,799
------------ -----------
Net increase in net assets from
Contractowners transactions.................. 78,753,848 52,812,557
------------ -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 49 (NOTE 5)................ (560,408) (475,212)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................. 91,430,132 52,139,364
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD............................. 52,139,364 --
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................... $143,569,496 $52,139,364
============ ===========
</TABLE>
- --------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
The Equitable Life Assurance Society of the United States ("Equitable
Life") Separate Account No. 49 (the "Account") is organized as a unit
investment trust, a type of investment company, and is registered with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "1940 Act"). Alliance Capital Management L.P., an indirect
majority-owned subsidiary of Equitable Life, manages The Hudson River
Trust ("HRT") and is the investment adviser for all of the investment
funds of HRT. EQ Financial Consultants, Inc., ("EQFC") and Equitable
Distributors Inc. ("EDI") are indirect, wholly owned subsidiaries of
Equitable Life. EQFC manages the EQ Advisors Trust ("EQAT") and has
overall responsibility for general management and administration of EQAT.
The Account consists of 21 investment funds ("Funds"): the Alliance Money
Market Fund, Alliance High Yield Fund, Alliance Common Stock Fund,
Alliance Aggressive Stock Fund, Alliance Small Cap Growth Fund, Alliance
Global Fund, Alliance Growth Investors Fund, Alliance Equity Index Fund,
BT Equity 500 Index Fund, BT Small Company Index Fund, BT International
Equity Index Fund, JPM Core Bond Fund, Lazard Large Cap Value Fund, Lazard
Small Cap Value Fund, MFS Research, MFS Emerging Growth Companies, MFS
Growth with Income Fund, Morgan Stanley Emerging Markets Equity Fund,
EQ/Putnam Growth & Income Value Fund, EQ/Putnam Investors Growth Fund and
EQ/Putnam International Equity Fund. As of December 31, 1998, the MFS
Growth with Income Fund had not yet sold units to the public and
accordingly there is no activity in the Statements of Operations and the
Statement of Changes in Net Assets. The assets in each fund are invested
in Class 1B shares of a corresponding portfolio ("Portfolio") of a mutual
fund of HRT or of EQAT (collectively, the "Trusts"). Class 1A and 1B
shares are offered by the Trusts at net asset value. Both classes of
shares are subject to fees for investment management and advisory services
and other Trust expenses. Class 1B shares are subject to distribution fees
imposed under a distribution plan (herein, the "Rule 12b-1 Plans") adopted
pursuant to Rule 12b-1 under the 1940 Act, as amended. The Rule 12b-1
Plans provide that the Trusts, on behalf of each Fund, may charge annually
up to 0.25% of the average daily net assets of a Fund attributable to its
Class 1B Shares in respect of activities primarily intended to result in
the sale of Class 1B Shares. These fees are reflected in the net asset
value of the shares. The Trusts are open-ended, diversified management
investment companies that sell their shares to separate accounts of
insurance companies. Each Portfolio has separate investment objectives.
The Account commenced operations on October 1, 1996.
EQFC and EDI earns fees from both Trusts under distribution agreements
held with the Trusts. EQFC also earns fees under an investment management
agreement with EQAT. Alliance earns fees under an investment advisory
agreement with the HRT.
The Account is used to fund benefits for the Rollover IRA, Equitable
Accumulator IRA, Equitable Accumulator TSA, Equitable Accumulator Select
IRA and Equitable Accumulator Select TSA, qualified deferred variable
annuities, which combine the Portfolios in the Account with guaranteed
fixed rate options, and the Accumulator, Equitable Accumulator NQ and
Equitable Accumulator Select NQ, which offer the same investment options
as the Equitable Accumulator IRA and Equitable Accumulator Select IRA for
the non-qualified market. The non-qualified variable annuities are also
available for purchase by certain types of qualified plans (referred to as
Equitable Accumulator QP and Equitable Accumulator Select QP). The
Equitable Accumulator IRA, NQ, QP and TSA (including Equitable Accumulator
Select IRA, NQ, QP and TSA), collectively referred to as the Contracts,
are offered under group and individual variable annuity forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Receivable/payable for policy-related transactions represent amounts due
to/from General Account predominately related to premiums, surrenders and
death benefits.
Included in the Withdrawals and Administrative Charges line of the
Statements of Changes in Net Assets are certain administrative charges
which are deducted from the Contractowners' account value.
Contractowners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate
of the contractowners' accounts allocated to that Fund. Additional assets
are set aside in Equitable Life's General Account to provide for other
policy benefits, as required under the state insurance law.
Equitable Life's General Account is subject to creditor rights.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net
asset values per share of the respective Portfolios. The net asset value
is determined by the Trust using the market or fair value of the
underlying assets of the Portfolio less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include gains and losses on redemptions of the
Trust's shares (determined on the identified cost basis) and Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares.
Dividends are recorded by HRT at the end of each quarter and by EQAT in
the fourth quarter on the ex-dividend date. Capital gains are distributed
by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required. However, Equitable Life retains
the right to charge for any Federal income tax which is attributable to
the Account if the law is changed.
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life charges the account for the following
charges:
<TABLE>
<CAPTION>
Asset-based
Mortality and Administration Distribution
Expense Risks Charge Charge
-------------- --------------- ------------
<S> <C> <C> <C>
Accumulator and Rollover IRA issued before 0.90% 0.30% --
May 1, 1997
Equitable Accumulator issued after May 1, 1997 1.10% 0.25% --
Equitable Accumulator Select 1.10% 0.25% 0.25%
</TABLE>
Aggregate
Charges
---------
Accumulator and Rollover IRA issued before 1.20%
May 1, 1997
Equitable Accumulator issued after May 1, 1997 1.35%
Equitable Accumulator Select 1.60%
These charges may be retained in the Account by Equitable Life and to the
extent retained, participate in the net results of the Trust ratably with
assets attributable to the Contracts.
Trust shares are valued at their net asset value with investment advisory
or management fees, the 12b-1 fee, and direct operating expenses of the
Trust, in effect, passed on to the Account and reflected in the
accumulation unit values of the Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -----------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
--------------------------
<S> <C> <C>
Net Issued (Redeemed) 120 b.p............ (30) 172
Net Issued (Redeemed) 135 b.p............ 4,005 1,153
Net Issued (Redeemed) 160 b.p............ 349 --
Net Issued (Redeemed) 0 b.p.............. 1,286 947
ALLIANCE HIGH YIELD FUND
--------------------------
Net Issued (Redeemed) 120 b.p............ (17) 402
Net Issued (Redeemed) 135 b.p............ 3,265 1,256
Net Issued (Redeemed) 160 b.p............ 168 2
</TABLE>
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -----------
ALLIANCE COMMON STOCK FUND (IN THOUSANDS)
--------------------------
<S> <C> <C> <C>
Net Issued (Redeemed) 120 b.p........... (10) 229
Net Issued (Redeemed) 135 b.p........... 1,108 434
Net Issued (Redeemed) 160 b.p........... 34 1
ALLIANCE AGGRESSIVE STOCK FUND
------------------------------
Net Issued (Redeemed) 120 b.p........... (13) 269
Net Issued (Redeemed) 135 b.p........... 559 380
Net Issued (Redeemed) 160 b.p........... 16 --
ALLIANCE SMALL CAP GROWTH FUND (a)
----------------------------------
Net Issued (Redeemed) 120 b.p........... 13 89
Net Issued (Redeemed) 135 b.p........... 3,580 2,521
Net Issued (Redeemed) 160 b.p........... 211 --
ALLIANCE GLOBAL FUND
--------------------
Net Issued (Redeemed) 120 b.p........... (42) 455
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Net Issued (Redeemed) 120 b.p........... (44) 582
BT EQUITY 500 INDEX FUND (b)
----------------------------
Net Issued (Redeemed) 120 b.p........... 87 --
Net Issued (Redeemed) 135 b.p........... 12,279 --
Net Issued (Redeemed) 160 b.p........... 951 --
BT SMALL COMPANY INDEX FUND (b)
-------------------------------
Net Issued (Redeemed) 120 b.p........... 18 --
Net Issued (Redeemed) 135 b.p........... 1,610 --
Net Issued (Redeemed) 160 b.p........... 211 --
BT INTERNATIONAL EQUITY INDEX FUND (b)
--------------------------------------
Net Issued (Redeemed) 120 b.p........... 9 --
Net Issued (Redeemed) 135 b.p........... 1,827 --
Net Issued (Redeemed) 160 b.p........... 248 --
JPM CORE BOND FUND (b)
----------------------
Net Issued (Redeemed) 120 b.p........... 98 --
Net Issued (Redeemed) 135 b.p........... 8,661 --
Net Issued (Redeemed) 160 b.p........... 379 --
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
LAZARD LARGE CAP VALUE FUND (b) (IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
Net Issued (Redeemed) 120 b.p.................. 22 --
Net Issued (Redeemed) 135 b.p.................. 5,696 --
Net Issued (Redeemed) 160 b.p.................. 315 --
LAZARD SMALL CAP VALUE FUND (b)
-------------------------------
Net Issued (Redeemed) 120 b.p.................. 26 --
Net Issued (Redeemed) 135 b.p.................. 4,733 --
Net Issued (Redeemed) 160 b.p.................. 344 --
MFS RESEARCH FUND (a)
---------------------
Net Issued (Redeemed) 120 b.p.................. 93 263
Net Issued (Redeemed) 135 b.p.................. 9,656 5,257
Net Issued (Redeemed) 160 b.p.................. 409 2
MFS EMERGING GROWTH COMPANIES FUND (a)
--------------------------------------
Net Issued (Redeemed) 120 b.p.................. 27 149
Net Issued (Redeemed) 135 b.p.................. 5,790 3,327
Net Issued (Redeemed) 160 b.p.................. 198 3
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (C)
-----------------------------------------------
Net Issued (Redeemed) 120 b.p.................. 16 --
Net Issued (Redeemed) 135 b.p.................. 1,805 --
Net Issued (Redeemed) 160 b.p.................. 203 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (a)
----------------------------------------
Net Issued (Redeemed) 120 b.p.................. 123 383
Net Issued (Redeemed) 135 b.p.................. 16,230 8,113
Net Issued (Redeemed) 160 b.p.................. 697 17
EQ/PUTNAM INVESTORS GROWTH FUND (a)
-----------------------------------
Net Issued (Redeemed) 120 b.p.................. 36 124
Net Issued (Redeemed) 135 b.p.................. 7,491 2,581
Net Issued (Redeemed) 160 b.p.................. 282 --
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Commenced operations on December 31, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Concluded):
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
EQ/PUTNAM INTERNATIONAL EQUITY FUND (a) (IN THOUSANDS)
---------------------------------------
<S> <C> <C> <C>
Net Issued (Redeemed) 120 b.p................. 3 187
Net Issued (Redeemed) 135 b.p................. 5,998 4,609
Net Issued (Redeemed) 160 b.p................. 418 5
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
5. Amounts retained by Equitable Life in Separate Account No. 49
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and Asset-based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and Asset-based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at
any time by Equitable Life to its General Account.
The following table shows the contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
INVESTMENT FUND 1998 1997
--------------- ------------ ----------
<S> <C> <C>
Alliance Money Market Fund.................................. $(1,183,691) $ (105,000)
Alliance High Yield Fund.................................... (1,528,340) (85,000)
Alliance Common Stock Fund.................................. (3,823,234) (180,000)
Alliance Aggressive Stock Fund.............................. (983,127) (110,000)
Alliance Small Cap Growth Fund.............................. (792,824) 5,000
Alliance Global Fund........................................ (225,129) (90,000)
Alliance Growth Investors Fund.............................. (336,002) (97,000)
Alliance Equity Index Fund.................................. -- 5,000
BT Equity 500 Index Fund(2)................................. (1,331,361) 1,000
BT Small Company Index Fund(2).............................. 9,933,857 1,000
BT International Equity Index Fund(2)....................... 14,902,319 1,000
JPM Core Bond Fund(2)....................................... 4,150,198 1,000
Lazard Large Cap Value Fund(2).............................. 2,234,287 1,000
Lazard Small Cap Value Fund(2).............................. 4,310,749 1,000
MFS Research Fund(1)........................................ (1,751,938) --
MFS Emerging Growth Companies Fund(1)....................... (1,150,981) --
MFS Growth with Income Fund(3) ............................. -- --
Morgan Stanley Emerging Markets Equity Fund(4).............. (48,664) --
EQ/Putnam Growth & Income Value Fund(1)..................... (2,678,339) --
EQ/Putnam Investors Growth Fund(1).......................... (8,168,474) 5,000,000
EQ/Putnam International Equity Fund(1)...................... (7,148,298) 5,000,000
</TABLE>
- ----------
(1) Commenced operations on May 1, 1997.
(2) Initial capital received on December 31, 1997.
(3) Initial capital received on December 31, 1998.
(4) Commenced operations on December 31, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ---------------------------- ------------------------
ALLIANCE MONEY MARKET FUND
- --------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period......... $25.64 $24.68 $24.43
1.20% Unit value, end of period............... $26.62 $25.64 $24.68
1.35% Unit value, beginning of period (a)..... $25.00 $24.38 --
1.35% Unit value, end of period (a)........... $25.92 $25.00 --
1.60% Unit value, beginning of period (b)..... $23.98 $23.78 --
1.60% Unit value, end of period (b)........... $24.80 $23.98 --
0% Unit value, beginning of period (a)........ $31.27 $30.21 --
0% Unit value, end of period (a).............. $32.86 $31.27 --
Number of units outstanding, end of
period (000's)
1.20%...................................... 329 359 127
1.35%...................................... 5,158 1,153 --
1.60%...................................... 349 -- --
0%......................................... 2,233 947 --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ---------------------------- ------------------------
ALLIANCE HIGH YIELD FUND
- ------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period......... $30.46 $26.09 $25.33
1.20% Unit value, end of period............... $28.48 $30.46 $26.09
1.35% Unit value, beginning of period (a)..... $29.96 $26.35 --
1.35% Unit value, end of period (a)........... $27.96 $29.96 --
1.60% Unit value, beginning of period (b)..... $29.13 $28.79 --
1.60% Unit value, end of period (b)........... $27.12 $29.13 --
Number of units outstanding, end of
period (000's)
1.20%...................................... 422 439 24
1.35%...................................... 4,521 1,256 --
1.60%...................................... 170 2 --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ---------------------------- ------------------------
ALLIANCE COMMON STOCK FUND
- --------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period......... $192.60 $151.23 $139.82
1.20% Unit value, end of period............... $245.58 $192.60 $151.23
1.35% Unit value, beginning of period (a)..... $186.29 $146.89 --
1.35% Unit value, end of period (a)........... $237.18 $186.29 --
1.60% Unit value, beginning of period (b)..... $176.22 $172.77 --
1.60% Unit value, end of period (b)........... $223.79 $176.22 --
Number of units outstanding, end of
period (000's)
1.20%...................................... 230 240 8
1.35%...................................... 1,542 434 --
1.60%...................................... 35 1 --
</TABLE>
- -------------------------
(a) Units were made available for sale on May 1, 1997.
(b) Units were made available for sale on October 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- -------------------
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period......... $71.57 $65.53 $64.24
1.20% Unit value, end of period............... $70.74 $71.57 $65.53
1.35% Unit value, beginning of period (a)..... $70.28 $61.42 --
1.35% Unit value, end of period (a)........... $69.37 $70.28 --
1.60% Unit value, beginning of period (b)..... $68.19 $75.44 --
1.60% Unit value, end of period (b)........... $67.13 $68.19 --
Number of units outstanding, end of
period (000's)
1.20%...................................... 266 279 9
1.35%...................................... 939 380 --
1.60%...................................... 16 -- --
</TABLE>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997
---------- ----------
ALLIANCE SMALL CAP GROWTH FUND
- ------------------------------
1.20% Unit value, beginning of period (a)..... $12.55 $10.00
1.20% Unit value, end of period (a)........... $11.85 $12.55
1.35% Unit value, beginning of period (a)..... $12.54 $10.00
1.35% Unit value, end of period (a)........... $11.82 $12.54
1.60% Unit value, beginning of period (b)..... $12.52 $13.22
1.60% Unit value, end of period (b)........... $11.77 $12.52
Number of units outstanding, end of
period (000's)
1.20%...................................... 102 89
1.35%...................................... 6,101 2,521
1.60%...................................... 211 --
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996
---------------------------- ------------------------- -----------------
ALLIANCE GLOBAL FUND
- --------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period......... $27.61 $25.12 $26.00
1.20% Unit value, end of period............... $33.15 $27.61 $25.12
Number of units outstanding, end of
period (000's)
1.20%...................................... 422 464 9
</TABLE>
- -------------------------
(a) Units were made available for sale on May 1, 1997.
(b) Units were made available for sale on October 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------- ---------------------
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period......... $30.09 $26.15 $25.06
1.20% Unit value, end of period............... $35.33 $30.09 $26.15
Number of units outstanding, end of
period (000's)
1.20%...................................... 544 598 16
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------
ALLIANCE EQUITY INDEX FUND
- --------------------------
<S> <C> <C>
1.35% Unit value, beginning of period (a)..... $21.21 $17.51
1.35% Unit value, end of period (a)........... $26.73 $21.21
Number of units outstanding, end of
period (000's)
1.35%...................................... -- --
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 (b)
--------------------------------------- -----------------------------------
BT EQUITY 500 INDEX FUND
- ------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......... $10.00 $10.00
1.20% Unit value, end of period............... $12.36 $10.00
1.35% Unit value, beginning of period......... $10.00 $10.00
1.35% Unit value, end of period............... $12.34 $10.00
1.60% Unit value, beginning of period......... $10.00 $10.00
1.60% Unit value, end of period............... $12.31 $10.00
Number of units outstanding, end of
period (000's)
1.20%...................................... 87 --
1.35%...................................... 12,279 --
1.60%...................................... 951 --
</TABLE>
- -------------------------
(a) Units were made available for sale on May 1, 1997.
(b) Initial capital was received on December 31, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
BT SMALL COMPANY INDEX FUND
- ---------------------------
1.20% Unit value, beginning of period......... $10.00 $10.00
1.20% Unit value, end of period............... $9.65 $10.00
1.35% Unit value, beginning of period......... $10.00 $10.00
1.35% Unit value, end of period............... $9.64 $10.00
1.60% Unit value, beginning of period......... $10.00 $10.00
1.60% Unit value, end of period............... $9.61 $10.00
Number of units outstanding, end of
period (000's)
1.20%...................................... 18 --
1.35%...................................... 1,610 --
1.60%...................................... 211 --
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
BT INTERNATIONAL EQUITY INDEX FUND
- ----------------------------------
1.20% Unit value, beginning of period......... $10.00 $10.00
1.20% Unit value, end of period............... $11.87 $10.00
1.35% Unit value, beginning of period......... $10.00 $10.00
1.35% Unit value, end of period............... $11.85 $10.00
1.60% Unit value, beginning of period......... $10.00 $10.00
1.60% Unit value, end of period............... $11.82 $10.00
Number of units outstanding, end of
period (000's)
1.20%...................................... 9 --
1.35%...................................... 1,827 --
1.60%...................................... 248 --
- -------------------------
(a) Initial capital was received on December 31, 1997.
(b) Initial capital was received on December 31, 1998.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
JPM CORE BOND FUND
- ------------------
1.20% Unit value, beginning of period......... $10.00 $10.00
1.20% Unit value, end of period................. $10.77 $10.00
1.35% Unit value, beginning of period........... $10.00 $10.00
1.35% Unit value, end of period................. $10.76 $10.00
1.60% Unit value, beginning of period........... $10.00 $10.00
1.60% Unit value, end of period................. $10.73 $10.00
Number of units outstanding, end of
period (000's)
1.20%........................................ 98 --
1.35%........................................ 8,661 --
1.60%........................................ 379 --
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
LAZARD LARGE CAP VALUE FUND
- ---------------------------
1.20% Unit value, beginning of period........... $10.00 $10.00
1.20% Unit value, end of period................. $11.86 $10.00
1.35% Unit value, beginning of period........... $10.00 $10.00
1.35% Unit value, end of period................. $11.84 $10.00
1.60% Unit value, beginning of period........... $10.00 $10.00
1.60% Unit value, end of period................. $11.81 $10.00
Number of units outstanding, end of
period (000's)
1.20%........................................ 22 --
1.35%........................................ 5,696 --
1.60%........................................ 315 --
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
LAZARD SMALL CAP VALUE FUND
- ---------------------------
1.20% Unit value, beginning of period........... $10.00 $10.00
1.20% Unit value, end of period................. $9.18 $10.00
1.35% Unit value, beginning of period........... $10.00 $10.00
1.35% Unit value, end of period................. $9.17 $10.00
1.60% Unit value, beginning of period........... $10.00 $10.00
1.60% Unit value, end of period................. $9.14 $10.00
Number of units outstanding, end of
period (000's)
1.20%........................................ 26 --
1.35%........................................ 4,733 --
1.60%........................................ 344 --
- -------------------------
(a) Initial capital was received on December 31, 1997.
(b) Initial capital was received on December 31, 1998.
FS-23
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
MFS RESEARCH FUND
- -----------------
1.20% Unit value, beginning of period........... $11.51 $10.00
1.20% Unit value, end of period................. $14.12 $11.51
1.35% Unit value, beginning of period........... $11.50 $10.00
1.35% Unit value, end of period................. $14.08 $11.50
1.60% Unit value, beginning of period (c)...... $11.48 $11.77
1.60% Unit value, end of period (c)............. $14.02 $11.48
Number of units outstanding, end of
period (000's)
1.20%........................................ 356 263
1.35%........................................ 14,913 5,257
1.60%........................................ 410 1
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
MFS EMERGING GROWTH COMPANIES FUND
- ----------------------------------
1.20% Unit value, beginning of period........... $12.14 $10.00
1.20% Unit value, end of period................. $16.14 $12.14
1.35% Unit value, beginning of period........... $12.13 $10.00
1.35% Unit value, end of period................. $16.10 $12.13
1.60% Unit value, beginning of period (c)....... $12.11 $12.60
1.60% Unit value, end of period (c)............. $16.03 $12.11
Number of units outstanding, end of
period (000's)
1.20%........................................ 176 149
1.35%........................................ 9,117 3,327
1.60%........................................ 200 2
DECEMBER 31, 1998 (b)
---------------------------
MFS EMERGING GROWTH WITH INCOME FUND
- ------------------------------------
1.20% Unit value, beginning of period........... $10.00
1.20% Unit value, end of period................. $10.00
1.35% Unit value, beginning of period........... $10.00
1.35% Unit value, end of period................. $10.00
1.60% Unit value, beginning of period........... $10.00
1.60% Unit value, end of period................. $10.00
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Initial capital was received on December 31, 1998.
(c) Units were made available for sale on October 1, 1997.
FS-24
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
MORGAN STANLEY EMERGING MARKETS EQUITY FUND
- -------------------------------------------
1.20% Unit value, beginning of period (c)....... $7.95 $7.95
1.20% Unit value, end of period (c)............. $5.73 $7.95
1.35% Unit value, beginning of period (c)....... $7.94 $7.94
1.35% Unit value, end of period (c)............. $5.72 $7.94
1.60% Unit value, beginning of period (c)....... $7.93 $7.93
1.60% Unit value, end of period (c)............. $5.70 $7.93
Number of units outstanding, end of
period (000's)
1.20%........................................ 16 --
1.35%........................................ 1,805 --
1.60%........................................ 203 --
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
EQ/PUTNAM GROWTH & INCOME VALUE FUND
- ------------------------------------
1.20% Unit value, beginning of period........... $11.53 $10.00
1.20% Unit value, end of period................. $12.85 $11.53
1.35% Unit value, beginning of period........... $11.52 $10.00
1.35% Unit value, end of period................. $12.82 $11.52
1.60% Unit value, beginning of period (c)....... $11.50 $11.63
1.60% Unit value, end of period (c)............. $12.76 $11.50
Number of units outstanding, end of
period (000's)
1.20%........................................ 506 383
1.35%........................................ 24,343 8,113
1.60%........................................ 714 17
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
EQ/PUTNAM INVESTORS GROWTH FUND
- -------------------------------
1.20% Unit value, beginning of period........... $12.37 $10.00
1.20% Unit value, end of period................. $16.65 $12.37
1.35% Unit value, beginning of period........... $12.35 $10.00
1.35% Unit value, end of period................. $16.61 $12.35
1.60% Unit value, beginning of period (c) ...... $12.33 $12.12
1.60% Unit value, end of period (c) ............ $16.54 $12.33
Number of units outstanding, end of
period (000's)
1.20%........................................ 160 124
1.35%........................................ 10,072 2,581
1.60%........................................ 282 --
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Units were made available for sale on May 1, 1998.
(c) Units were made available for sale on December 31, 1997.
FS-25
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 (a)
----------- -----------
EQ/PUTNAM INTERNATIONAL EQUITY FUND
- -----------------------------------
1.20% Unit value, beginning of period........... $10.87 $10.00
1.20% Unit value, end of period................. $12.83 $10.87
1.35% Unit value, beginning of period........... $10.86 $10.00
1.35% Unit value, end of period................. $12.80 $10.86
1.60% Unit value, beginning of period (c)....... $10.84 $11.52
1.60% Unit value, end of period (c)............. $12.75 $10.84
Number of units outstanding, end of
period (000's)
1.20%........................................ 190 187
1.35%........................................ 10,607 4,609
1.60%........................................ 422 4
- -------------------------
(a) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on October 1, 1997.
FS-26
<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 comprehensive
income 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, 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 method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
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.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</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 AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(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............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is 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 subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues 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"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("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 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance 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. It also 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 includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
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") which
require 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.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
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,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
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
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or 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
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review 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 allowance for future losses, 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 allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances 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.
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 for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 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 vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. 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.
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 held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for 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 or 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.
F-9
<PAGE>
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.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (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.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("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 25 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 accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
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, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. 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. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
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.
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 represents 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,
includes 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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as 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.
F-11
<PAGE>
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 related to DI products issued prior to
July 1993. 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 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 Pension Par
and 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 DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</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.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 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 consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds 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 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 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.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</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
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have 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, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
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
concentrations in any single issuer or 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, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, 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 $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% 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 $115.1
million and $183.4 million at December 31, 1998 and 1997, 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 $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without 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 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 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income 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 $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for 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,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") 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 which was paid in 1998. 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 whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. 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
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. 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. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. 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 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. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 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,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, 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 for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
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>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, 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 a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, 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
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 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,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</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 and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
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 bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the 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 London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
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.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
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>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
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>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) 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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) 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 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 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
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 $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 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 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these 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.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) 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, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. 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, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 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 activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments 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 the timing and 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, 1998 and 1997.
F-30
<PAGE>
Fair values 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.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
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.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) 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 $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
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.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable'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
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against 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 original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company 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.
16) 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 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) 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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. 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.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) 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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 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
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
<PAGE>
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF VARIABLE INVESTMENT OPTIONS
We provide the following tables to show five different measurements of the
investment performance of the variable investment options and/or the Portfolios
in which they invest. We include these tables because they may be of general
interest to you. THE RESULTS SHOWN REFLECT PAST PERFORMANCE. THEY DO NOT
INDICATE HOW THE VARIABLE INVESTMENT OPTIONS MAY PERFORM IN THE FUTURE. THEY
ALSO DO NOT REPRESENT THE RESULTS EARNED BY ANY PARTICULAR INVESTOR. YOUR
RESULTS WILL DIFFER.
Table 1 shows the average annual total return of the variable investment
options. Average annual total return is the annual rate of growth that would be
necessary to achieve the ending value of a contribution plus the 4% credit
invested in the variable investment options for the periods shown.
Table 2 shows the growth of a hypothetical $1,000 investment plus a $40 credit
in the variable investment options over the periods shown. Both Tables 1 and 2
take into account all fees and charges under the contract, but do not reflect
the charges for any applicable taxes such as premium taxes or any applicable
annuity administrative fee.
Tables 3, 4, and 5 show the rates of return of the variable investment options
on an annualized, cumulative, and year-by-year basis. These tables take into
account all fees and charges under the contract, but do not reflect the
withdrawal charge or the charges for any applicable taxes such as premium taxes
or any applicable annuity administrative fee. If the charges were reflected they
would effectively reduce the rates of return shown.
In all cases the results shown are based on the actual historical investment
experience of the Portfolios in which the variable investment options invest. In
some cases, the results shown relate to periods when the variable investment
options and/or contracts were not available. In those cases, we adjusted the
results of the Portfolios to reflect the charges under the contracts that would
have applied had the variable investment options and/or contracts been
available. The contracts are being offered for the first time as of the date of
the prospectus.
In addition, we have adjusted the results prior to October 1996, when The Hudson
River Trust Class IB shares were not available, to reflect the 12b-1 fees
currently imposed. Finally, the results shown for the Alliance Money Market and
Alliance Common Stock options for periods before March 22, 1985 reflect the
results of the variable investment options that preceded them. The "Since
Portfolio inception" figures for these options are based on the date of
inception of the preceding variable investment options. We have adjusted these
results to reflect the maximum investment advisory fee payable for the
Portfolios, as well as an assumed charge of 0.06% for direct operating expenses.
EQ Advisors Trust commenced operations on May 1, 1997.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends.
From time to time, we may advertise different measurements of the investment
performance of the variable investment options and/or the Portfolios, including
the measurements reflected in the tables below. We will indicate that the 4%
credit is reflected when we show performance numbers that give effect to the
credit.
THE PERFORMANCE INFORMATION THAT WE ADVERTISE REFLECTS PAST PERFORMANCE AND DOES
NOT INDICATE HOW THE VARIABLE INVESTMENT OPTIONS MAY PERFORM IN THE FUTURE. SUCH
INFORMATION ALSO DOES NOT REPRESENT THE RESULTS EARNED BY ANY PARTICULAR
INVESTOR. YOUR RESULTS WILL DIFFER.
BENCHMARKS
Tables 3 and 4 compare the performance of variable investment options to market
indices that serve as 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. Also, they do not reflect other
contract charges such as the mortality and expense risks charge, administrative
charge, distribution charge, or any withdrawal charge. Comparisons with these
benchmarks, therefore, may be 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. The benchmarks include:
<PAGE>
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
ALLIANCE MONEY MARKET: Salomon Brothers Three-Month T-Bill Index.
ALLIANCE HIGH YIELD: Merrill Lynch High Yield Master Index.
ALLIANCE COMMON STOCK: Standard & Poor's 500 Index.
ALLIANCE AGGRESSIVE STOCK: 50% Russell 2000 Index and 50% Standard & Poor's
Mid-Cap Total Return Index.
ALLIANCE SMALL CAP GROWTH: Russell 2000 Growth Index.
EQ/ALLIANCE PREMIER GROWTH: Standard & Poor's 500 Index.
BT EQUITY 500 INDEX: Standard & Poor's 500 Index.
BT SMALL COMPANY INDEX: Russell 2000 Index.
BT INTERNATIONAL EQUITY INDEX: Morgan Stanley Capital International Europe,
Australia, Far East Index.
CAPITAL GUARDIAN U.S. EQUITY: Standard & Poor's 500 Index.
CAPITAL GUARDIAN RESEARCH: Standard & Poor's 500 Index.
CAPITAL GUARDIAN INTERNATIONAL: Morgan Stanley Capital International Europe,
Australia, Far East Index.
JPM CORE BOND: Salomon Brothers Broad Investment Grade Bond.
LAZARD LARGE CAP VALUE: Standard & Poor's 500 Index.
LAZARD SMALL CAP VALUE: Russell 2000 Index.
MFS GROWTH WITH INCOME: Standard & Poor's 500 Index.
MFS RESEARCH: Standard & Poor's 500 Index.
MFS EMERGING GROWTH COMPANIES: Russell 2000 Index.
MORGAN STANLEY EMERGING MARKETS EQUITY: Morgan Stanley Capital International
Emerging Markets Free Price Return Index.
LIPPER SURVEY. The Lipper Variable Insurance Products Performance Analysis
Survey (Lipper Survey) records the performance of a large group of variable
annuity products, including managed separate accounts of insurance companies.
According to Lipper Analytical Services, Inc. (Lipper), 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 Plus
performance relative to other variable annuity products
<PAGE>
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN UNDER A CONTRACT SURRENDERED ON DECEMBER 31, 1998+
- -----------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
---------------------------------------------------------------------------------
SINCE SINCE
1 3 5 10 OPTION PORTFOLIO
VARIABLE INVESTMENT OPTIONS YEAR YEARS YEARS YEARS INCEPTION* INCEPTION**
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Money Market (0.46)% 2.61% 3.17% 4.04% 1.67% 5.18%
- -----------------------------------------------------------------------------------------------------------------------
Alliance High Yield (11.18)% 8.80% 8.08% 9.54% 2.68% 8.80%
- -----------------------------------------------------------------------------------------------------------------------
Alliance Common Stock 24.08% 25.43% 20.13% 16.90% 19.14% 14.41%
- -----------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock (5.61)% 8.17% 9.57% 17.15% 1.61% 15.84%
- -----------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth (10.21)% -- -- -- 6.96% 6.96%
- ------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index 20.06% -- -- -- 20.06% 20.06%
- ----------------------------------------------------------------------------------------------------------------------
BT Small Company Index (8.02)% -- -- -- (8.02)% (8.02)%
- ----------------------------------------------------------------------------------------------------------------------
BT International Equity Index 14.90% -- -- -- 14.90% 14.90%
- ----------------------------------------------------------------------------------------------------------------------
JPM Core Bond 3.57% -- -- -- 3.57% 3.57%
- ----------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value 14.87% -- -- -- 14.87% 14.87%
- ----------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value (12.90)% -- -- -- (12.90)% (12.90)%
- ---------------------------------------------------------------------------------------------------------------------
MFS Research 19.00% -- -- -- 17.39% 17.39%
- ---------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies 29.66% -- -- -- 25.99% 25.99%
- ---------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity (33.32)% -- -- -- (33.32)% (28.41)%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ If you start receiving annuity payments within three years of making an
additional contribution we will recover the amount of any credit that
applied to that contribution.
* The variable investment option inception dates are: Alliance Money Market,
Alliance High Yield, Alliance Common Stock and Alliance Aggressive Stock
(October 16, 1996); Alliance Small Cap Growth, MFS Research, and MFS
Emerging Growth Companies (May 1, 1997); BT Equity 500 Index, BT Small
Company Index, BT International Equity Index, JPM Core Bond, Lazard Large
Cap Value, Lazard Small Cap Value, and Morgan Stanley Emerging Markets
Equity (December 31, 1997). The inception dates for the variable investment
options that became available on or after December 31, 1998, and are
therefore not shown in this table are: MFS Growth with Income (December 31,
1998); EQ/Alliance Premier Growth, Capital Guardian U.S. Equity, Capital
Guardian Research, and Capital Guardian International (May 1, 1999).
** The Portfolio inception dates are: Alliance Money Market (July 13, 1981);
Alliance High Yield (January 2, 1987); Alliance Common Stock (January 13,
1976); Alliance Aggressive Stock (January 27, 1986); Alliance Small Cap
Growth, MFS Research, and MFS Emerging Growth Companies (May 1, 1997); BT
Equity 500 Index, BT Small Company Index, BT International Equity Index, JPM
Core Bond, Lazard Large Cap Value, and Lazard Small Cap Value (December 31,
1997); and Morgan Stanley Emerging Markets Equity (August 20, 1997). The
inception dates for the Portfolios that became available on or after
December 31, 1998 and are therefore not shown in the tables are: MFS Growth
with Income (December 31, 1998); EQ/Alliance Premier Growth, Capital
Guardian U.S. Equity, Capital Guardian Research, and Capital Guardian
International (May 1, 1999).
<PAGE>
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 2
GROWTH OF $1,000 UNDER A CONTRACT SURRENDERED ON DECEMBER 31, 1998+
- ----------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
---------------------------------------------------------------------
SINCE
1 3 5 10 PORTFOLIO
VARIABLE INVESTMENT OPTIONS YEAR YEARS YEARS YEARS INCEPTION*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market $ 995.36 $1,080.28 $1,169.07 $1,486.17 $ 2,483.25
- ----------------------------------------------------------------------------------------------------------------------
Alliance High Yield $ 888.24 $1,287.80 $1,475.06 $2,486.46 $ 2,752.35
- ----------------------------------------------------------------------------------------------------------------------
Alliance Common Stock $1,240.80 $1,973.37 $2,501.91 $4,766.00 $22,115.73
- ----------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock $ 943.88 $1,265.63 $1,579.30 $4,867.64 $ 6,766.56
- ----------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth $ 897.91 -- -- -- $ 1,143.96
- ----------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index $1,200.55 -- -- -- $ 1,200.55
- ----------------------------------------------------------------------------------------------------------------------
BT Small Company Index $ 919.75 -- -- -- $ 919.75
- ----------------------------------------------------------------------------------------------------------------------
BT International Equity Index $1,148.97 -- -- -- $ 1,148.97
- ----------------------------------------------------------------------------------------------------------------------
JPM Core Bond $1,035.71 -- -- -- $ 1,035.71
- ----------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value $1,148.66 -- -- -- $ 1,148.66
- ----------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value $ 870.98 -- -- -- $ 870.98
- ----------------------------------------------------------------------------------------------------------------------
MFS Research $1,190.05 -- -- -- $ 1,378.02
- ----------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies $1,296.65 -- -- -- $ 1,587.26
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity $ 666.82 -- -- -- $ 512.53
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
+ If you start receiving annuity payments within three years of making an
additional contribution we will recover the amount of any credit that
applied to that contribution.
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 3
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- -----------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 3.40% 3.42% 3.23% 3.63% -- 5.11%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Money Market 4.84% 4.87% 4.77% 5.20% -- 6.77%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 5.05% 5.18% 5.11% 5.44% -- 6.76%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD (6.90)% 9.30% 7.96% 9.11% -- 8.45%
- -----------------------------------------------------------------------------------------------------------------------
Lipper High Current Yield (0.44)% 8.21% 7.37% 9.34% -- 8.97%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 3.66% 9.11% 9.01% 11.08% -- 10.72%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK 27.00% 25.24% 19.66% 16.44% 16.42% 14.24%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Growth 22.86% 22.23% 18.63% 16.72% 16.30% 16.01%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 28.23% 24.06% 19.21% 17.76% 15.98%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK (1.55)% 8.69% 9.39% 16.69% -- 15.59%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap Growth 12.16% 16.33% 14.87% 15.44% -- 13.69%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 8.28% 17.77% 15.56% 16.49% -- 14.78%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH (5.97)% -- -- -- -- 10.25%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Small Company Growth (0.33)% -- -- -- -- 16.72%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 1.23% -- -- -- -- 16.58%
- -----------------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX 23.13% -- -- -- -- 23.13%
- -----------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 26.78% -- -- -- -- 26.78%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 28.58%
- -----------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX (3.87)% -- -- -- -- (3.87)%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% -- -- -- -- 1.53%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- -----------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX 18.17% -- -- -- -- 18.17%
- -----------------------------------------------------------------------------------------------------------------------
Lipper International 12.17% -- -- -- -- 12.17%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% -- -- -- -- 20.00%
- -----------------------------------------------------------------------------------------------------------------------
JPM CORE BOND 7.28% -- -- -- -- 7.28%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Investment Grade 7.23% -- -- -- -- 7.23%
Debt
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 8.72% -- -- -- -- 8.72%
- -----------------------------------------------------------------------------------------------------------------------
LAZARD LARGE CAP VALUE 18.14% -- -- -- -- 18.14%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Capital Appreciation 24.16% -- -- -- -- 24.16%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 28.58%
- -----------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP VALUE (8.56)% -- -- -- -- (8.56)%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% -- -- -- -- 1.53%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- -----------------------------------------------------------------------------------------------------------------------
MFS RESEARCH 22.12% -- -- -- -- 22.44%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Growth 25.82% -- -- -- -- 28.73%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 31.63%
- -----------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES 32.37% -- -- -- 32.69%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap 15.97% -- -- -- 22.72%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- 14.53%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 3 (CONTINUED)
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- -----------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY (28.19)% -- -- -- -- (33.79)%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Emerging Markets (30.50)% -- -- -- -- (36.28)%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (25.34)% -- -- -- -- (28.92)%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 4
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- -----------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE MONEY MARKET 3.40% 10.60% 17.22% 42.89% -- 138.78%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Money Market 4.84% 15.34% 26.25% 66.09% -- 214.68%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 5.05% 16.35% 28.27% 69.88% -- 214.45%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD (6.90)% 30.56% 46.65% 139.11% -- 164.68%
- -----------------------------------------------------------------------------------------------------------------------
Lipper High Current Yield (0.44)% 26.80% 43.00% 145.62% -- 182.21%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 3.66% 29.90% 53.96% 186.01% -- 239.69%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK 27.00% 96.46% 145.35% 358.29% 1,991.24% 2,026.84%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Growth 22.86% 84.52% 138.97% 388.00% 2,185.68% 3,490.04%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 110.85% 193.91% 479.62% 2,530.43% 2,919.92%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK (1.55)% 28.42% 56.67% 368.05% -- 550.62%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap Growth 12.16% 58.64% 102.73% 334.88% -- 448.32%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 8.28% 63.35% 106.12% 360.30% -- 494.67%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH (5.97)% -- -- -- -- 17.69%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Small Company Growth (0.33)% -- -- -- -- 28.98%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 1.23% -- -- -- -- 29.23%
- -----------------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX 23.13% -- -- -- -- 23.13%
- -----------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 26.78% -- -- -- -- 26.78%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 28.58%
- -----------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX (3.87)% -- -- -- -- (3.87)%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% -- -- -- -- 1.49%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- -----------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX 18.17% -- -- -- -- 18.17%
- -----------------------------------------------------------------------------------------------------------------------
Lipper International 12.17% -- -- -- -- 12.23%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% -- -- -- -- 20.00%
- -----------------------------------------------------------------------------------------------------------------------
JPM CORE BOND 7.28% -- -- -- -- 7.28%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Investment Grade
Debt 7.23% -- -- -- -- 7.23%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 8.72% -- -- -- -- 8.72%
- -----------------------------------------------------------------------------------------------------------------------
LAZARD LARGE CAP VALUE 18.14% -- -- -- -- 18.14%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Capital Appreciation 24.16% -- -- -- -- 24.09%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 28.58%
- -----------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP VALUE (8.56)% -- -- -- -- (8.56)%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% -- -- -- -- 1.53%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- -----------------------------------------------------------------------------------------------------------------------
MFS RESEARCH 22.12% -- -- -- -- 40.19%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Growth 25.82% -- -- -- -- 52.86%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 57.60%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table 4 (continued)
Cumulative rates of return for periods ended December 31, 1998:
- -----------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MFS EMERGING GROWTH COMPANIES 32.37% -- -- -- -- 60.31%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap 15.97% -- -- -- -- 42.16%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- 25.40%
- -----------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY (28.19)% -- -- -- -- (43.02)%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Emerging Markets (30.50)% -- -- -- -- (45.67)%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark (25.34)% -- -- -- -- (36.71)%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table 5
Year-by-year rates of return
- -------------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Money Market 7.18% 6.23% 4.23% 1.65% 1.06% 2.10% 3.80% 3.37% 3.48% 3.40%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield 3.20% (2.95)% 22.17% 10.23% 20.88% (4.58)% 17.71% 20.60% 16.28% (6.90)%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Common Stock 23.28% (9.82)% 35.34% 1.31% 22.52% (3.94)% 30.01% 21.97% 26.84% 27.00%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock 40.86% 6.16% 83.43% (4.95)% 14.59% (5.59)% 29.21% 19.93% 8.77% (1.55)%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth -- -- -- -- -- -- -- -- 25.16%+ (5.97)%
- -------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index -- -- -- -- -- -- -- -- -- 23.13%
- -------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index -- -- -- -- -- -- -- -- -- (3.87)%
- -------------------------------------------------------------------------------------------------------------------------------
BT International Equity
Index -- -- -- -- -- -- -- -- -- 18.17%
- -------------------------------------------------------------------------------------------------------------------------------
JPM Core Bond -- -- -- -- -- -- -- -- -- 7.28%
- -------------------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value -- -- -- -- -- -- -- -- -- 18.14%
- -------------------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value -- -- -- -- -- -- -- -- -- (8.56)%
- -------------------------------------------------------------------------------------------------------------------------------
MFS Research -- -- -- -- -- -- -- -- 14.80%+ 22.12%
- -------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth
Companies -- -- -- -- -- -- -- -- 21.11%+ 32.37%
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging
Markets Equity -- -- -- -- -- -- -- -- (20.66)%+ (28.19)%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
+ Returns for these Portfolios represent less than 12 months of performance. The
returns are as of each Portfolio inception date as shown in Table 1.
<PAGE>
Equitable Accumulator Plus(SM) THE EQUITABLE LIFE ASSURANCE SOCIETY
A combination variable and fixed deferred OF THE UNITED STATES
annuity contract 1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 2, 1999, AS REVISED
SEPTEMBER 2, 1999
This statement of additional information ("SAI") is not a prospectus. It should
be read in conjunction with the related Equitable Accumulator Plus prospectus,
dated August 2, 1999. That prospectus provides detailed information concerning
the contracts and the variable investment options that fund the contracts. Each
variable investment option is a subaccount of Equitable Life's Separate Account
No. 49. 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 (Post Office Box 1547, Secaucus, NJ 07096-1547), by calling
1-800-789-7771 toll-free, or by contacting your registered representative.
TABLE OF CONTENTS
Unit Values 2
Annuity Unit Values 2
Custodian and Independent Accountants 3
Yield Information for the Alliance Money Market
Option and Alliance High Yield Option 3
Long-Term Market Trends 4
Key Factors in Retirement Planning 7
Financial Statements 11
Investment Performance of Variable
Investment Options 12
Copyright 1999 The Equitable Life Assurance Society of the United States
All rights reserved. Accumulator Plus is a service mark of The Equitable Life
Assurance Society of the United States.
MLFPLUS 8/99
<PAGE>
- --------------------------------------------------------------------------------
2 UNIT VALUES
- --------------------------------------------------------------------------------
Unit values are determined at the end of each valuation period for each of the
variable investment options. We may offer other annuity contracts and
certificates which will have their own unit values for the variable investment
options. They may be different from the unit values for the Equitable
Accumulator Plus.
The unit value for a variable investment option for any valuation period is
equal to: (1) the unit value for the preceding valuation period multiplied by
(ii) the net investment factor for that option for that valuation period. A
valuation period is each business day together with any preceding non-business
days. The net investment factor is:
(a/b) - c
where:
(a) is the value of the variable investment option's shares of the
corresponding Portfolio at the end of the valuation period. Any amounts
allocated to or withdrawn from the option for the valuation period are not
taken into account. For this purpose, we use the share value reported to us
by The Hudson River Trust or EQ Advisors Trust.
(b) is the value of the variable investment option's shares of the
corresponding Portfolio at the end of the preceding valuation period. (Any
amounts allocated or withdrawn for that valuation period are taken into
account.)
(c) is the daily mortality and expense risks charge, administrative charge, and
distribution charge relating to the contracts, 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%.
ANNUITY UNIT VALUES
The annuity unit value for each variable investment option was fixed at $1.00 on
each option's respective effective date (as shown in the prospectus) for
contracts 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 contract. 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 contracts have a 5% assumed base rate of net investment return, except in
states where that rate is not permitted. Annuity payments under contracts with
an assumed base rate of 3 1/2% will at first be smaller than those under
contracts with a 5% assumed base rate. Payments under the 3 1/2% contracts,
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% contracts.
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 you specify. The payments 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 your contract.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period or period certain).
If the annuity involved is a life
<PAGE>
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
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 variable investment options. We calculate each
monthly payment 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. We calculate the number of units by dividing the
first monthly payment by the annuity unit value for the valuation period. This
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 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 account value on the date annuity payments are to begin is enough to
fund an annuity with a monthly payment of $363. Also assume 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.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for the shares of The Hudson River Trust and EQ
Advisors Trust owned by Separate Account No. 49.
The financial statements of Separate Account No. 49 as at December 31, 1998 and
for the periods ended December 31, 1998 and 1997, and the consolidated financial
statements of Equitable Life as at December 31, 1998 and 1997 and for each of
the three years ended December 31, 1998 included in this SAI have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
YIELD INFORMATION FOR THE ALLIANCE MONEY MARKET OPTION AND ALLIANCE HIGH YIELD
OPTION
ALLIANCE MONEY MARKET OPTION
The Alliance Money Market option calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
contract with one unit at the beginning of the period. To determine the
seven-day rate of return, the net change in the unit value is computed by
subtracting the unit value at the beginning of the period from a unit value,
exclusive of capital changes, at the end of the period.
Unit values reflect all other accrued expenses of the Alliance Money Market
option but do not reflect any withdrawal charges or charges for applicable taxes
such as state or local premium taxes.
The adjusted net change is divided by the unit value at the beginning of the
period to obtain what is called 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 take into
account the compounding nature of the Alliance Money Market option'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) [superscript: 365/7] - 1. The
Alliance Money Market option yields will fluctuate daily. Accordingly, yields
for any given period do not necessarily represent future results. In addition,
the value of units of the
<PAGE>
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
Alliance Money Market option will fluctuate and not remain constant.
ALLIANCE HIGH YIELD OPTION
The Alliance High Yield option calculates yield information for 30-day periods.
The 30-day current yield calculation is based on a hypothetical contract with
one unit at the beginning of the period. To determine the 30-day rate of return,
the net change in the unit value is computed by subtracting the unit value at
the beginning of the period from a unit value, exclusive of capital changes, at
the end of the period.
Unit values reflect all other accrued expenses of the Alliance High Yield option
but do not reflect any withdrawal charges or charges for applicable taxes such
as state or local premium taxes.
The adjusted net change is divided by the unit value at the beginning of the
period to obtain the adjusted base period rate of return. This 30-day adjusted
base period return is then multiplied by 365/30 to produce an annualized 30-day
current yield figure carried to the nearest one-hundredth of one percent.
The yield for the Alliance High Yield option will fluctuate daily. Accordingly,
the yield for any given period does not necessarily represent future results. In
addition, the value of units of the Alliance High Yield option will fluctuate
and not remain constant.
ALLIANCE MONEY MARKET OPTION AND ALLIANCE HIGH YIELD OPTION YIELD INFORMATION
The yields for the Alliance Money Market option and Alliance High Yield option
reflect charges that are not normally reflected in the yields of other
investments. Therefore, they may be lower when compared with yields of other
investments. The yields for the Alliance Money Market option and Alliance High
Yield option should not be compared to the return on fixed rate investments
which guarantee rates of interest for specified periods. Nor should the yields
be compared to the yields of money market options made available to the general
public.
The seven-day current yield for the Alliance Money Market option was 3.94% for
the period ended December 31, 1998. The effective yield for that period was
4.02%.
The 30-day current yield for the Alliance High Yield option was 12.64% for the
period ended December 31, 1998.
Because the above yields reflect the deduction of variable investment option
expenses, they are lower than the corresponding yield figures for the Alliance
Money Market and Alliance High Yield Portfolios which reflect only the deduction
of The Hudson River Trust-level expenses.
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 variable investment options, 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 (for example, 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 variable investment options.
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 account value to those variable
investment options that invest in stocks.
<PAGE>
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
GROWTH OF $1 INVESTED ON JANUARY 1, 1958
(VALUES ARE AS OF LAST BUSINESS DAY)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE PRINTED DOCUMENT:]
Common Stock Inflation
1958 1.00 1.00
1959 1.12 1.01
1960 1.12 1.03
1961 1.43 1.04
1962 1.30 1.05
1963 1.60 1.07
1964 1.86 1.08
1965 2.10 1.10
1966 1.88 1.14
1967 2.34 1.17
1968 2.59 1.23
1969 2.37 1.30
1970 2.47 1.37
1971 2.82 1.42
1972 3.36 1.47
1973 2.87 1.60
1974 2.11 1.79
1975 2.89 1.92
1976 3.58 2.01
1977 3.32 2.15
1978 3.54 2.34
1979 4.19 2.65
1980 5.55 2.98
1981 5.28 3.25
1982 6.41 3.37
1983 7.86 3.50
1984 8.35 3.64
1985 11.03 3.78
1986 13.07 3.82
1987 13.75 3.99
1988 16.07 4.16
1989 21.13 4.36
1990 20.46 4.62
1991 26.74 4.76
1992 28.75 4.90
1993 31.63 5.04
1994 32.04 5.17
1995 44.03 5.30
1996 54.19 5.48
1997 72.27 5.57
1998 92.93 5.67
[LIGHT SHADED AREA = COMMON STOCK]
[DARK SHADED AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
Over shorter periods of time, however, common stocks tend to be subject to more
dramatic changes in value than fixed-income (debt) securities. Investors who are
nearing retirement age, or who have a need to limit short-term risk, may find it
preferable to allocate a smaller percentage of their account value to those
variable investment options 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 1998.
GROWTH OF $1 INVESTED ON JANUARY 1, 1990
(VALUES ARE AS OF LAST BUSINESS DAY)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK AND WHITE LINE GRAPH
IN THE PRINTED DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[END OF GRAPHICALLY REPRESENTED DATA]
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1998 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. Investment
management fees or expenses and charges typically associated with deferred
annuity products, are not 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 variable
investment options. In addition, there is no assurance that the performance of
the variable investment options will correspond to rates of return such as those
illustrated in the chart.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON GOVERNMENT CORPORATE TERM GOV'T. TREASURY CONSUMER
ENDING DECEMBER 31, 1998 STOCKS BONDS BONDS BONDS BILLS PRICE INDEX
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 28.58% 13.06% 10.76% 10.21% 4.86% 1.80%
- -----------------------------------------------------------------------------------------------------------------------------------
3 Years 28.27 9.07 8.25 6.84 5.11 2.27
- -----------------------------------------------------------------------------------------------------------------------------------
5 Years 24.06 9.52 8.74 6.20 4.96 2.41
- -----------------------------------------------------------------------------------------------------------------------------------
10 Years 19.19 11.66 10.85 8.74 5.29 3.14
- -----------------------------------------------------------------------------------------------------------------------------------
20 Years 17.75 11.14 10.86 9.85 7.17 4.53
- -----------------------------------------------------------------------------------------------------------------------------------
30 Years 12.67 9.09 9.14 8.71 6.76 5.24
- -----------------------------------------------------------------------------------------------------------------------------------
40 Years 12.00 7.20 7.43 7.39 5.94 4.44
- -----------------------------------------------------------------------------------------------------------------------------------
50 Years 13.56 5.89 6.20 6.21 5.07 3.92
- -----------------------------------------------------------------------------------------------------------------------------------
60 Years 12.49 5.43 5.62 5.50 4.26 4.19
- -----------------------------------------------------------------------------------------------------------------------------------
Since 12/31/26 11.21 5.29 5.78 5.32 3.78 3.15
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation Adjusted Since 1926 7.82 2.08 2.55 2.11 0.62 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
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 1969-1998, 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 1969-1998;
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.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
KEY FACTORS IN RETIREMENT PLANNING 7
- --------------------------------------------------------------------------------
INTRODUCTION
The Equitable Accumulator Plus 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 receiving annuity payments. 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 type of investment.
- --------------------------------------------------------------------------------
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 "Tax information" in 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 [1998] Yearbook(TM). All rights
reserved.
In reports or other communications or in advertising material, we may make use
of these or other graphic or numerical illustrations that we prepare showing the
impact of inflation, planning early for retirement, tax deferral,
diversification and other concepts important to retirement planning.
INFLATION
Inflation erodes purchasing power. This means that, in an inflationary period,
the dollar is worth less as time passes. Because many people live on a fixed
income during retirement, inflation is of particular concern to them. The charts
that follow illustrate the harmful impact of inflation over an extended period
of time. Between 1968 and 1998, the average annual inflation rate was 5.24%. As
demonstrated in Chart 1, this 5.24% annual rate of inflation would cause the
purchasing power of $35,000 to decrease to only $7,562 after 30 years.
CHART 1
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
(Income)
Today 35,000
10 Years 21,002
20 Years 12,602
30 Years 7,562
[END OF GRAPHICALLY REPRESENTED DATA]
In Chart 2, the impact of inflation is examined from another perspective.
Specifically, the chart illustrates the additional income needed to maintain the
purchasing power of $35,000 over a thirty-year period. Again, the 1968-1998
historical inflation rate of 5.24% is used. In this case, an additional $126,992
would be required to maintain the purchasing power of $35,000 after 30 years.
<PAGE>
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
CHART 2
[THE FOLLOWING DATA WAS REPRESENTED AS A SHADED
VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
Annual
Income Increase
Needed Needed
Today 35,000 -
10 Years 58,328 23,325
20 Years 97,204 62,204
30 Years 161,992 126,992
[END OF GRAPHICALLY REPRESENTED DATA]
STARTING EARLY
The impact of inflation highlights 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 DATA WAS REPRESENTED AS A SHADED
AREA GRAPH IN THE PRINTED DOCUMENT:]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[BLACK:] Age 50 $0 $0 $0 $0 $0 $15,610 $38,020 $70,193
[WHITE:] Age 40 $0 $0 $0 $15,610 $38,020 $70,193 $116,381 $182,691
[GRAY:] Age 30 $0 $15,610 $38,020 $70,193 $116,381 $182,691 $277,886 $414,551
</TABLE>
[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 goal by making a monthly pretax
<PAGE>
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
contribution of $129 (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
GOAL: $250,000 BY AGE 65
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK AND WHITE
VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
Tax Savings
and Tax-deferred
Net Cost Earnings at 7.5%
$93 per month Age 30 $ 39,265 $ 210,735
$212 per month Age 40 63,641 186,359
$552 per month Age 50 99,383 150,617
[END OF GRAPHICALLY REPRESENTED DATA]
TAX DEFERRAL
Contributing to a retirement plan early is part of an effective strategy for
addressing the impact of inflation. Another part of such a strategy is to
carefully select the types of retirement programs in which to invest. In
deciding where to invest retirement contributions, there are three basic types
of programs.
The first type offers the most tax benefits, and therefore is potentially the
most beneficial for accumulating funds for retirement. Contributions are made
with pre-tax dollars or are tax deductible and earnings grow income tax
deferred. An example of this type of program is the deductible traditional 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 nondeductible traditional IRAs and non-qualified annuities.
The third approach to retirement savings is fully taxable. Contributions are
made with after-tax dollars and earnings are taxed each year. Examples of this
type of program include certificates of deposit, savings accounts, and taxable
stock, bond or mutual fund investments.
Consider an example. For the type of retirement program that offers both pre-tax
contributions and tax deferral, assume that a $2,000 annual pre-tax 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 contract, 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.
<PAGE>
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
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. It is not
intended to represent a guaranteed or expected rate of return on any type of
investment. Moreover, early withdrawals of tax-deferred investments are
generally subject to a 10% penalty tax.
INVESTMENT FOR RETIREMENT
Selecting an appropriate retirement program is clearly an important part of an
effective retirement planning strategy. Carefully choosing among available
investment options is another essential component.
During the 1968-1998 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). Common stocks earned an average annual
return of 12.67% over this period, in contrast to 9.09% and 6.76% for the other
two investment categories. Significantly, common stock returns also outpaced
inflation, which grew at 5.24% over this period.
The Equitable Accumulator Plus can be an effective program for diversifying
ongoing investments between various asset categories. In addition, the Equitable
Accumulator Plus 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 option to other
variable investment options, dollar cost averaging attempts to shield your
investment from short-term price fluctuations. This, however, does not assure
a profit or protect against a loss in declining markets.
THE BENEFIT OF ANNUITIZATION
An individual may shift the risk of outliving his or her principal by electing a
lifetime income annuity. See "Choosing your annuity payout options" under
"Accessing your money" in the prospectus. Chart 5 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 5
MONTHLY INCOME
($100,000 CONTRIBUTION)
----------------------------------------------------------------------
PRINCIPAL JOINT AND SURVIVOR*
AND ---------------------------
INTEREST INTEREST 50% 66.67%
ANNUIT- ONLY FOR 15 SINGLE TO SUR- TO SUR- 100% TO
AND FOR LIFE YEARS LIFE VIVOR VIVOR 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.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS 11
- --------------------------------------------------------------------------------
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the contracts.
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ...................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998 .............. FS-3
Statements of Operations for the Year Ended December 31, 1998 ........ FS-7
Statements of Changes in Net Assets for the Years Ended December 31,
1998 and 1997 ...................................................... FS-10
Notes to Financial Statements ........................................ FS-15
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ...................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997 .............. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1998,
1997 and 1996 ..................................................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December
31, 1998, 1997 and 1996 ........................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1998,
1997 and 1996 ..................................................... F-5
Notes to Consolidated Financial Statements ........................... F-6
FS-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 49
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Alliance Money Market Fund,
Alliance High Yield Fund, Alliance Common Stock Fund, Alliance Aggressive Stock
Fund, Alliance Small Cap Growth Fund, Alliance Global Fund, Alliance Growth
Investors Fund, Alliance Equity Index Fund ("Hudson River Trust funds") and the
BT Equity 500 Index Fund, BT Small Company Index Fund, BT International Equity
Index Fund, EQ/Evergreen Fund, EQ/Evergreen Foundation Fund, JPM Core Bond Fund,
Lazard Large Cap Value Fund, Lazard Small Cap Value Fund, Merrill Lynch Basic
Value Equity Fund, Merrill Lynch World Strategy Fund, MFS Research Fund, MFS
Emerging Growth Companies Fund, MFS Growth With Income Fund, Morgan Stanley
Emerging Markets Equity Fund, EQ/Putnam Growth & Income Value Fund, EQ/Putnam
Investors Growth Fund and EQ/Putnam International Equity Fund ("EQ Advisors
Trust funds"), separate investment funds of The Equitable Life Assurance Society
of the United States ("Equitable Life") Separate Account No. 49 at December 31,
1998 and the results of each of their operations and changes in each of their
net assets for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Equitable Life's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1998 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
MONEY ALLIANCE COMMON AGGRESSIVE SMALL CAP ALLIANCE
MARKET HIGH STOCK STOCK GROWTH GLOBAL
FUND YIELD FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $225,580,555 ...................... $224,505,500
168,101,566 ...................... $143,068,233
406,761,148 ...................... $430,175,252
91,972,683 ...................... $ 85,021,814
78,319,196 ...................... $ 75,812,281
12,469,240 ...................... $ 14,015,688
Receivable for Trust shares sold ........... -- -- -- -- -- --
Receivable for policy-related transactions . 4,332,935 383,395 2,667,305 424,488 367,423 --
------------ ------------ ------------ ------------ ------------ ------------
Total Assets ............................... 228,838,435 143,451,628 432,842,557 85,446,302 76,179,704 14,015,688
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES
Payable for policy-related transactions .... -- -- -- -- -- 2,491
Payable for Trust shares purchased ......... 4,330,788 398,221 2,690,644 431,647 377,229 225
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5) ........ 56,711 12,131 29,663 19,328 14,543 13,884
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities .......................... 4,387,499 410,352 2,720,307 450,975 391,772 16,600
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS .. $224,450,936 $143,041,276 $430,122,250 $ 84,995,327 $ 75,787,932 $ 13,999,088
============ ============ ============ ============ ============ ============
</TABLE>
- ----------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE BT
GROWTH EQUITY BT SMALL INTERNATIONAL EQ/
INVESTORS INDEX BT EQUITY 500 COMPANY EQUITY INDEX EVERGREEN
FUND FUND INDEX FUND INDEX FUND FUND FUND(a)
----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 17,737,959 ...................... $19,586,712
5,140 ...................... $7,810
148,924,562 ...................... $164,809,643
28,054,963 ...................... $27,509,854
38,187,791 ...................... $ 42,725,945
1,000 ...................... $ 1,000
Receivable for Trust shares sold ........... -- -- -- -- -- --
Receivable for policy-related transactions . -- -- 1,922,002 140,715 204,947 --
----------- ------ ------------ ----------- ------------ ------------
Total Assets ............................... 19,586,712 7,810 166,731,645 27,650,569 42,930,892 1,000
----------- ------ ------------ ----------- ------------ ------------
LIABILITIES
Payable for policy-related transactions .... 3,786 -- -- -- -- --
Payable for Trust shares purchased ......... 225 -- 1,922,001 140,715 204,947 --
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5) ........ 21,482 7,810 451,887 9,795,374 18,049,105 1,000
----------- ------ ------------ ----------- ------------ ------------
Total Liabilities .......................... 25,493 7,810 2,373,888 9,936,089 18,254,052 1,000
----------- ------ ------------ ----------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS .. $19,561,219 -- $164,357,757 $17,714,480 $ 24,676,840 --
=========== ====== ============ =========== ============ ============
</TABLE>
- ----------
See Notes to Financial Statements.
(a) December 31, 1998 initial capital was received.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MERRILL
EQ/ MERRILL LYNCH
EVERGREEN LAZARD LAZARD LYNCH BASIC WORLD MFS
FOUNDATION JPM CORE LARGE CAP SMALL CAP VALUE EQUITY STRATEGY RESEARCH
FUND(a) BOND FUND VALUE FUND VALUE FUND FUND FUND FUND
------ ------------ ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 1,000 ..................... $1,000
103,171,703 ..................... $103,323,470
68,051,738 ..................... $74,639,434
52,206,882 ..................... $50,968,336
56,285,600 ..................... $56,061,240
7,720,878 ..................... $7,859,687
192,883,837 ..................... $220,852,728
Receivable for Trust shares sold .......... -- -- -- -- -- 79,629 --
Receivable for policy-related transactions. -- 1,017,157 571,212 229,801 255,851 -- 1,280,613
------ ------------ ----------- ----------- ----------- ---------- ------------
Total Assets .............................. 1,000 104,340,627 75,210,646 51,198,137 56,317,091 7,939,316 222,133,341
------ ------------ ----------- ----------- ----------- ---------- ------------
LIABILITIES
Payable for policy-related transactions ... -- -- -- -- -- 79,629 --
Payable for Trust shares purchased ........ -- 1,007,157 571,212 229,801 259,993 -- 1,284,748
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5) ....... 1,000 5,064,229 3,198,959 4,194,228 37,340 17,784 84,931
------ ------------ ----------- ----------- ----------- ---------- ------------
Total Liabilities ......................... 1,000 6,071,386 3,770,171 4,424,029 297,333 97,413 1,369,679
------ ------------ ----------- ----------- ----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS.. -- $ 98,269,241 $71,440,475 $46,774,108 $56,019,758 $7,841,903 $220,763,662
====== ============ =========== =========== =========== ========== ============
</TABLE>
- ----------
See Notes to Financial Statements.
(a) December 31, 1998 initial capital was received.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS MORGAN
EMERGING MFS STANLEY EQ/PUTNAM
GROWTH GROWTH EMERGING GROWTH & EQ/PUTNAM EQ/PUTNAM
COMPANIES WITH INCOME MARKETS INCOME VALUE INVESTORS INTERNATIONAL
FUND FUND(a) EQUITY FUND FUND GROWTH FUND EQUITY FUND
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $125,337,823 .................... $152,938,200
1,000 .................... $1,000
11,094,471 .................... $ 11,598,378
306,939,965 .................... $327,783,967
144,081,047 .................... $174,979,286
130,785,497 .................... $143,712,431
Receivable for Trust shares sold ......... -- -- -- -- -- --
Receivable for policy-related
transactions .......................... 462,302 -- 93,637 1,246,390 1,644,116 419,401
------------ ------ ------------ ------------ ------------ ------------
Total Assets ............................. 153,400,502 1,000 11,692,015 329,030,357 176,623,402 144,131,832
------------ ------ ------------ ------------ ------------ ------------
LIABILITIES
Payable for policy-related transactions .. -- -- -- -- -- --
Payable for Trust shares purchased ....... 466,138 -- 92,621 1,250,224 1,648,214 453,401
Amount retained by Equitable Life in
Separate Account No. 49 (Note 5) ...... 99,138 1,000 26,825 145,459 335,744 108,935
------------ ------ ------------ ------------ ------------ ------------
Total Liabilities ........................ 565,276 1,000 119,446 1,395,683 1,983,958 562,336
------------ ------ ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS. $152,835,226 -- $ 11,572,569 $327,634,674 $174,639,444 $143,569,496
============ ====== ============ ============ ============ ============
</TABLE>
- ----------
See Notes to Financial Statements.
(a) December 31, 1998 initial capital was received.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE
MONEY ALLIANCE COMMON AGGRESSIVE
MARKET HIGH STOCK STOCK
FUND YIELD FUND FUND FUND
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ..................................... $ 6,709,792 $ 11,775,522 $ 952,116 $ 275,359
Expenses (Note 3):
Asset-based charges ........................................... 1,118,065 1,381,303 3,268,314 855,772
----------- ------------ ----------- -----------
NET INVESTMENT INCOME (LOSS) ........................................ 5,591,727 10,394,219 (2,316,198) (580,413)
----------- ------------ ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............................. 303,090 (258,448) 277,445 (105,214)
Realized gain distribution from the Trusts ....................... 5,637 2,718,464 49,605,206 3,824,065
----------- ------------ ----------- -----------
NET REALIZED GAIN (LOSS) ............................................ 308,727 2,460,016 49,882,651 3,718,851
----------- ------------ ----------- -----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ........................................... (404,121) (1,398,277) 4,116,666 (2,440,983)
End of period ................................................. (1,075,056) (25,033,332) 23,414,104 (6,950,869)
----------- ------------ ----------- -----------
Change in unrealized appreciation (depreciation) during
the period .................................................... (670,935) (23,635,055) 19,297,438 (4,509,886)
----------- ------------ ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .............. (362,208) (21,175,039) 69,180,089 (791,035)
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 5,229,519 $(10,780,820) $66,863,891 $(1,371,448)
=========== ============ =========== ===========
<CAPTION>
ALLIANCE ALLIANCE
SMALL ALLIANCE GROWTH
CAP GLOBAL INVESTORS
GROWTH FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ..................................... $ -- $ 136,475 $ 338,347
Expenses (Note 3):
Asset-based charges ........................................... 717,685 160,655 224,047
----------- ---------- ----------
NET INVESTMENT INCOME (LOSS) ........................................ (717,685) (24,180) 114,300
----------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............................. 9,425 224,358 342,546
Realized gain distribution from the Trusts ....................... -- 892,450 1,579,446
----------- ---------- ----------
NET REALIZED GAIN (LOSS) ............................................ 9,425 1,116,808 1,921,992
----------- ---------- ----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ........................................... (532,878) 221,064 906,877
End of period ................................................. (2,506,915) 1,546,448 1,848,754
----------- ---------- ----------
Change in unrealized appreciation (depreciation) during
the period .................................................... (1,974,037) 1,325,384 941,877
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .............. (1,964,612) 2,442,192 2,863,869
----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..... $(2,682,297) $2,418,012 $2,978,169
=========== ========== ==========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BT SMALL BT INTER-
ALLIANCE COMPANY NATIONAL
EQUITY INDEX BT EQUITY 500 INDEX EQUITY INDEX
FUND INDEX FUND FUND FUND
------------ ----------- --------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ..................................... $ 63 $ 768,510 $ 188,913 $ 536,259
Expenses (Note 3):
Asset-based charges ........................................... -- 738,411 86,164 122,054
------ ----------- --------- ----------
NET INVESTMENT INCOME (LOSS) ........................................ 63 30,099 102,749 414,205
------ ----------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............................. -- 579,907 (196,585) (487,255)
Realized gain distribution from the Trusts ....................... 2 -- 359,171 --
------ ----------- --------- ----------
NET REALIZED GAIN (LOSS) ............................................ 2 579,907 162,586 (487,255)
------ ----------- --------- ----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ........................................... 1,039 -- -- --
End of period ................................................. 2,670 15,885,081 (545,108) 4,538,154
------ ----------- --------- ----------
Change in unrealized appreciation (depreciation) during
the period .................................................... 1,631 15,885,081 (545,108) 4,538,154
------ ----------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .............. 1,633 16,464,988 (382,522) 4,050,899
------ ----------- --------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..... $1,696 $16,495,087 $(279,773) $4,465,104
====== =========== ========= ==========
<CAPTION>
LAZARD LAZARD
JPM CORE LARGE CAP SMALL CAP
BOND VALUE VALUE
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ..................................... $ 1,942,258 $ 355,224 $ 135,255
Expenses (Note 3):
Asset-based charges ........................................... 428,389 332,634 248,380
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ........................................ 1,513,869 22,590 (113,125)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............................. (6,592) (156,900) (707,142)
Realized gain distribution from the Trusts ....................... 1,048,914 -- --
----------- ----------- -----------
NET REALIZED GAIN (LOSS) ............................................ 1,042,322 (156,900) (707,142)
----------- ----------- -----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ........................................... -- -- --
End of period ................................................. 151,767 6,587,696 (1,238,546)
----------- ----------- -----------
Change in unrealized appreciation (depreciation) during
the period .................................................... 151,767 6,587,696 (1,238,546)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .............. 1,194,089 6,430,796 (1,945,688)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 2,707,958 $ 6,453,386 $(2,058,813)
=========== =========== ===========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MERRILL MERRILL MFS
LYNCH LYNCH EMERGING
BASIC WORLD MFS GROWTH
VALUE EQUITY STRATEGY RESEARCH COMPANIES
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ..................................... $ 523,399 $ 56,946 $ 553,891 $ 2,768
Expenses (Note 3):
Asset-based charges ........................................... 433,649 73,191 1,646,014 1,102,263
---------- --------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ........................................ 89,750 (16,245) (1,092,123) (1,099,495)
---------- --------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............................. (125,370) (47,109) 28,858 305,790
Realized gain distribution from the Trusts ....................... 1,814,918 -- -- --
---------- --------- ----------- -----------
NET REALIZED GAIN (LOSS) ............................................ 1,689,548 (47,109) 28,858 305,790
---------- --------- ----------- -----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ........................................... (304,932) (116,763) 6,734 (858,314)
End of period ................................................. (224,361) 138,809 27,968,891 27,600,377
---------- --------- ----------- -----------
Change in unrealized appreciation (depreciation) during
the period .................................................... 80,571 255,572 27,962,157 28,458,691
---------- --------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .............. 1,770,119 208,463 27,991,015 28,764,481
---------- --------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..... $1,859,869 $ 192,218 $26,898,892 $27,664,986
========== ========= =========== ===========
<CAPTION>
MORGAN
STANLEY EQ/PUTNAM EQ/
EMERGING GROWTH & EQ/PUTNAM PUTNAM
MARKETS INCOME INVESTORS INTERNATIONAL
EQUITY VALUE GROWTH EQUITY
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ..................................... $ 38,906 $ 2,771,619 $ 111,391 $ 42,947
Expenses (Note 3):
Asset-based charges ........................................... 74,659 2,560,202 1,074,066 1,173,602
----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ........................................ (35,753) 211,417 (962,675) (1,130,655)
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............................. (2,128,521) 303,706 2,190,787 1,085,258
Realized gain distribution from the Trusts ....................... -- 2,503,287 2 --
----------- ----------- ----------- -----------
NET REALIZED GAIN (LOSS) ............................................ (2,128,521) 2,806,993 2,190,789 1,085,258
----------- ----------- ----------- -----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ........................................... -- 1,251,440 2,286,852 (355,156)
End of period ................................................. 503,907 20,844,002 30,898,239 12,926,933
----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation) during
the period .................................................... 503,907 19,592,562 28,611,387 13,282,089
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .............. (1,624,614) 22,399,555 30,802,176 14,367,347
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..... $(1,660,367) $22,610,972 $29,839,501 $13,236,692
=========== =========== =========== ===========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ALLIANCE MONEY ALLIANCE HIGH
MARKET FUND YIELD FUND
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .............................. $ 5,591,727 $ 1,422,874 $ 10,394,219 $ 1,935,418
Net realized gain (loss) .................................. 308,727 30,245 2,460,016 1,930,121
Change in unrealized appreciation (depreciation) of
investments ............................................ (670,935) (374,038) (23,635,055) (1,368,712)
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from
operations ............................................. 5,229,519 1,079,081 (10,780,820) 2,496,827
------------ ------------ ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .......................................... 308,003,451 104,148,675 101,309,392 42,971,395
Transfers from other Funds and Guaranteed Interest
Rate Account (Note 1) ............................... 117,047,248 11,039,704 28,971,750 6,495,053
------------ ------------ ------------ -----------
Total ............................................... 425,050,699 115,188,379 130,281,142 49,466,448
------------ ------------ ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .................... 7,436,997 670,360 3,457,632 327,004
Withdrawal and administrative charges ..................... 104,554 93,894 173,986 117,245
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) .................................. 265,941,784 50,981,067 23,920,120 1,028,028
------------ ------------ ------------ -----------
Total .................................................. 273,483,335 51,745,321 27,551,738 1,472,277
------------ ------------ ------------ -----------
Net increase in net assets from Contractowners
transactions ........................................... 151,567,364 63,443,058 102,729,404 47,994,171
------------ ------------ ------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5) ........ 3,172 (2,952) (2,579) (28,875)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ............................................ 156,800,055 64,519,187 91,946,005 50,462,123
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING
OF PERIOD ................................................. 67,650,881 3,131,694 51,095,271 633,148
------------ ------------ ------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF
PERIOD .................................................... $224,450,936 $ 67,650,881 $143,041,276 $51,095,271
============ ============ ============ ===========
<CAPTION>
ALLIANCE COMMON ALLIANCE AGGRESSIVE
STOCK FUND STOCK FUND
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .............................. $ (2,316,198) $ (480,576) $ (580,413) $ (277,123)
Net realized gain (loss) .................................. 49,882,651 9,497,894 3,718,851 3,898,956
Change in unrealized appreciation (depreciation) of
investments ............................................ 19,297,438 4,187,658 (4,509,886) (2,412,173)
------------ ------------ ----------- -----------
Net increase (decrease) in net assets from
operations ............................................. 66,863,891 13,204,976 (1,371,448) 1,209,660
------------ ------------ ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .......................................... 225,245,017 107,212,947 41,444,328 42,250,282
Transfers from other Funds and Guaranteed Interest
Rate Account (Note 1) ............................... 43,818,466 11,247,312 9,547,092 6,703,750
------------ ------------ ----------- -----------
Total ............................................... 269,063,483 118,460,259 50,991,420 48,954,032
------------ ------------ ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .................... 9,862,986 744,150 1,928,655 534,703
Withdrawal and administrative charges ..................... 438,917 428,790 148,718 190,057
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) .................................. 22,819,554 4,156,366 9,292,218 3,266,536
------------ ------------ ----------- -----------
Total .................................................. 33,121,457 5,329,306 11,369,591 3,991,296
------------ ------------ ----------- -----------
Net increase in net assets from Contractowners
transactions ........................................... 235,942,026 113,130,953 39,621,829 44,962,736
------------ ------------ ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5) ........ (207,816) (431) 3,308 8,081
------------ ------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ............................................ 302,598,101 126,335,498 38,253,689 46,180,477
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING
OF PERIOD ................................................. 127,524,149 1,188,651 46,741,638 561,161
------------ ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF
PERIOD .................................................... $430,122,250 $127,524,149 $84,995,327 $46,741,638
============ ============ =========== ===========
</TABLE>
- ----------
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ALLIANCE SMALL CAP
GROWTH FUND(a) ALLIANCE GLOBAL FUND
----------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .............................. $ (717,685) $ (103,753) $ (24,180) $ 94,464
Net realized gain (loss) .................................. 9,425 761,781 1,116,808 986,714
Change in unrealized appreciation (depreciation)
of investments ......................................... (1,974,037) (532,878) 1,325,384 224,896
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations ..... (2,682,297) 125,150 2,418,012 1,306,074
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .......................................... 43,397,274 30,538,328 416,404 11,035,782
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ...................... 12,800,367 2,845,702 712,308 2,538,990
----------- ----------- ----------- -----------
Total ............................................... 56,197,641 33,384,030 1,128,712 13,574,772
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .................... 1,391,608 77,516 507,389 303,394
Withdrawal and administrative charges ..................... 86,076 30,958 47,663 121,147
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) ....................................... 8,974,764 672,314 1,808,151 1,825,805
----------- ----------- ----------- -----------
Total .................................................. 10,452,448 780,788 2,363,203 2,250,346
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions ........................................... 45,745,193 32,603,242 (1,234,491) 11,324,426
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO.49
(NOTE 5) .................................................. 2,485 (5,841) (24,608) (27,562)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ............................................ 43,065,381 32,722,551 1,158,913 12,602,938
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING
OF PERIOD ................................................. 32,722,551 -- 12,840,175 237,237
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD ............................................. $75,787,932 $32,722,551 $13,999,088 $12,840,175
=========== =========== =========== ===========
<CAPTION>
ALLIANCE GROWTH ALLIANCE EQUITY
INVESTORS FUND INDEX FUND(a)
----------------------------- ---------------------
1998 1997 1998 1997
----------- ----------- ------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .............................. $ 114,300 $ 192,366 $ 63 $ 52
Net realized gain (loss) .................................. 1,921,992 1,119,576 2 23
Change in unrealized appreciation (depreciation)
of investments ......................................... 941,877 912,616 1,631 1,039
----------- ----------- ------- -------
Net increase (decrease) in net assets from operations ..... 2,978,169 2,224,558 1,696 1,114
----------- ----------- ------- -------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .......................................... 979,342 14,900,369 -- --
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ...................... 861,920 2,566,982 -- --
----------- ----------- ------- -------
Total ............................................... 1,841,262 17,467,351 -- --
----------- ----------- ------- -------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .................... 692,359 160,368 -- --
Withdrawal and administrative charges ..................... 62,534 87,200 -- --
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) ....................................... 2,475,681 1,833,943 -- --
----------- ----------- ------- -------
Total .................................................. 3,230,574 2,081,511 -- --
----------- ----------- ------- -------
Net increase in net assets from Contractowners
transactions ........................................... (1,389,312) 15,385,840 -- --
----------- ----------- ------- -------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO.49
(NOTE 5) .................................................. (27,724) (29,804) (1,696) (1,114)
----------- ----------- ------- -------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ............................................ 1,561,133 17,500,594 -- --
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING
OF PERIOD ................................................. 18,000,086 419,492 -- --
----------- ----------- ------- -------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD ............................................. $19,561,219 $18,000,086 -- --
=========== =========== ======= =======
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
BT SMALL BT
COMPANY INTERNATIONAL
BT EQUITY 500 INDEX EQUITY INDEX
INDEX FUND(a) FUND(a) FUND(a)
------------- ------------ -------------
1998 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .................................. $ 30,099 $ 102,749 $ 414,205
Net realized gain (loss) ...................................... 579,907 162,586 (487,255)
Change in unrealized appreciation (depreciation) of
investments ................................................ 15,885,081 (545,108) 4,538,154
------------ ----------- -----------
Net increase (decrease) in net assets from operations ......... 16,495,087 (279,773) 4,465,104
------------ ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .............................................. 137,742,388 15,585,722 20,850,190
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1) ........................................ 28,395,723 4,179,014 16,741,163
------------ ----------- -----------
Total ................................................... 166,138,111 19,764,736 37,591,353
------------ ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions ........................ 1,738,442 120,912 219,542
Withdrawal and administrative charges ......................... 14,899 1,784 2,627
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) ........................................... 15,478,264 1,873,434 14,133,716
------------ ----------- -----------
Total ...................................................... 17,231,605 1,996,130 14,355,885
------------ ----------- -----------
Net increase in net assets from Contractowners transactions ... 148,906,506 17,768,606 23,235,468
------------ ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 49 (NOTE 5) ........................... (1,043,836) 225,647 (3,023,732)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ................................................ 164,357,757 17,714,480 24,676,840
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING OF
PERIOD ....................................................... -- -- --
------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF PERIOD ......... $164,357,757 $17,714,480 $24,676,840
============ =========== ===========
<CAPTION>
LAZARD LAZARD
JPM CORE LARGE CAP SMALL CAP
BOND VALUE VALUE
FUND(a) FUND(a) FUND(a)
------------ ----------- -----------
1998 1998 1998
------------ ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .................................. $ 1,513,869 $ 22,590 $ (113,125)
Net realized gain (loss) ...................................... 1,042,322 (156,900) (707,142)
Change in unrealized appreciation (depreciation) of
investments ................................................ 151,767 6,587,696 (1,238,546)
------------ ----------- -----------
Net increase (decrease) in net assets from operations ......... 2,707,958 6,453,386 (2,058,813)
------------ ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .............................................. 73,102,741 60,150,648 44,673,767
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1) ........................................ 37,948,208 9,859,740 8,257,562
------------ ----------- -----------
Total ................................................... 111,050,949 70,010,388 52,931,329
------------ ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions ........................ 1,038,633 586,925 436,736
Withdrawal and administrative charges ......................... 18,447 5,537 5,989
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) ........................................... 13,947,945 3,799,798 4,021,584
------------ ----------- -----------
Total ...................................................... 15,005,025 4,392,260 4,464,309
------------ ----------- -----------
Net increase in net assets from Contractowners transactions ... 96,045,924 65,618,128 48,467,020
------------ ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 49 (NOTE 5) ........................... (484,641) (631,039) 365,901
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ................................................ 98,269,241 71,440,475 46,774,108
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING OF
PERIOD ....................................................... -- -- --
------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF PERIOD ......... $ 98,269,241 $71,440,475 $46,774,108
============ =========== ===========
</TABLE>
- ----------
(a) Commenced operations on January 1, 1998.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MERRILL LYNCH
BASIC VALUE MERRILL LYNCH
EQUITY WORLD STRATEGY
FUND(a) FUND(a)
-------------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ........................ $ 89,750 $ 41,169 $ (16,245) $ 7,480
Net realized gain (loss) ............................ 1,689,548 62,644 (47,109) 31,803
Change in unrealized appreciation (depreciation)
of investments ................................... 80,571 (304,932) 255,572 (116,763)
----------- ----------- ---------- ----------
Net increase (decrease) in net assets from
operations ....................................... 1,859,869 (201,119) 192,218 (77,480)
----------- ----------- ---------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .................................... 38,734,895 13,505,624 4,563,199 3,230,838
Transfers from other Funds and Guaranteed Interest
Rate Account (Note 1) ......................... 4,663,103 416,478 710,326 74,498
----------- ----------- ---------- ----------
Total ......................................... 43,397,998 13,922,102 5,273,525 3,305,336
----------- ----------- ---------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .............. 524,761 1,398 157,552 583
Withdrawal and administrative charges ............... 54,926 11,188 10,898 3,955
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ............................ 2,334,323 7,058 627,786 44,263
----------- ----------- ---------- ----------
Total ............................................ 2,914,010 19,644 796,236 48,801
----------- ----------- ---------- ----------
Net increase in net assets from Contractowners
transactions ..................................... 40,483,988 13,902,458 4,477,289 3,256,535
----------- ----------- ---------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5) .. (25,519) 81 (6,676) 17
----------- ----------- ---------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ...................................... 42,318,338 13,701,420 4,662,831 3,179,072
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD ................................. 13,701,420 -- 3,179,072 --
----------- ----------- ---------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD ...................................... $56,019,758 $13,701,420 $7,841,903 $3,179,072
=========== =========== ========== ==========
<CAPTION>
MORGAN
STANLEY
MFS EMERGING EMERGING
MFS GROWTH MARKETS
RESEARCH COMPANIES EQUITY
FUND(a) FUND(a) FUND(b)
-------------------------- --------------------------- -----------
1998 1997 1998 1997 1998
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ........................ $ (1,092,123) $ (81,799) $ (1,099,495) $ (69,045) $ (35,753)
Net realized gain (loss) ............................ 28,858 545,158 305,790 1,070,973 (2,128,521)
Change in unrealized appreciation (depreciation)
of investments ................................... 27,962,157 6,734 28,458,691 (858,314) 503,907
------------ ----------- ------------ ----------- -----------
Net increase (decrease) in net assets from
operations ....................................... 26,898,892 470,093 27,664,986 143,614 (1,660,367)
------------ ----------- ------------ ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .................................... 121,807,223 59,357,999 76,639,008 40,227,730 11,589,726
Transfers from other Funds and Guaranteed Interest
Rate Account (Note 1) ......................... 23,365,292 5,000,723 25,862,262 4,340,105 12,891,618
------------ ----------- ------------ ----------- -----------
Total ......................................... 145,172,515 64,358,722 102,501,270 44,567,835 24,481,344
------------ ----------- ------------ ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .............. 3,681,079 183,523 2,376,229 341,045 83,958
Withdrawal and administrative charges ............... 208,060 85,087 133,480 44,128 1,595
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ............................ 10,792,798 1,051,389 16,923,642 2,114,159 11,162,025
------------ ----------- ------------ ----------- -----------
Total ............................................ 14,681,937 1,319,999 19,433,351 2,499,332 11,247,578
------------ ----------- ------------ ----------- -----------
Net increase in net assets from Contractowners
transactions ..................................... 130,490,578 63,038,723 83,067,919 42,068,503 13,233,766
------------ ----------- ------------ ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5) .. (131,281) (3,343) (106,304) (3,492) (830)
------------ ----------- ------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ...................................... 157,258,189 63,505,473 110,626,601 42,208,625 11,572,569
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD ................................. 63,505,473 -- 42,208,625 -- --
------------ ----------- ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD ...................................... $220,763,662 $63,505,473 $152,835,226 $42,208,625 $11,572,569
============ =========== ============ =========== ===========
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on December 31, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQ/PUTNAM
GROWTH & INCOME EQ/PUTNAM
VALUE INVESTORS GROWTH
FUND(a) FUND(a)
---------------------------- -----------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ........................ $ 211,417 $ 119,673 $ (962,675) $ (36,575)
Net realized gain (loss) ............................ 2,806,993 391,558 2,190,789 364,091
Change in unrealized appreciation (depreciation)
of investments ................................... 19,592,562 1,251,440 28,611,387 2,286,852
------------ ----------- ------------ -----------
Net increase (decrease) in net assets from
operations ....................................... 22,610,972 1,762,671 29,839,501 2,614,368
------------ ----------- ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .................................... 192,282,349 89,354,305 102,305,888 29,499,045
Transfers from other Funds and Guaranteed Interest
Rate Account (Note 1) ......................... 38,949,363 8,714,901 22,084,671 3,342,187
------------ ----------- ------------ -----------
Total ......................................... 231,231,712 98,069,206 124,390,559 32,841,232
------------ ----------- ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .............. 6,393,934 -- 2,648,953 151,674
Withdrawal and administrative charges ............... 306,018 684,612 116,410 70,276
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ............................ 17,366,879 1,112,466 9,084,232 573,939
------------ ----------- ------------ -----------
Total ............................................ 24,066,831 1,797,078 11,849,595 795,889
------------ ----------- ------------ -----------
Net increase in net assets from Contractowners
transactions ..................................... 207,164,881 96,272,128 112,540,964 32,045,343
------------ ----------- ------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5) .. (181,146) 5,168 (1,164,027) (1,236,705)
------------ ----------- ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ...................................... 229,594,707 98,039,967 141,216,438 33,423,006
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING
OF PERIOD ........................................... 98,039,967 -- 33,423,006 --
------------ ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF
PERIOD .............................................. $327,634,674 $98,039,967 $174,639,444 $33,423,006
============ =========== ============ ===========
<CAPTION>
EQ/PUTNAM
INTERNATIONAL EQUITY
FUND(a)
-------------------------------
1998 1997
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ........................ $ (1,130,655) $ (102,449)
Net realized gain (loss) ............................ 1,085,258 259,624
Change in unrealized appreciation (depreciation)
of investments ................................... 13,282,089 (355,156)
------------ -----------
Net increase (decrease) in net assets from
operations ....................................... 13,236,692 (197,981)
------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions .................................... 72,938,890 49,901,207
Transfers from other Funds and Guaranteed Interest
Rate Account (Note 1) ......................... 29,843,626 4,211,149
------------ -----------
Total ......................................... 102,782,516 54,112,356
------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions .............. 2,642,413 155,422
Withdrawal and administrative charges ............... 169,696 69,966
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ............................ 21,216,559 1,074,411
------------ -----------
Total ............................................ 24,028,668 1,299,799
------------ -----------
Net increase in net assets from Contractowners
transactions ..................................... 78,753,848 52,812,557
------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 49 (NOTE 5) .. (560,408) (475,212)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS ...................................... 91,430,132 52,139,364
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, BEGINNING
OF PERIOD ........................................... 52,139,364 --
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS, END OF
PERIOD .............................................. $143,569,496 $52,139,364
============ ===========
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 49 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (the 1940
Act). Alliance Capital Management L.P., an indirect majority-owned
subsidiary of Equitable Life, manages The Hudson River Trust (HRT) and is
the investment adviser for all of the investment funds of HRT. EQ Financial
Consultants, Inc., ("EQFC") and Equitable Distributors Inc. ("EDI") are
indirect, wholly owned subsidiaries of Equitable Life. EQFC manages the EQ
Advisors Trust (EQAT) and has overall responsibility for general management
and administration of EQAT. The Account consists of 25 investment funds
(Funds): the Alliance Money Market Fund, Alliance High Yield Fund, Alliance
Common Stock Fund, Alliance Aggressive Stock Fund, Alliance Small Cap
Growth Fund, Alliance Global Fund, Alliance Growth Investors Fund, Alliance
Equity Index Fund, BT Equity 500 Index Fund, BT Small Company Index Fund,
BT International Equity Index Fund, EQ/Evergreen Fund, EQ/Evergreen
Foundation Fund, JPM Core Bond Fund, Lazard Large Cap Value Fund, Lazard
Small Cap Value Fund, Merrill Lynch Basic Value Equity Fund, Merrill Lynch
World Strategy Fund, MFS Research, MFS Emerging Growth Companies, MFS
Growth with Income Fund, Morgan Stanley Emerging Markets Equity Fund, EQ
Putnam Growth & Income Value Fund, EQ/Putnam Investors Growth Fund and
EQ/Putnam International Equity Fund. As of December 31, 1998, the following
funds have not yet sold units to the public and accordingly there is no
activity in the Statements of Operations and the Statement of Changes in
Net Assets: EQ/Evergreen Fund, EQ/Evergreen Foundation Fund, MFS Growth
with Income Fund. The assets in each fund are invested in Class 1B shares
of a corresponding portfolio (Portfolio) of a mutual fund of HRT or of EQAT
(collectively, the "Trusts"). Class 1A and 1B shares are offered by the
Trust at net asset value. Both classes of shares are subject to fees for
investment management and advisory services and other Trust expenses. Class
1B shares are subject to distribution fees imposed under a distribution
plan (herein, the "Rule 12b-1 Plans") adopted pursuant to Rule 12b-1 under
the 1940 Act, as amended. The Rule 12b-1 Plans provide that the Trusts, on
behalf of each Fund, may charge annually up to 0.25% of the average daily
net assets of a Fund attributable to its Class 1B Shares in respect of
activities primarily intended to result in the sale of Class 1B Shares.
These fees are reflected in the net asset value of the shares. The Trusts
are open-ended, diversified management investment companies that sell their
shares to separate accounts of insurance companies. Each Portfolio has
separate investment objectives. The Account commenced operations on October
1, 1996.
EQFC and EDI earns fees from both Trusts under distribution agreements held
with the Trusts. EQFC also earns fees under an investment management
agreement with EQAT. Alliance earns fees under an investment advisory
agreement with the HRT.
The Account is used to fund benefits for the Rollover IRA, Equitable
Accumulator IRA, Equitable Accumulator TSA, Equitable Accumulator Select
IRA and Equitable Accumulator Select TSA, qualified deferred variable
annuities, which combined the Portfolios in the Account with guaranteed
fixed rate options, and the Accumulator, Equitable Accumulator NQ and
Equitable Accumulator Select NQ, which offer the same investment options as
the Equitable Accumulator IRA and Equitable Accumulator Select IRA for the
non-qualified market. The non-qualified variable annuities are also
available for purchase by certain types of qualified plans (referred to as
Equitable Accumulator QP and Equitable Accumulator Select QP). The
Equitable Accumulator IRA, NQ, QP and TSA (including Equitable Accumulator
Select IRA, NQ, QP and TSA), collectively referred to as the Contracts, are
offered under group and individual variable annuity forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Receivable/payable for policy-related transactions represent amounts due
to/from General Account predominately related to premiums, surrenders and
death benefits.
Included in the Withdrawals and Administrative Charges line of the
Statements of Changes in Net Assets are certain administrative charges
which are deducted from the Contractowners account value.
Contractowners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate of
the contractowners' accounts allocated to that Fund. Additional assets are
set aside in Equitable Life's General Account to provide for other policy
benefits, as required under the state insurance law. Equitable Life's
General Account is subject to creditor rights.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include gains and losses on redemptions of the
Trust's shares (determined on the identified cost basis) and Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares.
Dividends are recorded by HRT at the end of each quarter and by EQAT in the
fourth quarter on the ex-dividend date. Capital gains are distributed by
the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code and
no Federal income tax payable by Equitable Life is expected to affect the
unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required. However, Equitable Life retains the
right to charge for any Federal income tax which is attributable to the
Account if the law is changed.
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life charges the account for the following
charges:
<TABLE>
<CAPTION>
Asset-based
Mortality and Administration Distribution Aggregate
Expense Risks Charge Charge Charges
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Accumulator and Rollover IRA issued before 0.90% 0.30% -- 1.20%
May 1, 1997
Equitable Accumulator issued after May 1, 1997 1.10% 0.25% -- 1.35%
Equitable Accumulator Select 1.10% 0.25% 0.25% 1.60%
</TABLE>
These charges may be retained in the Account by Equitable Life and to the
extent retained, participate in the net results of the Trust ratably with
assets attributable to the Contracts.
Trust shares are valued at their net asset value with investment advisory
or management fees, the 12b-1 fee, and direct operating expenses of the
Trust, in effect, passed on to the Account and reflected in the
accumulation unit values of the Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued during the periods indicated were:
DECEMBER 31, DECEMBER 31,
1998 1997
----------- ----------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
-------------------------
Net Issued (Redeemed) 120 b.p............ (30) 172
Net Issued (Redeemed) 135 b.p............ 4,005 1,153
Net Issued (Redeemed) 160 b.p............ 349 --
Net Issued (Redeemed) 0 b.p.............. 1,286 947
ALLIANCE HIGH YIELD FUND
-------------------------
Net Issued (Redeemed) 120 b.p............ (17) 402
Net Issued (Redeemed) 135 b.p............ 3,265 1,256
Net Issued (Redeemed) 160 b.p............ 168 2
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
ALLIANCE COMMON STOCK FUND ----------- -----------
-------------------------- (IN THOUSANDS)
<S> <C> <C> <C>
Net Issued (Redeemed) 120 b.p................................. (10) 229
Net Issued (Redeemed) 135 b.p................................. 1,108 434
Net Issued (Redeemed) 160 b.p................................. 34 1
ALLIANCE AGGRESSIVE STOCK FUND
------------------------------
Net Issued (Redeemed) 120 b.p................................. (13) 269
Net Issued (Redeemed) 135 b.p................................. 559 380
Net Issued (Redeemed) 160 b.p................................. 16 --
ALLIANCE SMALL CAP GROWTH FUND (a)
----------------------------------
Net Issued (Redeemed) 120 b.p................................. 13 89
Net Issued (Redeemed) 135 b.p................................. 3,580 2,521
Net Issued (Redeemed) 160 b.p................................. 211 --
ALLIANCE GLOBAL FUND
--------------------
Net Issued (Redeemed) 120 b.p................................. (42) 455
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Net Issued (Redeemed) 120 b.p................................. (44) 582
BT EQUITY 500 INDEX FUND (b)
---------------------------
Net Issued (Redeemed) 120 b.p................................. 87 --
Net Issued (Redeemed) 135 b.p................................. 12,279 --
Net Issued (Redeemed) 160 b.p................................. 951 --
BT SMALL COMPANY INDEX FUND (b)
------------------------------
Net Issued (Redeemed) 120 b.p................................. 18 --
Net Issued (Redeemed) 135 b.p................................. 1,610 --
Net Issued (Redeemed) 160 b.p................................. 211 --
BT INTERNATIONAL EQUITY INDEX FUND (b)
--------------------------------------
Net Issued (Redeemed) 120 b.p................................. 9 --
Net Issued (Redeemed) 135 b.p................................. 1,827 --
Net Issued (Redeemed) 160 b.p................................. 248 --
JPM CORE BOND FUND (b)
----------------------
Net Issued (Redeemed) 120 b.p................................. 98 --
Net Issued (Redeemed) 135 b.p................................. 8,661 --
Net Issued (Redeemed) 160 b.p................................. 379 --
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
LAZARD LARGE CAP VALUE FUND (b) ----------- -----------
------------------------------- (IN THOUSANDS)
<S> <C> <C>
Net Issued (Redeemed) 120 b.p................................. 22 --
Net Issued (Redeemed) 135 b.p................................. 5,696 --
Net Issued (Redeemed) 160 b.p................................. 315 --
LAZARD SMALL CAP VALUE FUND (b)
-------------------------------
Net Issued (Redeemed) 120 b.p................................. 26 --
Net Issued (Redeemed) 135 b.p................................. 4,733 --
Net Issued (Redeemed) 160 b.p................................. 344 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (a)
-----------------------------------------
Net Issued (Redeemed) 135 b.p................................. 3,207 1,182
MERRILL LYNCH WORLD STRATEGY FUND (a)
-------------------------------------
Net Issued (Redeemed) 135 b.p................................. 411 306
MFS RESEARCH FUND (a)
--------------------
Net Issued (Redeemed) 120 b.p................................. 93 263
Net Issued (Redeemed) 135 b.p................................. 9,656 5,257
Net Issued (Redeemed) 160 b.p................................. 409 2
MFS EMERGING GROWTH COMPANIES FUND (a)
--------------------------------------
Net Issued (Redeemed) 120 b.p................................. 27 149
Net Issued (Redeemed) 135 b.p................................. 5,790 3,327
Net Issued (Redeemed) 160 b.p................................. 198 3
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (c)
-----------------------------------------------
Net Issued (Redeemed) 120 b.p................................. 16 --
Net Issued (Redeemed) 135 b.p................................. 1,805 --
Net Issued (Redeemed) 160 b.p................................. 203 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (a)
----------------------------------------
Net Issued (Redeemed) 120 b.p................................. 123 383
Net Issued (Redeemed) 135 b.p................................. 16,230 8,113
Net Issued (Redeemed) 160 b.p................................. 697 17
EQ/PUTNAM INVESTORS GROWTH FUND (a)
-----------------------------------
Net Issued (Redeemed) 120 b.p................................. 36 124
Net Issued (Redeemed) 135 b.p................................. 7,491 2,581
Net Issued (Redeemed) 160 b.p................................. 282 --
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Commenced operations on December 31, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Concluded):
Net accumulation units issued during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
EQ/PUTNAM INTERNATIONAL EQUITY FUND (a) ---------- ----------
--------------------------------------- (IN THOUSANDS)
<S> <C> <C>
Net Issued (Redeemed) 120 b.p................................. 3 187
Net Issued (Redeemed) 135 b.p................................. 5,998 4,609
Net Issued (Redeemed) 160 b.p................................. 418 5
</TABLE>
- ----------
(a) Commenced operations on May 1, 1997.
5. Amounts retained by Equitable Life in Separate Account No. 49
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and Asset-based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and Asset-based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
INVESTMENT FUND 1998 1997
--------------- --------------------- --------------------
<S> <C> <C>
Alliance Money Market Fund................................ $ (1,183,691) $ (105,000)
Alliance High Yield Fund.................................. (1,528,340) (85,000)
Alliance Common Stock Fund................................ (3,823,234) (180,000)
Alliance Aggressive Stock Fund............................ (983,127) (110,000)
Alliance Small Cap Growth Fund............................ (792,824) 5,000
Alliance Global Fund...................................... (225,129) (90,000)
Alliance Growth Investors Fund............................ (336,002) (97,000)
Alliance Equity Index Fund................................ -- 5,000
BT Equity 500 Index Fund(2)............................... (1,331,361) 1,000
BT Small Company Index Fund(2)............................ 9,933,857 1,000
BT International Equity Index Fund(2)..................... 14,902,319 1,000
EQ/Evergreen Fund(3) ..................................... 1,000 --
EQ/Evergreen Foundation Fund(3)........................... 1,000 --
JPM Core Bond Fund(2)..................................... 4,150,198 1,000
Lazard Large Cap Value Fund(2)............................ 2,234,287 1,000
Lazard Small Cap Value Fund(2)............................ 4,310,749 1,000
Merrill Lynch Basic Value Equity Fund(1).................. (433,013) --
Merrill Lynch World Strategy Fund(1)...................... (64,920) --
MFS Research Fund(1)...................................... (1,751,938) --
MFS Emerging Growth Companies Fund(1)..................... (1,150,981) --
MFS Growth with Income Fund(3) ........................... -- --
Morgan Stanley Emerging Markets Equity Fund(4)............ (48,664) --
EQ/Putnam Growth & Income Value Fund(1)................... (2,678,339) --
EQ/Putnam Investors Growth Fund(1)........................ (8,168,474) 5,000,000
EQ/Putnam International Equity Fund(1).................... (7,148,298) 5,000,000
</TABLE>
- ----------
(1) Commenced operations on May 1, 1997.
(2) Initial capital received on December 31, 1997.
(3) Initial capital received on December 31, 1998.
(4) Commenced operations on December 31, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
--------------- -------------- -----------------
ALLIANCE MONEY MARKET FUND
- --------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period...................... $25.64 $24.68 $24.43
1.20% Unit value, end of period............................ $26.62 $25.64 $24.68
1.35% Unit value, beginning of period (a).................. $25.00 $24.38 --
1.35% Unit value, end of period (a)........................ $25.92 $25.00 --
1.60% Unit value, beginning of period (b).................. $23.98 $23.78 --
1.60% Unit value, end of period (b)........................ $24.80 $23.98 --
0% Unit value, beginning of period (a)..................... $31.27 $30.21 --
0% Unit value, end of period (a)........................... $32.86 $31.27 --
Number of units outstanding, end of period (000's)
1.20%................................................... 329 359 127
1.35%................................................... 5,158 1,153 --
1.60%................................................... 349 -- --
0%...................................................... 2,233 947 --
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
--------------- -------------- -----------------
ALLIANCE HIGH YIELD FUND
- ------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period...................... $30.46 $26.09 $25.33
1.20% Unit value, end of period............................ $28.48 $30.46 $26.09
1.35% Unit value, beginning of period (a).................. $29.96 $26.35 --
1.35% Unit value, end of period (a)........................ $27.96 $29.96 --
1.60% Unit value, beginning of period (b).................. $29.13 $28.79 --
1.60% Unit value, end of period (b)........................ $27.12 $29.13 --
Number of units outstanding, end of period (000's)
1.20%................................................... 422 439 24
1.35%................................................... 4,521 1,256 --
1.60%................................................... 170 2 --
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
--------------- -------------- -----------------
ALLIANCE COMMON STOCK FUND
- --------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period..................... $192.60 $151.23 $139.82
1.20% Unit value, end of period........................... $245.58 $192.60 $151.23
1.35% Unit value, beginning of period (a)................. $186.29 $146.89 --
1.35% Unit value, end of period (a)....................... $237.18 $186.29 --
1.60% Unit value, beginning of period (b)................. $176.22 $172.77 --
1.60% Unit value, end of period (b)....................... $223.79 $176.22 --
Number of units outstanding, end of period (000's)
1.20%.................................................. 230 240 8
1.35%.................................................. 1,542 434 --
1.60%.................................................. 35 1 --
</TABLE>
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Units were made available for sale on October 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
--------------- -------------- ----------
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period....................... $71.57 $65.53 $64.24
1.20% Unit value, end of period............................. $70.74 $71.57 $65.53
1.35% Unit value, beginning of period (a)................... $70.28 $61.42 --
1.35% Unit value, end of period (a)......................... $69.37 $70.28 --
1.60% Unit value, beginning of period (b)................... $68.19 $75.44 --
1.60% Unit value, end of period (b)......................... $67.13 $68.19 --
Number of units outstanding, end of period (000's)
1.20%.................................................... 266 279 9
1.35%.................................................... 939 380 --
1.60%.................................................... 16 -- --
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------- --------------------
ALLIANCE SMALL CAP GROWTH FUND
- ------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period (a)..................... $12.55 $10.00
1.20% Unit value, end of period (a)...................... $11.85 $12.55
1.35% Unit value, beginning of period (a)................ $12.54 $10.00
1.35% Unit value, end of period (a)...................... $11.82 $12.54
1.60% Unit value, beginning of period (b)................ $12.52 $13.22
1.60% Unit value, end of period (b)...................... $11.77 $12.52
Number of units outstanding, end of period (000's)
1.20%...................................................... 102 89
1.35%...................................................... 6,101 2,521
1.60%...................................................... 211 --
</TABLE>
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Units were made available for sale on October 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996
--------------------- ------------------- -----------------
ALLIANCE GLOBAL FUND
- --------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period....................... $27.61 $25.12 $26.00
1.20% Unit value, end of period............................. $33.15 $27.61 $25.12
Number of units outstanding, end of period (000's)
1.20%.................................................... 422 464 9
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996
--------------------- ------------------- ------------------
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
<S> <C> <C> <C>
1.20% Unit value, beginning of period....................... $30.09 $26.15 $25.06
1.20% Unit value, end of period............................. $35.33 $30.09 $26.15
Number of units outstanding, end of period (000's) 544
1.20%.................................................... 598 16
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997
------------------------------- ------------------------------
ALLIANCE EQUITY INDEX FUND
- -----------------------------
<S> <C> <C>
1.35% Unit value, beginning of period (a)................... $21.21 $17.51
1.35% Unit value, end of period (a)......................... $26.73 $21.21
Number of units outstanding, end of period (000's)
1.35%.................................................... -- --
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 (b)
------------------------------- ------------------------------
BT EQUITY 500 INDEX FUND
- -----------------------------
<S> <C> <C>
1.20% Unit value, beginning of period....................... $10.00 $10.00
1.20% Unit value, end of period............................. $12.36 $10.00
1.35% Unit value, beginning of period....................... $10.00 $10.00
1.35% Unit value, end of period............................. $12.34 $10.00
1.60% Unit value, beginning of period....................... $10.00 $10.00
1.60% Unit value, end of period............................. $12.31 $10.00
Number of units outstanding, end of period (000's)
1.20%.................................................... 87 --
1.35%.................................................... 12,279 --
1.60%.................................................... 951 --
</TABLE>
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Initial capital was received on December 31, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 (a)
-------------------------- --------------------------
BT SMALL COMPANY INDEX FUND
- ---------------------------
<S> <C> <C>
1.20% Unit value, beginning of period..................... $10.00 $10.00
1.20% Unit value, end of period........................... $9.65 $10.00
1.35% Unit value, beginning of period..................... $10.00 $10.00
1.35% Unit value, end of period........................... $9.64 $10.00
1.60% Unit value, beginning of period..................... $10.00 $10.00
1.60% Unit value, end of period........................... $9.61 $10.00
Number of units outstanding, end of period (000's)
1.20%.................................................. 18 --
1.35%.................................................. 1,610 --
1.60%.................................................. 211 --
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 (a)
-------------------------- --------------------------
BT INTERNATIONAL EQUITY INDEX FUND
- ----------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period..................... $10.00 $10.00
1.20% Unit value, end of period........................... $11.87 $10.00
1.35% Unit value, beginning of period..................... $10.00 $10.00
1.35% Unit value, end of period........................... $11.85 $10.00
1.60% Unit value, beginning of period..................... $10.00 $10.00
1.60% Unit value, end of period........................... $11.82 $10.00
Number of units outstanding, end of period (000's)
1.20%.................................................. 9 --
1.35%.................................................. 1,827 --
1.60%.................................................. 248 --
<CAPTION>
DECEMBER 31, 1998 (b)
---------------------------
EQ/EVERGREEN FUND
- -----------------
<S> <C>
1.35% Unit value, beginning of period..................... $10.00
1.35% Unit value, end of period........................... $10.00
1.60% Unit value, beginning of period..................... $10.00
1.60% Unit value, end of period........................... $10.00
</TABLE>
- ----------
(a) Initial capital was received on December 31, 1997.
(b) Initial capital was received on December 31, 1998.
FS-23
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 (b)
------------------------------
EQ/EVERGREEN FOUNDATION FUND
- ----------------------------------
<S> <C>
1.35% Unit value, beginning of period......................... $10.00
1.35% Unit value, end of period............................... $10.00
1.60% Unit value, beginning of period......................... $10.00
1.60% Unit value, end of period............................... $10.00
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 (a)
----------------------- ----------------------
JPM CORE BOND FUND
- ------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $10.00 $10.00
1.20% Unit value, end of period............................... $10.77 $10.00
1.35% Unit value, beginning of period......................... $10.00 $10.00
1.35% Unit value, end of period............................... $10.76 $10.00
1.60% Unit value, beginning of period......................... $10.00 $10.00
1.60% Unit value, end of period............................... $10.73 $10.00
Number of units outstanding, end of period (000's)
1.20%...................................................... 98 --
1.35%...................................................... 8,661 --
1.60%...................................................... 379 --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 (a)
----------------------- ----------------------
LAZARD LARGE CAP VALUE FUND
- ---------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $10.00 $10.00
1.20% Unit value, end of period............................... $11.86 $10.00
1.35% Unit value, beginning of period......................... $10.00 $10.00
1.35% Unit value, end of period............................... $11.84 $10.00
1.60% Unit value, beginning of period......................... $10.00 $10.00
1.60% Unit value, end of period............................... $11.81 $10.00
Number of units outstanding, end of period (000's)
1.20%...................................................... 22 --
1.35%...................................................... 5,696 --
1.60%...................................................... 315 --
</TABLE>
- ----------
(a) Initial capital was received on December 31, 1997.
(b) Initial capital was received on December 31, 1998.
FS-24
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 (b)
----------------------- ----------------------
LAZARD SMALL CAP VALUE FUND
- ---------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $10.00 $10.00
1.20% Unit value, end of period............................... $9.18 $10.00
1.35% Unit value, beginning of period......................... $10.00 $10.00
1.35% Unit value, end of period............................... $9.17 $10.00
1.60% Unit value, beginning of period......................... $10.00 $10.00
1.60% Unit value, end of period............................... $9.14 $10.00
Number of units outstanding, end of period (000's)
1.20%...................................................... 26 --
1.35%...................................................... 4,733 --
1.60%...................................................... 344 --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997
----------------------- ----------------------
MERRILL LYNCH BASIC VALUE EQUITY FUND (a)
- -----------------------------------------
<S> <C> <C>
1.35% Unit value, beginning of period......................... $11.60 $9.99
1.35% Unit value, end of period............................... $12.76 $11.60
1.60% Unit value, beginning of period (c)..................... $11.58 $12.15
1.60% Unit value, end of period (c) .......................... $12.71 $11.58
Number of units outstanding, end of period (000's)
1.35%...................................................... 4,389 1,182
1.60%...................................................... -- --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997
----------------------- ----------------------
MERRILL LYNCH WORLD STRATEGY FUND (a)
- -------------------------------------
<S> <C> <C>
1.35% Unit value, beginning of period......................... $10.38 $10.00
1.35% Unit value, end of period............................... $10.94 $10.38
1.60% Unit value, beginning of period (c)..................... $10.36 $11.13
1.60% Unit value, end of period (c)........................... $10.89 $10.36
Number of units outstanding, end of period (000's)
1.35%...................................................... 717 306
1.60%...................................................... -- --
</TABLE>
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Initial capital was received on December 31, 1997.
(c) Units were made available for sale on October 1, 1997.
FS-25
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 (a)
----------------------- ----------------------
MFS RESEARCH FUND
- -----------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $11.51 $10.00
1.20% Unit value, end of period............................... $14.12 $11.51
1.35% Unit value, beginning of period......................... $11.50 $10.00
1.35% Unit value, end of period............................... $14.08 $11.50
1.60% Unit value, beginning of period (c).................... $11.48 $11.77
1.60% Unit value, end of period (c)........................... $14.02 $11.48
Number of units outstanding, end of period (000's)
1.20%...................................................... 356 263
1.35%...................................................... 14,913 5,257
1.60%...................................................... 410 1
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 (a)
----------------------- ----------------------
MFS EMERGING GROWTH COMPANIES FUND
- ----------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $12.14 $10.00
1.20% Unit value, end of period............................... $16.14 $12.14
1.35% Unit value, beginning of period......................... $12.13 $10.00
1.35% Unit value, end of period............................... $16.10 $12.13
1.60% Unit value, beginning of period (c)..................... $12.11 $12.60
1.60% Unit value, end of period (c)........................... $16.03 $12.11
Number of units outstanding, end of period (000's)
1.20%...................................................... 176 149
1.35%...................................................... 9,117 3,327
1.60%...................................................... 200 2
<CAPTION>
DECEMBER 31, 1998 (b)
-------------------------
MFS EMERGING GROWTH WITH INCOME FUND
- ------------------------------------
<C> <C>
1.20% Unit value, beginning of period......................... $10.00
1.20% Unit value, end of period............................... $10.00
1.35% Unit value, beginning of period......................... $10.00
1.35% Unit value, end of period............................... $10.00
1.60% Unit value, beginning of period......................... $10.00
1.60% Unit value, end of period............................... $10.00
</TABLE>
(a) Units were made available for sale on May 1, 1997.
(b) Initial capital was received on December 31, 1998.
(c) Units were made available for sale on October 1, 1997.
FS-26
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997
--------------------------- ---------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY FUND
- -------------------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period (c) .................... $7.95 $7.95
1.20% Unit value, end of period (c)........................... $5.73 $7.95
1.35% Unit value, beginning of period (c)..................... $7.94 $7.94
1.35% Unit value, end of period (c)........................... $5.72 $7.94
1.60% Unit value, beginning of period (c)..................... $7.93 $7.93
1.60% Unit value, end of period (c)........................... $5.70 $7.93
Number of units outstanding, end of period (000's)
1.20%...................................................... 16 --
1.35%...................................................... 1,805 --
1.60%...................................................... 203 --
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997(a)
--------------------------- ---------------------------
EQ/PUTNAM GROWTH & INCOME VALUE FUND
- ------------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $11.53 $10.00
1.20% Unit value, end of period............................... $12.85 $11.53
1.35% Unit value, beginning of period......................... $11.52 $10.00
1.35% Unit value, end of period............................... $12.82 $11.52
1.60% Unit value, beginning of period (c)..................... $11.50 $11.63
1.60% Unit value, end of period (c)........................... $12.76 $11.50
Number of units outstanding, end of period (000's)
1.20%...................................................... 506 383
1.35%...................................................... 24,343 8,113
1.60%...................................................... 714 17
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997(a)
--------------------------- ---------------------------
EQ/PUTNAM INVESTORS GROWTH FUND
- -------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $12.37 $10.00
1.20% Unit value, end of period............................... $16.65 $12.37
1.35% Unit value, beginning of period......................... $12.35 $10.00
1.35% Unit value, end of period............................... $16.61 $12.35
1.60% Unit value, beginning of period (c) .................... $12.33 $12.12
1.60% Unit value, end of period (c) .......................... $16.54 $12.33
Number of units outstanding, end of period (000's)
1.20%...................................................... 160 124
1.35%...................................................... 10,072 2,581
1.60%...................................................... 282 --
</TABLE>
- ----------
(a) Units were made available for sale on May 1, 1997.
(b) Units were made available for sale on May 1, 1998.
(c) Units were made available for sale on December 31, 1997.
FS-27
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 49
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997(a)
--------------------------- -----------------------
EQ/PUTNAM INTERNATIONAL EQUITY FUND
- -----------------------------------
<S> <C> <C>
1.20% Unit value, beginning of period......................... $10.87 $10.00
1.20% Unit value, end of period............................... $12.83 $10.87
1.35% Unit value, beginning of period......................... $10.86 $10.00
1.35% Unit value, end of period............................... $12.80 $10.86
1.60% Unit value, beginning of period (c)..................... $10.84 $11.52
1.60% Unit value, end of period (c)........................... $12.75 $10.84
Number of units outstanding, end of period (000's)
1.20%...................................................... 190 187
1.35%...................................................... 10,607 4,609
1.60%...................................................... 422 4
</TABLE>
- ----------
(a) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on October 1, 1997.
FS-28
<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 comprehensive
income 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, 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 method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
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.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</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 AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(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............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is 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 subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues 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"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("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 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance 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. It also 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 includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
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") which
require 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.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
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,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
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
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or 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
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review 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 allowance for future losses, 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 allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances 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.
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 for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 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 vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. 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.
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 held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for 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 or 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.
F-9
<PAGE>
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.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (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.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("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 25 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 accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
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, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. 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. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
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.
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 represents 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,
includes 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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as 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.
F-11
<PAGE>
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 related to DI products issued prior to
July 1993. 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 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 Pension Par
and 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 DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</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.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 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 consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds 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 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 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.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</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
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have 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, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
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
concentrations in any single issuer or 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, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, 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 $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% 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 $115.1
million and $183.4 million at December 31, 1998 and 1997, 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 $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without 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 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 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income 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 $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for 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,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") 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 which was paid in 1998. 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 whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. 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
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. 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. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. 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 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. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 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,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, 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 for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
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>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, 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 a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, 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
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 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,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</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 and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
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 bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the 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 London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
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.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
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>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
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>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) 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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) 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 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 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
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 $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 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 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these 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.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) 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, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. 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, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 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 activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments 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 the timing and 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, 1998 and 1997.
F-30
<PAGE>
Fair values 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.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
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.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) 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 $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
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.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable'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
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against 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 original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company 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.
16) 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 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) 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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. 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.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) 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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 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
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
<PAGE>
- --------------------------------------------------------------------------------
12 Investment Performance of Variable Investment Options
- --------------------------------------------------------------------------------
We provide the following tables to show five different measurements of the
investment performance of the variable investment options and/or the Portfolios
in which they invest. We include these tables because they may be of general
interest to you. THE RESULTS SHOWN REFLECT PAST PERFORMANCE. THEY DO NOT
INDICATE HOW THE VARIABLE INVESTMENT OPTIONS MAY PERFORM IN THE FUTURE. THEY
ALSO DO NOT REPRESENT THE RESULTS EARNED BY ANY PARTICULAR INVESTOR. YOUR
RESULTS WILL DIFFER.
Table 1 shows the average annual total return of the variable investment
options. Average annual total return is the annual rate of growth that would be
necessary to achieve the ending value of a contribution plus the 4% credit
invested in the variable investment options for the periods shown.
Table 2 shows the growth of a hypothetical $1,000 investment plus a $40 credit
in the variable investment options over the periods shown. Both Tables 1 and 2
take into account all fees and charges under the contract, but do not reflect
the charges for any applicable taxes such as premium taxes or any applicable
annuity administrative fee.
Tables 3, 4, and 5 show the rates of return of the variable investment options
on an annualized, cumulative, and year-by-year basis. These tables take into
account all fees and charges under the contract, but do not reflect the
withdrawal charge or the charges for any applicable taxes such as premium taxes
or any applicable annuity administrative fee. If the charges were reflected they
would effectively reduce the rates of return shown.
In all cases the results shown are based on the actual historical investment
experience of the Portfolios in which the variable investment options invest. In
some cases, the results shown relate to periods when the variable investment
options and/or contracts were not available. In those cases, we adjusted the
results of the Portfolios to reflect the charges under the contracts that would
have applied had the variable investment options and/or contracts been
available. The contracts are being offered for the first time as of the date of
the prospectus.
In addition, we have adjusted the results prior to October 1996, when The Hudson
River Trust Class IB shares were not available, to reflect the 12b-1 fees
currently imposed. Finally, the results shown for the Alliance Money Market and
Alliance Common Stock options for periods before March 22, 1985 reflect the
results of the variable investment options that preceded them. The "Since
Portfolio inception" figures for these options are based on the date of
inception of the preceding variable investment options. We have adjusted these
results to reflect the maximum investment advisory fee payable for the
Portfolios, as well as an assumed charge of 0.06% for direct operating expenses.
EQ Advisors Trust commenced operations on May 1, 1997.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends.
From time to time, we may advertise different measurements of the investment
performance of the variable investment options and/or the Portfolios, including
the measurements reflected in the tables below. We will indicate that the 4%
credit is reflected when we show performance numbers that give effect to the
credit.
THE PERFORMANCE INFORMATION THAT WE ADVERTISE REFLECTS PAST PERFORMANCE AND DOES
NOT INDICATE HOW THE VARIABLE INVESTMENT OPTIONS MAY PERFORM IN THE FUTURE. SUCH
INFORMATION ALSO DOES NOT REPRESENT THE RESULTS EARNED BY ANY PARTICULAR
INVESTOR. YOUR RESULTS WILL DIFFER.
BENCHMARKS
Tables 3 and 4 compare the performance of variable investment options to market
indices that serve as 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. Also, they do not reflect other
contract charges such as the mortality and expense risks charge, administrative
charge, distribution charge, or any withdrawal charge. Comparisons with these
benchmarks, therefore, may be 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. The benchmarks include:
<PAGE>
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
ALLIANCE MONEY MARKET: Salomon Brothers Three-Month T-Bill Index.
ALLIANCE HIGH YIELD: Merrill Lynch High Yield Master Index.
ALLIANCE COMMON STOCK: Standard & Poor's 500 Index.
ALLIANCE AGGRESSIVE STOCK: 50% Russell 2000 Index and 50% Standard & Poor's
Mid-Cap Total Return Index.
ALLIANCE SMALL CAP GROWTH: Russell 2000 Growth Index.
EQ/ALLIANCE PREMIER GROWTH: Standard & Poor's 500 Index.
BT EQUITY 500 INDEX: Standard & Poor's 500 Index.
BT SMALL COMPANY INDEX: Russell 2000 Index.
BT INTERNATIONAL EQUITY INDEX: Morgan Stanley Capital International Europe,
Australia, Far East Index.
CAPITAL GUARDIAN U.S. EQUITY: Standard & Poor's 500 Index.
CAPITAL GUARDIAN RESEARCH: Standard & Poor's 500 Index.
CAPITAL GUARDIAN INTERNATIONAL: Morgan Stanley Capital International Europe,
Australia, Far East Index.
EQ/EVERGREEN: Russell 2000 Index.
EQ/EVERGREEN FOUNDATION: 60% Standard & Poor's 500 Index/40% Lehman Brothers
Aggregate Bond Index.
JPM CORE BOND: Salomon Brothers Broad Investment Grade Bond.
LAZARD LARGE CAP VALUE: Standard & Poor's 500 Index.
LAZARD SMALL CAP VALUE: Russell 2000 Index.
MFS GROWTH WITH INCOME: Standard & Poor's 500 Index.
MFS RESEARCH: Standard & Poor's 500 Index.
MFS EMERGING GROWTH COMPANIES: Russell 2000 Index.
MERRILL LYNCH BASIC VALUE EQUITY: Standard & Poor's 500 Index.
MERRILL LYNCH WORLD STRATEGY: 36% Standard & Poor's 500 Index/24% Morgan Stanley
Capital International Europe, Australia, Far East Index/21% Salomon Brothers
U.S. Treasury Bond 1 Year+ 14% Salomon Brothers World Government Bond
(excluding U.S.)/and 5% Three-Month U.S. Treasury Bill.
MORGAN STANLEY EMERGING MARKETS EQUITY: Morgan Stanley Capital International
Emerging Markets Free Price Return Index.
LIPPER SURVEY. The Lipper Variable Insurance Products Performance Analysis
Survey (Lipper Survey) records the performance of a large group of variable
annuity products, including managed separate accounts of insurance companies.
According to Lipper Analytical Services, Inc. (Lipper), 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 Plus performance
relative to other variable annuity products
<PAGE>
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
TABLE 1
AVERAGE ANNUAL TOTAL RETURN UNDER A CONTRACT SURRENDERED ON DECEMBER 31, 1998+
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------------------------
SINCE SINCE
1 3 5 10 OPTION PORTFOLIO
VARIABLE INVESTMENT OPTIONS YEAR YEARS YEARS YEARS INCEPTION* INCEPTION**
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Money Market (0.46)% 2.61% 3.17% 4.04% 1.67% 5.18%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Alliance High Yield (11.18)% 8.80% 8.08% 9.54% 2.68% 8.80%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Alliance Common Stock 24.08% 25.43% 20.13% 16.90% 19.14% 14.41%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Alliance Aggressive Stock (5.61)% 8.17% 9.57% 17.15% 1.61% 15.84%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Alliance Small Cap Growth (10.21)% -- -- -- 6.96% 6.96%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
BT Equity 500 Index 20.06% -- -- -- 20.06% 20.06%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
BT Small Company Index (8.02)% -- -- -- (8.02)% (8.02)%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
BT International Equity Index 14.90% -- -- -- 14.90% 14.90%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
JPM Core Bond 3.57% -- -- -- 3.57% 3.57%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Lazard Large Cap Value 14.87% -- -- -- 14.87% 14.87%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Lazard Small Cap Value (12.90)% -- -- -- (12.90)% (12.90)%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
MFS Research 19.00% -- -- -- 17.39% 17.39%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
MFS Emerging Growth Companies 29.66% -- -- -- 25.99% 25.99%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Merrill Lynch Basic Value Equity 6.19% -- -- -- 11.45% 11.45%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Merrill Lynch World Strategy 1.31% -- -- -- 2.58% 2.58%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
Morgan Stanley Emerging Markets Equity (33.32)% -- -- -- (33.32)% (28.41)%
- -------------------------------------------------- -------- --------- --------- --------- ------------ -------------
</TABLE>
+ If you start receiving annuity payments within three years of making an
additional contribution we will recover the amount of any credit that
applied to that contribution.
* The variable investment option inception dates are: Alliance Money Market,
Alliance High Yield, Alliance Common Stock and Alliance Aggressive Stock
(October 16, 1996); Alliance Small Cap Growth, MFS Research, MFS Emerging
Growth Companies, Merrill Lynch Basic Value Equity, and Merrill Lynch World
Strategy (May 1, 1997); BT Equity 500 Index, BT Small Company Index, BT
International Equity Index, JPM Core Bond, Lazard Large Cap Value, Lazard
Small Cap Value, and Morgan Stanley Emerging Markets Equity (December 31,
1997). The inception dates for the variable investment options that became
available on or after December 31, 1998, and are therefore not shown in
this table are: EQ/Evergreen, EQ/Evergreen Foundation, and MFS Growth with
Income (December 31, 1998); EQ/Alliance Premier Growth, Capital Guardian
U.S. Equity, Capital Guardian Research, and Capital Guardian International
(May 1, 1999).
** The Portfolio inception dates are: Alliance Money Market (July 13, 1981);
Alliance High Yield (January 2, 1987); Alliance Common Stock (January 13,
1976); Alliance Aggressive Stock (January 27, 1986); Alliance Small Cap
Growth, MFS Research, MFS Emerging Growth Companies, Merrill Lynch Basic
Value Equity, and Merrill Lynch World Strategy (May 1, 1997); BT Equity 500
Index, BT Small Company Index, BT International Equity Index, JPM Core
Bond, Lazard Large Cap Value, and Lazard Small Cap Value (December 31,
1997); and Morgan Stanley Emerging Markets Equity (August 20, 1997). The
inception dates for the Portfolios that became available on or after
December 31, 1998 and are therefore not shown in the tables are:
EQ/Evergreen, EQ Evergreen Foundation, and MFS Growth with Income (December
31, 1998); EQ/Alliance Premier Growth, Capital Guardian U.S. Equity,
Capital Guardian Research, and Capital Guardian International (May 1,
1999).
<PAGE>
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
TABLE 2
GROWTH OF $1,000 UNDER A CONTRACT SURRENDERED ON DECEMBER 31, 1998+
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
-------------------------------------------------------------------
SINCE
1 3 5 10 PORTFOLIO
VARIABLE INVESTMENT OPTIONS YEAR YEARS YEARS YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market $ 995.36 $1,080.28 $1,169.07 $1,486.17 $ 2,483.25
- --------------------------------------------------------------------------------------------------------------------
Alliance High Yield $ 888.24 $1,287.80 $1,475.06 $2,486.46 $ 2,752.35
- --------------------------------------------------------------------------------------------------------------------
Alliance Common Stock $1,240.80 $1,973.37 $2,501.91 $4,766.00 $22,115.73
- --------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock $ 943.88 $1,265.63 $1,579.30 $4,867.64 $ 6,766.56
- --------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth $ 897.91 -- -- -- $ 1,143.96
- --------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index $1,200.55 -- -- -- $ 1,200.55
- --------------------------------------------------------------------------------------------------------------------
BT Small Company Index $ 919.75 -- -- -- $ 919.75
- --------------------------------------------------------------------------------------------------------------------
BT International Equity Index $1,148.97 -- -- -- $ 1,148.97
- --------------------------------------------------------------------------------------------------------------------
JPM Core Bond $1,035.71 -- -- -- $ 1,035.71
- --------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value $1,148.66 -- -- -- $ 1,148.66
- --------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value $ 870.98 -- -- -- $ 870.98
- --------------------------------------------------------------------------------------------------------------------
MFS Research $1,190.05 -- -- -- $ 1,378.02
- --------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies $1,296.65 -- -- -- $ 1,587.26
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity $1,061.92 -- -- -- $ 1,242.00
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy $1,013.14 -- -- -- $ 1,052.28
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity $ 666.82 -- -- -- $ 512.53
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
+ If you start receiving annuity payments within three years of making an
additional contribution we will recover the amount of any credit that
applied to that contribution.
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
TABLE 3
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 3.40% 3.42% 3.23% 3.63% -- 5.11%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Money Market 4.84% 4.87% 4.77% 5.20% -- 6.77%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 5.05% 5.18% 5.11% 5.44% -- 6.76%
- ----------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD (6.90)% 9.30% 7.96% 9.11% -- 8.45%
- ----------------------------------------------------------------------------------------------------------------------
Lipper High Current Yield (0.44)% 8.21% 7.37% 9.34% -- 8.97%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 3.66% 9.11% 9.01% 11.08% -- 10.72%
- ----------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK 27.00% 25.24% 19.66% 16.44% 16.42% 14.24%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Growth 22.86% 22.23% 18.63% 16.72% 16.30% 16.01%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 28.23% 24.06% 19.21% 17.76% 15.98%
- ----------------------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK (1.55)% 8.69% 9.39% 16.69% -- 15.59%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap Growth 12.16% 16.33% 14.87% 15.44% -- 13.69%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 8.28% 17.77% 15.56% 16.49% -- 14.78%
- ----------------------------------------------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH (5.97)% -- -- -- -- 10.25%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Small Company Growth (0.33)% -- -- -- -- 16.72%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 1.23% -- -- -- -- 16.58%
- ----------------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX 23.13% -- -- -- -- 23.13%
- ----------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 26.78% -- -- -- -- 26.78%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 28.58%
- ----------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX (3.87)% -- -- -- -- (3.87)%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% -- -- -- -- 1.53%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- ----------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX 18.17% -- -- -- -- 18.17%
- ----------------------------------------------------------------------------------------------------------------------
Lipper International 12.17% -- -- -- -- 12.17%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% -- -- -- -- 20.00%
- ----------------------------------------------------------------------------------------------------------------------
JPM CORE BOND 7.28% -- -- -- -- 7.28%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Investment Grade
Debt 7.23% -- -- -- -- 7.23%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 8.72% -- -- -- -- 8.72%
- ----------------------------------------------------------------------------------------------------------------------
LAZARD LARGE CAP VALUE 18.14% -- -- -- -- 18.14%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Capital Appreciation 24.16% -- -- -- -- 24.16%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 28.58%
- ----------------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP VALUE (8.56)% -- -- -- -- (8.56)%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% -- -- -- -- 1.53%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- ----------------------------------------------------------------------------------------------------------------------
MFS RESEARCH 22.12% -- -- -- -- 22.44%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Growth 25.82% -- -- -- -- 28.73%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% -- -- -- -- 31.63%
- ----------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES 32.37% -- -- -- -- 32.69%
- ----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap 15.97% -- -- -- -- 22.72%
- ----------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% -- -- -- -- 14.53%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
TABLE 3 (CONTINUED)
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MERRILL LYNCH BASIC VALUE EQUITY 9.80% -- -- -- -- 15.46%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
Lipper Growth & Income 15.54% -- -- -- -- 21.32%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
Benchmark 28.58% -- -- -- -- 31.63%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
MERRILL LYNCH WORLD STRATEGY 5.11% -- -- -- -- 5.23%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
Lipper Global Flexible Portfolio 9.34% -- -- -- -- 11.15%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
Benchmark 19.55% -- -- -- -- 20.00%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
MORGAN STANLEY EMERGING MARKETS EQUITY (28.19)% -- -- -- -- (33.79)%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
Lipper Emerging Markets (30.50)% -- -- -- -- (36.28)%
- ------------------------------------------- ---------- ---------- ---------- ------------ ------------ ------------
Benchmark (25.34)% -- -- -- -- (28.92)%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
TABLE 4
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 3.40% 10.60% 17.22% 42.89% -- 138.78%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Money Market 4.84% 15.34% 26.25% 66.09% -- 214.68%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 5.05% 16.35% 28.27% 69.88% -- 214.45%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
ALLIANCE HIGH YIELD (6.90)% 30.56% 46.65% 139.11% -- 164.68%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper High Current Yield (0.44)% 26.80% 43.00% 145.62% -- 182.21%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 3.66% 29.90% 53.96% 186.01% -- 239.69%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
ALLIANCE COMMON STOCK 27.00% 96.46% 145.35% 358.29% 1,991.24% 2,026.84%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Growth 22.86% 84.52% 138.97% 388.00% 2,185.68% 3,490.04%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 28.58% 110.85% 193.91% 479.62% 2,530.43% 2,919.92%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
ALLIANCE AGGRESSIVE STOCK (1.55)% 28.42% 56.67% 368.05% -- 550.62%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Mid-Cap Growth 12.16% 58.64% 102.73% 334.88% -- 448.32%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 8.28% 63.35% 106.12% 360.30% -- 494.67%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
ALLIANCE SMALL CAP GROWTH (5.97)% -- -- -- -- 17.69%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Small Company Growth (0.33)% -- -- -- -- 28.98%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 1.23% -- -- -- -- 29.23%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
BT EQUITY 500 INDEX 23.13% -- -- -- -- 23.13%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper S&P 500 Index 26.78% -- -- -- -- 26.78%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 28.58% -- -- -- -- 28.58%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
BT SMALL COMPANY INDEX (3.87)% -- -- -- -- (3.87)%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Small Cap 1.53% -- -- -- -- 1.49%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
BT INTERNATIONAL EQUITY INDEX 18.17% -- -- -- -- 18.17%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper International 12.17% -- -- -- -- 12.23%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 20.00% -- -- -- -- 20.00%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
JPM CORE BOND 7.28% -- -- -- -- 7.28%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Intermediate Investment Grade
Debt 7.23% -- -- -- -- 7.23%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 8.72% -- -- -- -- 8.72%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
LAZARD LARGE CAP VALUE 18.14% -- -- -- -- 18.14%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Capital Appreciation 24.16% -- -- -- -- 24.09%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 28.58% -- -- -- -- 28.58%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
LAZARD SMALL CAP VALUE (8.56)% -- -- -- -- (8.56)%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Small Cap 1.53% -- -- -- -- 1.53%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark (2.54)% -- -- -- -- (2.54)%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
MFS RESEARCH 22.12% -- -- -- -- 40.19%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Lipper Growth 25.82% -- -- -- -- 52.86%
- --------------------------------------------- --------- --------- ----------- ----------- ----------- --------------
Benchmark 28.58% -- -- -- -- 57.60%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
TABLE 4 (CONTINUED)
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SINCE
PORTFOLIO
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MFS EMERGING GROWTH COMPANIES 32.37% -- -- -- -- 60.31%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Lipper Mid-Cap 15.97% -- -- -- -- 42.16%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Benchmark (2.54)% -- -- -- -- 25.40%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
MERRILL LYNCH BASIC VALUE EQUITY 9.80% -- -- -- -- 27.11%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Lipper Growth & Income 15.54% -- -- -- -- 15.59%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Benchmark 28.58% -- -- -- -- 57.60%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
MERRILL LYNCH WORLD STRATEGY 5.11% -- -- -- -- 8.88%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Lipper Global Flexible Portfolio 9.34% -- -- -- -- 19.41%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Benchmark 19.55% -- -- -- -- 33.33%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
MORGAN STANLEY EMERGING MARKETS EQUITY (28.19)% -- -- -- -- (43.02)%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Lipper Emerging Markets (30.50)% -- -- -- -- (45.67)%
- --------------------------------------------- ---------- ----------- ----------- ----------- ----------- --------------
Benchmark (25.34)% -- -- -- -- (36.71)%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 5
YEAR-BY-YEAR RATES OF RETURN
- -------------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Money Market 7.18% 6.23% 4.23% 1.65% 1.06% 2.10% 3.80% 3.37% 3.48% 3.40%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield 3.20% (2.95)% 22.17% 10.23% 20.88% (4.58)% 17.71% 20.60% 16.28% (6.90)%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Common Stock 23.28% (9.82)% 35.34% 1.31% 22.52% (3.94)% 30.01% 21.97% 26.84% 27.00%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock 40.86% 6.16% 83.43% (4.95)% 14.59% (5.59)% 29.21% 19.93% 8.77% (1.55)%
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth -- -- -- -- -- -- -- -- 25.16%+ (5.97)%
- -------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index -- -- -- -- -- -- -- -- -- 23.13%
- -------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index -- -- -- -- -- -- -- -- -- (3.87)%
- -------------------------------------------------------------------------------------------------------------------------------
BT International Equity
Index -- -- -- -- -- -- -- -- -- 18.17%
- -------------------------------------------------------------------------------------------------------------------------------
JPM Core Bond -- -- -- -- -- -- -- -- -- 7.28%
- -------------------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value -- -- -- -- -- -- -- -- -- 18.14%
- -------------------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value -- -- -- -- -- -- -- -- -- (8.56)%
- -------------------------------------------------------------------------------------------------------------------------------
MFS Research -- -- -- -- -- -- -- -- 14.80%+ 22.12%
- -------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth
Companies -- -- -- -- -- -- -- -- 21.11%+ 32.37%
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value
Equity -- -- -- -- -- -- -- -- 15.77%+ 9.80%
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch World
Strategy -- -- -- -- -- -- -- -- 3.58%+ 5.11%
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging
Markets Equity -- -- -- -- -- -- -- -- (20.66)%+ (28.19)%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
+ Returns for these Portfolios represent less than 12 months of performance. The
returns are as of each Portfolio inception date as shown in Table 1.
