VARIABLE LIFE INSURANCE POLICIES
FUNDED THROUGH SEPARATE ACCOUNT I
PROSPECTUS SUPPLEMENT DATED MAY 1, 1996
The Champion(TM) Basic Policy
SP-1(TM) Expanded Policy
Issued By
EQUITABLE VARIABLE
LIFE INSURANCE COMPANY
Principal Office Located at:
787 Seventh Avenue
New York, NY 10019
VM 520
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THE HUDSON RIVER TRUST
PROSPECTUS DATED MAY 1, 1996
HRT 596
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<PAGE>
VARIABLE LIFE INSURANCE POLICIES
FUNDED THROUGH SEPARATE ACCOUNT I
THE CHAMPION(TM) (85-11)
SP-1(TM) (85-09) ISSUED BY
BASIC POLICY (85-01) EQUITABLE VARIABLE
EXPANDED POLICY (85-02) LIFE INSURANCE COMPANY
PROSPECTUS SUPPLEMENT DATED MAY 1, 1996
INTRODUCTION. This Supplement updates certain information contained in the
prospectuses for:
o THE CHAMPION dated September 30, 1987 and December 18, 1986;
o SP-1 dated September 30, 1987, April 30, 1986 and January 1, 1984; and
o BASIC AND EXPANDED dated April 30, 1986 and March 26, 1985.
For your convenience, we have consolidated the prior updating supplements that
have been previously distributed. For this reason, you may already be familiar
with some of the information in this prospectus supplement, but we encourage you
to read it carefully anyway. You should attach this supplement to your
prospectus and retain it for future reference. Equitable Variable Life Insurance
Company (Equitable Variable) will send you an additional copy of any prospectus
without charge, on written request.
These Policies are no longer offered for sale.
EQUITABLE VARIABLE. The information under the heading EQUITABLE VARIABLE is
updated as follows: Equitable Variable was organized in 1972 in New York State
as a stock life insurance company. We are licensed to do business in all 50
states, Puerto Rico, the Virgin Islands and the District of Columbia. At
December 31, 1995, we had approximately $132.8 billion face amount of variable
life insurance in force.
EQUITABLE. The information under the heading OUR PARENT, EQUITABLE is updated as
follows: Equitable is a wholly-owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest stockholder of the Holding
Company is AXA S.A. (AXA), a French insurance holding company. AXA beneficially
owns 60.6% of the outstanding shares of common stock of the Holding Company plus
convertible preferred stock. Under its investment arrangements with Equitable
and the Holding Company, AXA is able to exercise significant influence over the
operations and capital structure of the Holding Company and its subsidiaries,
including Equitable and Equitable Variable. AXA is the principal holding company
for most of the companies in one of the largest insurance groups in Europe. The
majority of AXA's stock is controlled by a group of five French mutual insurance
companies. Equitable, the Holding Company and their subsidiaries managed
approximately $195.3 billion in assets as of December 31, 1995.
HUDSON RIVER TRUST INVESTMENT POLICIES. Net premiums under your policy can be
allocated to the investment funds of our Separate Account I ("Funds"). The funds
of Separate Account I in turn invest those net premiums in corresponding
portfolios of The Hudson River Trust, a mutual fund. Each portfolio has a
different investment objective which it tries to achieve by following separate
investment policies. The objectives and policies of each portfolio will affect
its return and its risks. There is no guarantee that these objectives will be
achieved. The policies and objectives of the Trust's portfolios are as follows:
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT POLICY OBJECTIVE
--------- ----------------- ---------
<S> <C> <C>
MONEY MARKET ............. Primarily high quality short-term money market High level of current income while
instruments. preserving assets and maintaining
liquidity.
INTERMEDIATE ............. Primarily debt securities issued or guaranteed High current income consistent with
GOVERNMENT by the U.S. Government, its agencies and relative stability of principal.
SECURITIES instrumentalities. Each investment will have a
final maturity of not more than 10 years or a
duration not exceeding that of a 10-year
Treasury note.
HIGH YIELD ............... Primarily a diversified mix of high yield, High return by maximizing current
fixed-income securities involving greater income and, to the extent
volatility of price and risk of principal and consistent with that objective,
income than high quality fixed-income capital appreciation.
securities. The medium and lower quality debt
securities in which the Portfolio may invest
are known as "junk bonds."
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</TABLE>
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THIS SUPPLEMENT SHOULD BE RETAINED FOR FUTURE REFERENCES.
VM520 Copyright 1996 Equitable Variable Life Insurance Company.
All rights reserved.
2
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<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT POLICY OBJECTIVE
--------- ----------------- ---------
<S> <C> <C>
BALANCED ................. Primarily common stocks, publicly-traded debt High return through a combination
securities and high quality money market of current income and capital
instruments. The portfolio is generally appreciation.
expected to hold 50% of its assets in equity
securities and 50% in fixed income securities.
COMMON STOCK ............. Primarily common stock and other equity-type Long-term growth of capital and
instruments. increasing income.
AGGRESSIVE STOCK ......... Primarily common stock and other equity-type Long-term growth of capital.
securities issued by medium and other smaller
sized companies with strong growth potential.
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</TABLE>
INVESTMENT PERFORMANCE. Footnote 7 to the Separate Account I financial
statements included herein contains information about the net return for each
Fund. The attached prospectus supplement for The Hudson River Trust contains
rates of return and other portfolio performance information of the Trust for
various periods ended December 31, 1995. Remember, the changes in the
Account/Cash Value of your policy depend not only on the performance of the
Trust portfolios, but also on the deductions and charges under your policy. To
obtain the current index values of the Separate Account Funds for Champion
policies, call (212)714-5015. The index values and the information contained in
Footnote 7 are computed using the gross rates of return for the corresponding
portfolios of the Trust, reduced by a daily asset charge for investment advisory
services of 0.25% and by the mortality and expense risk charge.
THE TRUST'S INVESTMENT ADVISER. The information about Alliance Capital
Management L.P. (Alliance), the Trust's investment adviser, is updated as
follows: As of December 31, 1995, Alliance was managing approximately $146.5
billion in assets. Alliance, a publicly traded limited partnership, is
indirectly majority-owned by Equitable.
For your convenience, we are restating the advisory fees payable by the Trust to
Alliance, which is based on the following annual percentages of the value of
each portfolio's daily average net assets, are as follows:
<TABLE>
<CAPTION>
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DAILY AVERAGE NET ASSETS
--------------------------------------------
FIRST NEXT OVER
PORTFOLIO $350 MILLION $400 MILLION $750 MILLION
--------- ------------ ------------ ------------
<S> <C> <C> <C>
Common Stock, Money Market and Balanced..................... .400% .375% .350%
Aggressive Stock and Intermediate Government Securities..... .500% .475% .450%
High Yield.................................................. .550% .525% .500%
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</TABLE>
Equitable Variable credits the Separate Account Funds daily to offset investment
advisory fees of the Trust which exceed a 0.25% effective annual rate.
LIVING BENEFIT OPTION AVAILABLE. Subject to regulatory approval in your state
and our underwriting guidelines, you may now be eligible for a Living Benefit
payment under your policy. The Living Benefit enables the policyowner to receive
a portion of the policy's death benefit (excluding death benefits payable under
certain riders) if the insured has a terminal illness. Certain eligibility
requirements apply when you submit a Living Benefit claim (for example,
satisfactory evidence of less than six month life expectancy). We will deduct an
administrative charge of up to $250 from the proceeds of the Living Benefit
payment. This charge may be less in some states.
When a Living Benefit claim is paid, Equitable Variable establishes a lien
against the policy. The amount of the lien is the sum of the Living Benefit
payment, any accrued interest on that payment and any unpaid scheduled premium.
Interest will be charged at a rate equal to the greater of: (i) the yield on a
90-day Treasury bill and (ii) the maximum adjustable policy loan interest rate
permitted in the state in which your policy was delivered.
Until a death benefit is paid, or the policy is surrendered, a portion of the
lien is allocated to the policy's net cash surrender value. This portion of the
liened amount will be transferred to the Money Market Fund. This portion of the
liened amount will not be available for loans. Any death benefit or Cash
Surrender Value payable upon policy surrender will be reduced by the amount of
the lien.
Unlike a death benefit received by a beneficiary after the death of an insured,
receipt of a Living Benefit payment may be taxable as a distribution under the
policy. See THE IMPACT OF TAXES or TAX EFFECTS in your prospectus and TAX
EFFECTS in this supplement for a discussion of the tax treatment of
distributions under the policy. Consult your tax adviser. Receipt of a Living
Benefit payment may also affect a policyowner's eligibility for certain
government benefits or entitlements. For additional information about this
benefit, please contact your Equitable agent.
3
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CASH/ACCOUNT VALUE TRANSFERS. You may transfer all or part of your Cash/Account
Value among the Funds of the Separate Account up to four times in a policy year.
A transfer will go into effect on the day we receive your signed request at our
Administrative Office. Your request should show the policy number and amount
(either in dollars or as a percentage) you want to transfer. We reallocate loans
if you transfer Cash/Account Value.
TELEPHONE TRANSFERS. In order to make a transfer by telephone, each policyowner
must first complete and return an authorization form. Authorization forms can be
obtained from your Equitable agent or our Administrative Office. The completed
form MUST be returned to our Administrative Office before requesting a telephone
transfer.
Telephone transfers may be requested on each day we are open to transact
business. You will receive the Fund's index value as of the close of business on
the day you call. We do not accept telephone transfer requests after 4:00 p.m.
Eastern Time. Only one telephone transfer request is permitted per day and it
may not be revoked at any time. Telephone transfer requests are automatically
recorded and are invalid if incomplete information is given, portions of the
request are inaudible, no authorization form is on file, or the request does not
comply with the transfer limitations described in your policy.
We have established reasonable procedures designed to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting on telephone instructions
and providing written confirmation of instructions communicated by telephone. If
we do not employ reasonable procedures to confirm that instructions communicated
by telephone are genuine, we may be liable for any losses arising out of any act
or any failure to act resulting from our own negligence, lack of good faith, or
willful misconduct. In light of the procedures established, we will not be
liable for following telephone instructions that we reasonably believe to be
genuine.
During times of extreme market activity it may be impossible to contact us to
make a telephone transfer. If this occurs, you should submit a written transfer
request to our Administrative Office. Our rules on telephone transfers are
subject to change and we reserve the right to discontinue telephone transfers in
the future.
TAX EFFECTS. The discussion of the tax effects on policy proceeds contained in
your prospectus and this supplement is based on our interpretation of Federal
income tax laws as of the date of such prospectus or supplement, as applied to
Policies owned by U.S. resident individuals. The tax effects on corporate
taxpayers, subject to the Federal alternative minimum tax, other non-natural
owners such as trusts, non-U.S. residents or non-U.S. citizens, may be
different. This discussion is general in nature and should not be considered tax
advice, for which you should consult your legal or tax adviser.
SPECIAL TAX RULES MAY APPLY IF YOU TRANSFER YOUR OWNERSHIP OF THE POLICY.
CONSULT YOUR TAX ADVISER BEFORE ANY TRANSFER OF YOUR POLICY.
POLICY PROCEEDS. A policy will be treated as "life insurance" for Federal income
tax purposes if it meets the definitional requirement of the Internal Revenue
Code (Code) and for as long as the portfolios of the Trust satisfy the
diversification requirements under the Code. We believe that the Policies will
meet these requirements, and that under Federal income tax law:
o the death benefit received by the beneficiary under your policy will not be
subject to Federal income tax; and
o as long as your policy remains in force, increases in the value of your
policy as a result of investment experience will not be subject to Federal
income tax unless and until there is a distribution from your policy.
The Federal income tax consequences of a distribution from your policy will
depend on whether your policy is determined to be a "modified endowment." Except
for SP-1 policies entered into after June 20, 1988, the Policies will generally
not be considered modified endowments. Also, SP-1 policies acquired after June
20, 1988 as a result of an exchange from a policy that is not a modified
endowment, will generally not be considered a modified endowment as long as no
additional premiums are paid and the death benefit of the new policy is not
reduced below that of the old policy. Although Champion policies should
generally not be considered modified endowments, a Champion policy entered into
after June 20, 1988 could become a modified endowment if it were issued in
exchange for a modified endowment or if the policy is allowed to lapse.
IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT, as long as it remains in force, a
loan under your policy will be treated as indebtedness and no part of the loan
will be subject to Federal income tax. Interest on loans is not deductible. If
your policy lapses, matures or is surrendered, the excess, if any, of your Cash
Surrender Value (which includes the amount of any unpaid policy loan and loan
interest) over your Basis will be subject to Federal income tax. Your Basis in
your policy generally will equal the premiums you have paid. Also, if your
policy provides for a policy split, a split of your policy into two policies
followed by a return of one for cash may result in taxable income to you.
IF YOUR POLICY IS A MODIFIED ENDOWMENT, any loan from your policy will be taxed
in a manner comparable to distributions from annuities (e.g., on an
"income-first" basis). A loan for this purpose includes any increase in the loan
amount to pay interest on an existing loan or an assignment or a pledge to
secure a loan. A loan will be considered taxable income to you to the extent
your Account Value exceeds your Basis in the policy at the time you make the
loan. For modified endowments, your Basis would be increased by the amount of
any prior loan under your policy that was considered taxable income to you.
A 10% penalty tax will also apply to the taxable portion of a loan under a
modified endowment. The penalty tax will not, however, apply to loans (i) to
taxpayers 59 1/2 years of age or older, (ii) in the case of a disability (as
defined in the Code) or (iii) received as part of a series of substantially
equal periodic annuity payments for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary. In addition, if your policy lapses, matures or is
4
<PAGE>
surrendered, the excess, if any, of your Cash Surrender Value over your Basis
will be subject to Federal income tax and, unless one of the above exceptions
applies, the 10% penalty tax.
If a policy is a modified endowment, a policy distribution will be taxed as
described in the two preceding paragraphs. "Distributions" include loans, and
payments made upon surrender, maturity, lapse, or upon surrender of one of the
policies resulting from a policy split. In addition, a distribution from a
policy within two years before it becomes a modified endowment will be subject
to tax in this manner. The Secretary of the Treasury has been authorized to
prescribe rules which would treat similarly other loans made in anticipation of
a policy becoming a modified endowment.
For the purpose of determining the taxable income to you resulting from a
distribution under your policy, all modified endowments issued to you by the
same insurer or an affiliate during any calendar year will be aggregated and
treated as one policy. This provision applies to policies entered into after
June 20, 1988, but does not affect contracts purchased by certain qualified
plans. Under prior law, a "twelve-month period" rather than a calendar year
standard was used.
The paragraphs above described how certain 1988 Federal tax legislation changed
the tax consequences of distributions for "modified endowments", a newly
described category of life insurance policies.
DIVERSIFICATION. Under Section 817(h) of the Code, the Secretary of the Treasury
has the authority to set standards for diversification of the investments
underlying variable life insurance policies. The Treasury Department has issued
regulations regarding the diversification requirements. Failure by us to meet
these requirements would disqualify your policy as a life insurance policy under
Section 7702 of the Code. If this were to occur, you would be subject to Federal
income tax on the income under the policy. Equitable Variable Separate Account
I, through the Trust, intends to comply with these requirements.
In connection with the issuance of the temporary diversification regulations,
the Treasury Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which the ability of a policyowner
to direct his investment to particular funds of a separate account may cause the
policyowner, rather than the insurance company, to be treated as the owner of
the assets in the account. If you were considered the owner of the assets of the
Separate Account, income and gains from the Separate Account would be included
in your gross income for Federal income tax purposes.
TAX CHANGES. The United States Congress may in the future enact legislation that
could change the tax treatment of life insurance policies. In addition, the
Treasury Department may amend existing regulations, issue new regulations, or
adopt new interpretations of existing laws. There is no way of predicting
whether, when or in what form any such change would be adopted. Any such change
could have a retroactive effect regardless of the date of enactment. State tax
laws or, if you are not a United States resident, foreign tax laws, may affect
the tax consequences to you, the insured person or your beneficiary. These laws
may change from time to time without notice.
DISTRIBUTION. Equico Securities Inc. ("Equico"), a wholly-owned subsidiary of
Equitable, is the principal underwriter of the Trust under a Distribution
Agreement. Equico is also the distributor of our variable life insurance
policies and Equitable's variable annuity contracts under a Distribution and
Servicing Agreement. Equico is registered with the SEC as a broker-dealer under
the Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. Equico's principal business address is 1755
Broadway, New York, NY 10019. Equico is paid a fee for its services as
distributor of our policies. In 1994 and 1995, Equitable and Equitable Variable
paid Equico fees of $216,920 and $325,380, respectively, for its services under
the Distribution and Servicing Agreement. On or about May 1, 1996, Equico will
change its name to EQ Financial Consultants, Inc.
The amounts paid and accrued to Equitable by us under our sales and services
agreements with Equitable totaled approximately $377.2 million in 1995, $380.5
million in 1994 and $355.7 million in 1993.
MANAGEMENT. A list of our directors and principal officers and a brief statement
of their business experience for the past five years is contained in Appendix A
to this supplement.
LONG-TERM MARKET TRENDS. Appendix B to this supplement presents historical
return trends for various types of securities which may be useful for
understanding how different investment strategies may affect long term results.
FINANCIAL STATEMENTS. The financial statements of Separate Account FP and
Equitable Variable included in this prospectus supplement have been audited for
the years ended December 31, 1995, 1994 and 1993 by the accounting firm of Price
Waterhouse LLP, independent accountants, to the extent stated in their reports.
The financial statements of Separate Account FP and Equitable Variable for the
years ended December 31, 1995, 1994 and 1993 included in this prospectus
supplement have been so included in reliance on the reports of Price Waterhouse
LLP, given on the authority of such firm as experts in accounting and auditing.
The financial statements of Equitable Variable contained in this prospectus
supplement should be considered only as bearing upon the ability of Equitable
Variable to meet its obligations under the policies. They should not be
considered as bearing upon the investment experience of the Funds of the
Separate Account.
5
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Equitable Variable Life Insurance Company
and Policyowners of Separate Account I
of Equitable Variable Life Insurance Company
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 Money Market Division,
Intermediate Government Securities Division, High Yield Division, Balanced
Division, Common Stock Division and Aggressive Stock Division, separate
investment divisions of Equitable Variable Life Insurance Company ("Equitable
Variable Life") Separate Account I at December 31, 1995 and the results of each
of their operations and changes in each of their net assets for the years
indicated, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Equitable Variable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares in The Hudson River Trust at December 31, 1995 with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
February 7, 1996
FSA-1
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
DIVISION DIVISION DIVISION
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<S> <C> <C> <C>
ASSETS
Investments in shares of The Hudson River Trust --
at market value (Notes 2 and 7)
Cost: $ 68,810,062........................................................ $69,878,080
2,278,572........................................................ $2,270,685
8,122,292........................................................ $8,889,685
30,772,800........................................................
288,549,569........................................................
15,051,041........................................................
Receivable for sales of shares of The Hudson River Trust................... -- -- 4,028
Receivable for policy-related transactions................................. -- 122 --
----------- ---------- ----------
Total Assets............................................................... 69,878,080 2,270,807 8,893,713
----------- ---------- ----------
LIABILITIES
Payable for purchases of shares of The Hudson River Trust.................. 42,175 146 --
Payable for policy-related transactions.................................... 374,717 -- 75,483
Amount retained by Equitable Variable Life in Separate Account I (Note 4).. 556,502 108,596 584,394
----------- ---------- ----------
Total Liabilities.......................................................... 973,394 108,742 659,877
----------- ---------- ----------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS.................................... $68,904,686 $2,162,065 $8,233,835
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
COMMON AGGRESSIVE
BALANCED STOCK STOCK
DIVISION DIVISION DIVISION
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Investments in shares of The Hudson River Trust --
at market value (Notes 2 and 7)
Cost: $ 68,810,062........................................................
2,278,572........................................................
8,122,292........................................................
30,772,800........................................................ $36,956,684
288,549,569........................................................ $466,189,272
15,051,041........................................................ $24,149,766
Receivable for sales of shares of The Hudson River Trust................... -- -- --
Receivable for policy-related transactions................................. -- -- --
----------- ------------ -----------
Total Assets............................................................... 36,956,684 466,189,272 24,149,766
----------- ------------ -----------
LIABILITIES
Payable for purchases of shares of The Hudson River Trust.................. 13,111 171,915 25,293
Payable for policy-related transactions.................................... 548,410 4,222,963 373,127
Amount retained by Equitable Variable Life in Separate Account I (Note 4).. 552,645 5,700,933 532,544
----------- ------------ -----------
Total Liabilities.......................................................... 1,114,166 10,095,811 930,964
----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS.................................... $35,842,518 $456,093,461 $23,218,802
=========== ============ ===========
</TABLE>
See Notes to Financial Statements.
FSA-2
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EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MONEY MARKET DIVISION
--------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Income (Note 2):
Dividends from The Hudson River Trust................................ $3,738,980 $2,684,291 $2,083,651
Expenses (Note 3):
Mortality and expense risk charges................................... 347,935 355,911 373,075
---------- ---------- ----------
NET INVESTMENT INCOME..................................................... 3,391,045 2,328,380 1,710,576
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................................. 31,732 52,117 65,261
Realized gain distribution from The Hudson River Trust............... -- -- --
---------- ---------- ----------
NET REALIZED GAIN (LOSS).................................................. 31,732 52,117 65,261
Unrealized appreciation/depreciation on investments:
Beginning of period.................................................. 920,431 844,597 812,147
End of period........................................................ 1,068,018 920,431 844,597
---------- ---------- ----------
Change in unrealized appreciation/depreciation during the period....... 147,587 75,834 32,450
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.................... 179,319 127,951 97,711
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........... $3,570,364 $2,456,331 $1,808,287
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT
SECURITIES DIVISION
------------------------------------
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Income (Note 2):
Dividends from The Hudson River Trust................................ $145,274 $ 199,648 $115,827
Expenses (Note 3):
Mortality and expense risk charges................................... 11,943 11,365 8,896
-------- --------- --------
NET INVESTMENT INCOME..................................................... 133,331 188,283 106,931
-------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.................................. (94,891) (303,584) (3,141)
Realized gain distribution from The Hudson River Trust............... -- 157,383 157,383
-------- --------- --------
NET REALIZED GAIN (LOSS).................................................. (94,891) (146,201) 154,242
Unrealized appreciation/depreciation on investments:
Beginning of period.................................................. (267,346) (100,844) 8,264
End of period........................................................ (7,887) (267,346) (100,844)
-------- --------- --------
Change in unrealized appreciation/depreciation during the period....... 259,459 (166,502) (109,108)
-------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.................... 164,568 (312,703) 45,134
-------- --------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........... $297,899 $(124,420) $152,065
======== ========= ========
</TABLE>
See Notes to Financial Statements.
FSA-3
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HIGH YIELD DIVISION
--------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Income (Note 2):
Dividends from The Hudson River Trust...................................... $ 862,089 $ 806,574 $ 763,325
Expenses (Note 3):
Mortality and expense risk charges......................................... 39,170 41,676 40,466
----------- --------- ----------
NET INVESTMENT INCOME........................................................... 822,919 764,898 722,859
----------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.......................................... (10,426) (94,683) 11,131
Realized gain distribution from The Hudson River Trust....................... -- -- 170,999
---------- --------- ----------
NET REALIZED GAIN (LOSS)........................................................ (10,426) (94,683) 182,130
Unrealized appreciation/depreciation on investments:
Beginning of period........................................................ 98,061 1,064,280 338,796
End of period.............................................................. 767,393 98,061 1,064,280
---------- ---------- ----------
Change in unrealized appreciation/depreciation during the period............. 669,332 (966,219) 725,484
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.......................... 658,906 (1,060,902) 907,614
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. $1,481,825 $ (296,004) $1,630,473
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
BALANCED DIVISION
--------------------------------------
1995 1994 1993
---------- ------------ ----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Income (Note 2):
Dividends from The Hudson River Trust...................................... $1,126,871 $ 1,006,200 $ 963,517
Expenses (Note 3):
Mortality and expense risk charges......................................... 167,041 164,873 162,512
---------- ----------- ----------
NET INVESTMENT INCOME........................................................... 959,830 841,327 801,005
---------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.......................................... (113,948) (379,076) (6,104)
Realized gain distribution from The Hudson River Trust....................... 1,008,186 -- 1,948,704
---------- ----------- ----------
NET REALIZED GAIN (LOSS)........................................................ 894,238 (379,076) 1,942,600
Unrealized appreciation/depreciation on investments:
Beginning of period........................................................ 2,080,968 5,526,191 4,624,699
End of period.............................................................. 6,183,884 2,080,968 5,526,191
---------- ----------- ----------
Change in unrealized appreciation/depreciation during the period............. 4,102,916 (3,445,223) 901,492
---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS.......................... 4,997,154 (3,824,299) 2,844,092
---------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. $5,956,984 $(2,982,972) $3,645,097
========== =========== ==========
</TABLE>
See Notes to Financial Statements.
FSA-4
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK DIVISION
-------------------------------------------
1995 1994 1993
-------------- ------------- ------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Income (Note 2):
Dividends from The Hudson River Trust..................................... $ 5,978,397 $ 5,727,748 $ 5,678,972
Expenses (Note 3):
Mortality and expense risk charges........................................ 2,095,213 1,942,844 1,844,849
------------ ------------ ------------
NET INVESTMENT INCOME.......................................................... 3,883,184 3,784,904 3,834,123
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments......................................... 1,269,512 (328,604) 2,630,537
Realized gain distribution from The Hudson River Trust...................... 25,928,481 20,219,440 47,068,505
------------ ------------ ------------
NET REALIZED GAIN (LOSS)....................................................... 27,197,993 19,890,836 49,699,042
Unrealized appreciation/depreciation on investments:
Beginning of period....................................................... 92,693,149 126,545,990 98,769,799
End of period............................................................. 177,639,703 92,693,149 126,545,990
------------ ------------ ------------
Change in unrealized appreciation/depreciation during the period............ 84,946,554 (33,852,841) 27,776,191
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS......................... 112,144,547 (13,962,005) 77,475,233
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................ $116,027,731 $(10,177,101) $ 81,309,356
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE STOCK DIVISION
------------------------------------------
1995 1994 1993
----------- ------------- -------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Income (Note 2):
Dividends from The Hudson River Trust..................................... $ 57,627 $ 22,268 $ 45,872
Expenses (Note 3):
Mortality and expense risk charges........................................ 102,259 89,577 82,479
---------- ----------- ----------
NET INVESTMENT INCOME.......................................................... (44,632) (67,309) (36,607)
---------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 2):
Realized gain (loss) on investments......................................... 42,192 (226,938) (57,409)
Realized gain distribution from The Hudson River Trust...................... 2,691,238 -- 1,550,537
---------- ----------- ----------
NET REALIZED GAIN (LOSS)....................................................... 2,733,430 (226,938) 1,493,128
Unrealized appreciation/depreciation on investments:
Beginning of period....................................................... 6,102,433 6,618,938 5,529,963
End of period............................................................. 9,098,725 6,102,433 6,618,938
---------- ----------- ----------
Change in unrealized appreciation/depreciation during the period............ 2,996,292 (516,505) 1,088,975
---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS......................... 5,729,722 (743,443) 2,582,103
---------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................ $5,685,090 $ (810,752) $2,545,496
========== =========== ==========
</TABLE>
See Notes to Financial Statements.
FSA-5
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MONEY MARKET DIVISION
---------------------------------------
1995 1994 1993
---------- ------------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................ $3,391,045 $ 2,328,380 $ 1,710,576
Net realized gain (loss)..................................................... 31,732 52,117 65,261
Change in unrealized appreciation (depreciation) on investments.............. 147,587 75,834 32,450
----------- ----------- -----------
Net increase (decrease) from operations...................................... 3,570,364 2,456,331 1,808,287
----------- ----------- -----------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)........................................................ 5,540,000 6,128,438 7,171,866
Benefits and other policy-related transactions............................... (8,585,006) (8,940,995) (10,608,028)
Net transfers among divisions................................................ (340,867) (1,904,223) (3,931,738)
----------- ----------- -----------
Net increase (decrease) from policy-related transactions..................... (3,385,873) (4,716,780) (7,367,900)
----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE VARIABLE LIFE
IN SEPARATE ACCOUNT I (Note 4)............................................... (33,731) (22,105) (424)
----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS............................................... 150,760 (2,282,554) (5,560,037)
NET ASSETS, BEGINNING OF PERIOD................................................. 68,753,926 71,036,480 76,596,517
----------- ----------- -----------
NET ASSETS, END OF PERIOD....................................................... $68,904,686 $68,753,926 $71,036,480
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT
SECURITIES DIVISION
--------------------------------------
1995 1994 1993
----------- ------------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................ $ 133,331 $ 188,283 $ 106,931
Net realized gain (loss)..................................................... (94,891) (146,201) 154,242
Change in unrealized appreciation (depreciation) on investments.............. 259,459 (166,502) (109,108)
---------- ----------- ----------
Net increase (decrease) from operations...................................... 297,899 (124,420) 152,065
---------- ----------- ----------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)........................................................ 120,110 130,572 114,331
Benefits and other policy-related transactions............................... (292,199) (402,355) (135,104)
Net transfers among divisions................................................ (65,399) 606,857 557,742
---------- ----------- ----------
Net increase (decrease) from policy-related transactions..................... (237,488) 335,074 536,969
---------- ----------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE VARIABLE LIFE
IN SEPARATE ACCOUNT I (Note 4)............................................... (12,591) 4,561 (986)
---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS............................................... 47,820 215,215 688,048
NET ASSETS, BEGINNING OF PERIOD................................................. 2,114,245 1,899,030 1,210,982
---------- ---------- ----------
NET ASSETS, END OF PERIOD....................................................... $2,162,065 $2,114,245 $1,899,030
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
FSA-6
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HIGH YIELD DIVISION
-----------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................ $ 822,919 $ 764,898 $ 722,859
Net realized gain (loss)..................................................... (10,426) (94,683) 182,130
Change in unrealized appreciation (depreciation) on investments.............. 669,332 (966,219) 725,484
---------- ----------- -----------
Net increase (decrease) from operations...................................... 1,481,825 (296,004) 1,630,473
---------- ----------- -----------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)........................................................ 821,557 852,874 862,281
Benefits and other policy-related transactions............................... (1,690,910) (1,525,854) (1,494,464)
Net transfers among divisions................................................ 154,049 (38,627) 626,135
---------- ----------- -----------
Net increase (decrease) from policy-related transactions..................... (715,304) (711,607) (6,048)
---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE VARIABLE LIFE
IN SEPARATE ACCOUNT I (Note 4)............................................... (96,346) 14,805 (5,206)
---------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS............................................... 670,175 (992,806) 1,619,219
NET ASSETS, BEGINNING OF PERIOD................................................. 7,563,660 8,556,466 6,937,247
---------- ----------- -----------
NET ASSETS, END OF PERIOD....................................................... $8,233,835 $ 7,563,660 $ 8,556,466
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
BALANCED DIVISION
-----------------------------------------
1995 1994 1993
------------ ------------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................ $ 959,830 $ 841,327 $ 801,005
Net realized gain (loss)..................................................... 894,238 (379,076) 1,942,600
Change in unrealized appreciation (depreciation) on investments.............. 4,102,916 (3,445,223) 901,492
----------- ----------- -----------
Net increase (decrease) from operations...................................... 5,956,984 (2,982,972) 3,645,097
----------- ----------- -----------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)........................................................ 3,295,027 3,487,888 3,674,964
Benefits and other policy-related transactions............................... (3,348,951) (3,823,829) (4,982,073)
Net transfers among divisions................................................ (376,087) (3,406) 1,192,337
----------- ----------- -----------
Net increase (decrease) from policy-related transactions..................... (430,011) (339,347) (114,772)
----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE VARIABLE LIFE
IN SEPARATE ACCOUNT I (Note 4)............................................... (89,517) 42,214 (13,867)
----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS............................................... 5,437,456 (3,280,105) 3,516,458
NET ASSETS, BEGINNING OF PERIOD................................................. 30,405,062 33,685,167 30,168,709
----------- ----------- -----------
NET ASSETS, END OF PERIOD....................................................... $35,842,518 $30,405,062 $33,685,167
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
FSA-7
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK DIVISION
-----------------------------------------
1995 1994 1993
----------- -------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................ $ 3,883,184 $ 3,784,904 $ 3,834,123
Net realized gain (loss)..................................................... 27,197,993 19,890,836 49,699,042
Change in unrealized appreciation (depreciation) on investments.............. 84,946,554 (33,852,841) 27,776,191
------------ ------------ ------------
Net increase (decrease) from operations...................................... 116,027,731 (10,177,101) 81,309,356
------------ ------------ ------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)........................................................ 22,520,480 24,056,215 25,806,986
Benefits and other policy-related transactions............................... (43,155,008) (44,688,333) (46,157,443)
Net transfers among divisions................................................ (27,413) 459,966 1,338,478
------------ ------------ ------------
Net increase (decrease) from policy-related transactions..................... (20,661,941) (20,172,152) (19,011,979)
------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE VARIABLE LIFE
IN SEPARATE ACCOUNT I (Note 4)............................................... (1,859,326) 149,257 (1,173,722)
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS............................................... 93,506,464 (30,199,996) 61,123,655
NET ASSETS, BEGINNING OF PERIOD................................................. 362,586,997 392,786,993 331,663,338
------------ ------------ ------------
NET ASSETS, END OF PERIOD....................................................... $456,093,461 $362,586,997 $392,786,993
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE STOCK DIVISION
-------------------------------------------
1995 1994 1993
----------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................................ $ (44,632) $ (67,309) $ (36,607)
Net realized gain (loss)..................................................... 2,733,430 (226,938) 1,493,128
Change in unrealized appreciation (depreciation) on investments.............. 2,996,292 (516,505) 1,088,975
----------- ------------- ------------
Net increase (decrease) from operations...................................... 5,685,090 (810,752) 2,545,496
----------- ------------- -------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)........................................................ 1,509,349 1,480,535 1,490,827
Benefits and other policy-related transactions............................... (2,642,068) (1,982,576) (1,737,214)
Net transfers among divisions................................................ 655,717 1,279,484 565,989
----------- ------------- -------------
Net increase (decrease) from policy-related transactions..................... (477,002) 777,443 319,602
----------- ------------- -------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE VARIABLE LIFE
IN SEPARATE ACCOUNT I (Note 4)............................................... (150,764) 20,425 (5,961)
----------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS............................................... 5,057,324 (12,884) 2,859,137
NET ASSETS, BEGINNING OF PERIOD................................................. 18,161,478 18,174,362 15,315,225
----------- ------------- -------------
NET ASSETS, END OF PERIOD....................................................... $23,218,802 $ 18,161,478 $ 18,174,362
=========== ============= =============
</TABLE>
See Notes to Financial Statements.
FSA-8
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. General
Equitable Variable Life Insurance Company (Equitable Variable Life), a
wholly-owned subsidiary of The Equitable Life Assurance Society of the
United States (Equitable Life), established Separate Account I (the Account)
under New York insurance law to support the operations of Equitable Variable
Life's scheduled and single premium variable life insurance policies
(Policies). The Account is a unit investment trust registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
The Account consists of six investment divisions: the Money Market Division,
the Intermediate Government Securities Division, the High Yield Division,
the Balanced Division, the Common Stock Division and the Aggressive Stock
Division. The assets in each Division are invested in shares of a designated
portfolio (Portfolio) of a mutual fund, The Hudson River Trust (the Trust).
Each Portfolio has separate investment objectives.
The assets of the Account are the property of Equitable Variable Life.
However, the portion of the Account's assets equal to the reserves and other
policy liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business Equitable Variable Life may
conduct. The net assets may not be less than the amount required under New
York insurance law to provide for death benefits (without regard to the
minimum death benefit guarantee) and other policy benefits. Additional
assets are held in Equitable Variable Life's General Account to cover the
contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
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 made in shares of the Trust are valued at the net asset value
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
Portfolios.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
The operations of the Account are included in the consolidated Federal
income tax return of Equitable. Under the provisions of the Policies,
Equitable Variable Life has the right to charge the Account for Federal
income tax attributable to the Account. No charge is currently being made
against the Account for such tax since, under current tax law, Equitable
Variable Life pays no tax on investment income and capital gains reflected
in variable life insurance policy reserves. However, Equitable Variable Life
retains the right to charge for any Federal income tax incurred which is
attributable to the Account if the law is changed. Charges for state and
local taxes, if any, attributable to the Account may also be made.
Dividends are recorded as income at the end of each quarter on the
ex-dividend date. Capital gains are distributed by the Trust at the end of
each year.
3. Asset Charges
Under the policies, Equitable Variable Life assumes mortality and expense
risks and, to cover these risks, deducts a charge from the assets of the
Account at an annual rate of 0.50% of net assets attributable to
policyowners.
Equitable Variable Life makes certain deductions from net premiums before
amounts are allocated to the Account. The deductions are for (1) premiums
for optional benefits, (2) additional premiums for extra mortality risks,
(3) administrative expenses, (4) state premium taxes, and (5) except as to
single premium policies, a risk charge for the guaranteed minimum death
benefit.
4. Amounts Retained by Equitable Variable Life in Separate Account I
The amount retained by Equitable Variable Life in the Account arises
principally from (1) mortality and other gains and losses resulting from the
Account's operations, (2) contributions from Equitable Variable Life, 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 Policies. Amounts retained by Equitable Variable Life are not subject to
charges for mortality and expense risks.
Amounts retained by Equitable Variable Life in the Account may be
transferred at any time by Equitable Variable Life to its General Account.
FSA-9
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
The following table shows the surplus contributions (withdrawals) by
Equitable Variable Life by investment division:
<TABLE>
<CAPTION>
INVESTMENT DIVISION 1995 1994 1993
------------------- ---- ---- ----
<S> <C> <C> <C>
Common Stock $(1,975,000) -- --
Money Market -- -- $ 585,000
Balanced -- -- 375,000
Aggressive Stock (100,000) -- 460,000
High Yield -- -- 475,000
Short-Term World Income -- $(119,356) --
Intermediate Government Securities -- -- 90,000
----------- --------- ----------
$(2,075,000) $(119,356) $1,985,000
=========== ========= ==========
</TABLE>
Equitable Variable Life credits the values of the Policies participating in
the Account to compensate policyowners for their share of the Trust expenses
in excess of (1) fees for advisory services at an annual rate equivalent to
0.25% of the average daily value of the aggregate net assets of the
Portfolios, and (2) the Trust income taxes, if any. For Money Market and
Common Stock Divisions, fees for advisory services in excess of an annual
rate equivalent to 0.25% of the average daily value of the aggregate net
assets of the related Trust Portfolios are refunded to the Divisions. Excess
fees for advisory services for Intermediate Government Securities, High
Yield, Balanced and Aggressive Stock Divisions are absorbed by Equitable
Variable Life's surplus account.
5. Distribution and Servicing Agreement
Equitable Variable Life has entered into a Distribution and Servicing
Agreement with Equitable Life and Equico Securities Inc., (Equico), whereby
registered representatives of Equico, authorized as variable life insurance
agents under applicable state insurance laws, sell the Policies. The
registered representatives are compensated on a commission basis by
Equitable Life.
Equitable Variable Life also has entered into an agreement with Equitable
Life under which Equitable Life performs the administrative services related
to the Policies, including underwriting and issuance, billings and
collections, and policyowner services. There is no charge to the Account
related to this agreement.
6. Share Substitution
On February 22, 1994, Equitable Variable Life, the Account and the Trust
substituted shares of the Trust's Intermediate Government Securities
Portfolio for shares of the Trust's Short-Term World Income Portfolio. The
amount transferred to Intermediate Government Securities Portfolio was
$390,705. The statements of operations and statements of changes in net
assets for the Intermediate Government Securities Portfolio is combined with
the Short-Term World Income Portfolio for periods prior to the merger on
February 22, 1994. The Short-Term World Income Division is not available for
future investment.
7. Investment Returns
The tables on the following page show the gross and net investment returns
with respect to the Divisions for the periods shown. The net return for each
Division is based upon net assets for a policy which commences with the
beginning date of such period and is not based on the average net assets in
the Division during such period. Gross return is equal to the total return
earned by the underlying Trust investment.
FSA-10
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
RATES OF RETURN:
YEAR ENDED DECEMBER 31,
MONEY MARKET ----------------------------------------------------------------------------------------------------
DIVISION(A)(C) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- - -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.74% 4.02% 3.16% 3.75% 6.38% 8.44% 9.44% 7.56% 6.85% 6.86%
Net return................ 5.41% 3.68% 2.62% 3.23% 5.85% 7.90% 8.85% 7.02% 6.32% 6.31%
</TABLE>
<TABLE>
<CAPTION>
APRIL 1(B) TO
INTERMEDIATE YEAR ENDED DECEMBER 31, DECEMBER 31,
GOVERNMENT ------------------------------------ --------------------
SECURITIES DIVISION 1995 1994 1993 1992 1991
- - ------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 13.33% (4.37)% 10.87% 5.88% 12.51%
Net return................ 13.12% (4.54)% 10.29% 5.35% 12.09%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
HIGH YIELD DIVISION 1995 1994 1993 1992 1991 1990 1989 1988 1987
- - ------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 19.92% (2.79)% 23.60% 12.69% 24.91% (0.75)% 5.52% 10.55% 5.30%
Net return................ 19.74% (2.94)% 22.99% 12.13% 24.29% (1.25)% 4.99% 9.73% 4.77%
BALANCED DIVISION
- - -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 19.75% (8.02)% 12.44% (2.68)% 41.52% 0.43 % 26.08% 13.84% (0.65)%
Net return................ 19.33% (8.35)% 11.91% (3.17)% 40.81% (0.07)% 25.45% 12.99% (1.15)%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
COMMON STOCK ---------------------------------------------------------------------------------------------------
DIVISION(A)(C) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- - -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 32.45% (2.14)% 24.99% 3.36% 38.10% (7.95)% 25.82% 22.69% 7.71% 17.59%
Net return................ 31.97% (2.50)% 24.36% 2.84% 37.41% (8.41)% 25.19% 22.08% 7.17% 17.00%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
AGGRESSIVE --------------------------------------------------------------------------------------------
STOCK DIVISION 1995 1994 1993 1992 1991 1990 1989 1988 1987
- - -------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return............. 31.63% (3.81)% 17.05% (2.91)% 87.41% 8.49% 43.93% 1.78% 7.69%
Net return............... 31.29% (4.07)% 16.45% (3.40)% 86.47% 7.95% 43.21% 1.02% 7.15%
<FN>
(a) The net returns for periods prior to March 22, 1985 are those of the
respective Separate Accounts I and II reorganized on that date into a unit
investment trust. The reorganization was accounted for under the continuing
entity basis of accounting.
(b) Date as of which net premiums under the Policies were first allocated to
the Division. The gross return and the net return for the periods indicated
are not annual rates of return.
(c) Subsequent to March 22, 1985, the date the Account commenced investing in
the Trust, the advisory fees have been deducted prior to calculating the
gross return.
</FN>
</TABLE>
FSA-11
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------- ----------------
ASSETS (IN MILLIONS)
<S> <C> <C>
Investments:
Fixed maturities:
Available for sale, at estimated fair value........................................ $ 4,366.3 $ 2,138.8
Held to maturity, at amortized cost................................................ -- 2,008.5
Policy loans......................................................................... 1,300.1 1,185.2
Mortgage loans on real estate........................................................ 771.5 888.5
Equity real estate................................................................... 525.4 641.0
Other equity investments............................................................. 200.5 239.1
Other invested assets................................................................ 120.9 107.8
----------------- ----------------
Total investments.................................................................. 7,284.7 7,208.9
Cash and cash equivalents............................................................... 277.6 182.3
Deferred policy acquisition costs....................................................... 2,037.8 2,077.1
Other assets............................................................................ 250.6 240.7
Separate Accounts assets................................................................ 4,611.6 3,345.3
----------------- ----------------
TOTAL ASSETS............................................................................ $ 14,462.3 $ 13,054.3
================= ================
LIABILITIES
Policyholders' account balances......................................................... $ 7,045.9 $ 7,340.0
Future policy benefits and other policyholders' liabilities............................. 570.8 509.4
Other liabilities....................................................................... 521.4 441.1
Separate Accounts liabilities........................................................... 4,586.5 3,314.9
----------------- ----------------
Total liabilities.................................................................. 12,724.6 11,605.4
----------------- ----------------
Commitments and contingencies (Notes 7, 9, 10 and 11)
SHAREHOLDER'S EQUITY
Common stock, par value $1 per share;
5.0 million shares authorized, 1.5 million shares issued and outstanding............. 1.5 1.5
Capital in excess of par value.......................................................... 1,480.7 1,355.7
Retained earnings....................................................................... 221.6 165.5
Net unrealized investment gains (losses)................................................ 44.6 (72.6)
Minimum pension liability............................................................... (10.7) (1.2)
----------------- ----------------
Total shareholder's equity......................................................... 1,737.7 1,448.9
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.............................................. $ 14,462.3 $ 13,054.3
================= ================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
F-1
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
REVENUES
<S> <C> <C> <C>
Universal life and investment-type product policy fee income...... $ 584.5 $ 552.6 $ 485.2
Premiums.......................................................... 33.7 40.1 46.9
Net investment income............................................. 529.1 526.8 557.6
Investment (losses) gains, net.................................... (.5) (4.6) 1.5
Other income...................................................... 2.1 2.9 3.0
----------------- ---------------- -----------------
Total revenues.................................................. 1,148.9 1,117.8 1,094.2
----------------- ---------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.............. 376.1 389.3 439.2
Policyholders' benefits........................................... 267.5 242.3 251.0
Other operating costs and expenses................................ 419.5 413.8 356.7
----------------- ---------------- -----------------
Total benefits and other deductions............................. 1,063.1 1,045.4 1,046.9
----------------- ---------------- -----------------
Earnings before Federal income taxes and cumulative
effect of accounting change....................................... 85.8 72.4 47.3
Federal income tax expense........................................... 29.7 25.0 20.5
----------------- ---------------- -----------------
Earnings before cumulative effect of accounting change............... 56.1 47.4 26.8
Cumulative effect of accounting change, net of Federal income taxes. -- (11.4) --
----------------- ---------------- -----------------
Net Earnings......................................................... $ 56.1 $ 36.0 $ 26.8
================= ================ =================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
F-2
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
COMMON STOCK AT PAR VALUE, beginning and end of year................. $ 1.5 $ 1.5 $ 1.5
----------------- ---------------- -----------------
CAPITAL IN EXCESS OF PAR VALUE, beginning of year.................... 1,355.7 1,305.7 1,055.7
Additional capital in excess of par value............................ 125.0 50.0 250.0
----------------- ---------------- -----------------
Capital in excess of par value, end of year.......................... 1,480.7 1,355.7 1,305.7
----------------- ---------------- -----------------
RETAINED EARNINGS, beginning of year................................. 165.5 129.5 102.7
Net earnings......................................................... 56.1 36.0 26.8
----------------- ---------------- -----------------
Retained earnings, end of year....................................... 221.6 165.5 129.5
----------------- ---------------- -----------------
NET UNREALIZED INVESTMENT (LOSSES) GAINS, beginning of year.......... (72.6) 22.3 11.1
Change in unrealized investment gains (losses)....................... 117.2 (94.9) 11.2
----------------- ---------------- -----------------
Net unrealized investment gains (losses), end of year................ 44.6 (72.6) 22.3
----------------- ---------------- -----------------
MINIMUM PENSION LIABILITY, beginning of year......................... (1.2) (6.3) --
Change in minimum pension liability.................................. (9.5) 5.1 (6.3)
----------------- ---------------- -----------------
Minimum pension liability, end of year............................... (10.7) (1.2) (6.3)
----------------- ---------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR.............................. $ 1,737.7 $ 1,448.9 $ 1,452.7
================= ================ =================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
F-3
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
NET EARNINGS......................................................... $ 56.1 $ 36.0 $ 26.8
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH (USED) PROVIDED
BY OPERATING ACTIVITIES:
Interest credited to policyholders' account balances.............. 376.1 389.3 439.2
General Account policy charges.................................... (618.7) (572.8) (496.7)
Investment losses (gains), net.................................... .5 4.6 (1.5)
Other, net........................................................ 63.8 (17.2) 117.2
----------------- ---------------- -----------------
Net cash (used) provided by operating activities..................... (122.2) (160.1) 85.0
----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and repayments......................................... 640.7 511.8 1,165.8
Sales............................................................. 2,667.0 2,119.0 2,844.2
Return of capital from joint ventures and limited partnerships.... 23.9 14.2 56.3
Purchases......................................................... (3,065.9) (2,251.7) (4,414.0)
Other, net........................................................ (114.8) (102.2) (98.8)
----------------- ---------------- -----------------
Net cash provided (used) by investing activities..................... 150.9 291.1 (446.5)
----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits........................................................ 581.1 602.8 612.9
Withdrawals..................................................... (636.6) (697.7) (506.2)
Capital contribution from Equitable Life.......................... 125.0 50.0 250.0
Other, net........................................................ (2.9) (1.8) 2.0
----------------- ---------------- -----------------
Net cash provided (used) by financing activities..................... 66.6 (46.7) 358.7
----------------- ---------------- -----------------
Change in cash and cash equivalents.................................. 95.3 84.3 (2.8)
Cash and cash equivalents, beginning of year......................... 182.3 98.0 100.8
----------------- ---------------- -----------------
Cash and Cash Equivalents, End of Year............................... $ 277.6 $ 182.3 $ 98.0
================= ================ =================
Supplemental cash flow information
Interest Paid..................................................... $ -- $ 5.7 $ 2.1
================= ================ =================
Income Taxes Refunded............................................. $ -- $ 8.4 $ .3
================= ================ =================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
F-4
<PAGE>
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Equitable Variable Life Insurance Company ("Equitable Variable Life") was
incorporated on September 11, 1972 as a wholly owned subsidiary of The
Equitable Life Assurance Society of the United States ("Equitable Life").
Equitable Variable Life's operations consist principally of the sale of
interest-sensitive life insurance and annuity products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in conformity
with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts of
Equitable Variable Life and its subsidiaries, (collectively "EVLICO").
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
All significant intercompany transactions and balances have been eliminated
in consolidation.
Certain reclassifications have been made in the amounts presented for prior
periods to conform these periods with the 1995 presentation.
Accounting Changes
In the first quarter of 1995, EVLICO adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan." This statement applies to all loans, including loans
restructured in a troubled debt restructuring involving a modification of
terms. This statement addresses the accounting for impairment of a loan by
specifying how allowances for credit losses should be determined. Impaired
loans within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. EVLICO provides for
impairment of loans through an allowance for possible losses. The adoption of
this statement did not have a material effect on the level of these
allowances or on EVLICO's consolidated statements of earnings and
shareholder's equity.
In the fourth quarter of 1994 (effective as of January 1, 1994), EVLICO
adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
which required employers to recognize the obligation to provide
postemployment benefits. Implementation of this statement resulted in a
charge for the cumulative effect of accounting change of $11.4 million, net
of a Federal income tax benefit of $6.2 million.
At December 31, 1993, EVLICO adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expanded the use of fair
value accounting for those securities that a company does not have positive
intent and ability to hold to maturity. Implementation of this statement
increased consolidated shareholder's equity by $7.2 million, net of deferred
policy acquisition costs and deferred Federal income tax. Beginning
coincident with issuance of SFAS No. 115 implementation guidance in November
1995, the Financial Accounting Standards Board ("FASB") permitted companies a
one-time opportunity, through December 31, 1995, to reassess the
appropriateness of the classification of all securities held at that time. On
December 1, 1995, EVLICO transferred $1,806.7 million of securities
classified as held to maturity to the available for sale portfolio. As a
result, consolidated shareholder's equity increased by $17.9 million, net of
deferred policy acquisition costs and deferred Federal income tax.
New Accounting Pronouncements
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of such assets may not be recoverable. EVLICO will
implement this statement as of January 1, 1996. EVLICO currently provides
allowances for possible losses for assets under the scope of this statement.
Management has not yet determined the impact of this statement on these
assets.
Valuation of Investments
Fixed maturities which have been identified as available for sale are
reported at estimated fair value. At December 31, 1994, fixed maturities
which EVLICO had both the ability and the intent to hold to maturity, were
stated principally at amortized cost. The amortized cost of fixed maturities
is adjusted for impairments in value deemed to be other than temporary.
F-5
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and valuation allowances. Effective with the adoption
of SFAS No. 114 on January 1, 1995, the valuation allowances are based on the
present value of expected future cash flows discounted at the loan's original
effective interest rate or the collateral value if the loan is collateral
dependent. However, if foreclosure is or becomes probable, the measurement
method used is collateral value. Prior to the adoption of SFAS No. 114, the
valuation allowances were based on losses expected by management to be
realized on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage loans
and on mortgage loans management believed may not be collectible in full. In
establishing valuation allowances, management previously considered, among
other things, the estimated fair value of the underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired in
satisfaction of debt is valued at estimated fair value. Valuation allowances
on real estate held for the production of income are computed using the
forecasted cash flows of the respective properties discounted at a rate equal
to EVLICO's cost of funds; valuation allowances on real estate available for
sale are computed using the lower of current estimated fair value, net of
disposition costs, or depreciated cost.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which EVLICO does not have
control and a majority economic interest are reported on the equity basis of
accounting and are included with either equity real estate or other equity
investments, as appropriate.
Common stocks are carried at estimated fair value and are included in other
equity investments.
Short-term investments are stated at amortized cost which approximates fair
value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
All securities are recorded in the consolidated financial statements on a
trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply and
changes in the valuation allowances are included in investment gains or
losses.
Unrealized investment gains and losses on fixed maturities available for sale
and equity securities held by EVLICO are accounted for as a separate
component of shareholder's equity, net of related deferred Federal income
taxes and deferred policy acquisition costs related to universal life and
investment-type products.
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 expenses include
benefit claims incurred in the period in excess of related policyholders'
account balances.
Premiums from 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.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions, underwriting,
agency and policy issue expenses, all of which vary with and are primarily
related to the production of new business, are deferred. Deferred policy
acquisition costs are subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, deferred policy
acquisition costs are amortized over the expected average life of the
contracts (periods ranging from 15 to 35 years and 5 to 17 years,
respectively) as a constant percentage of estimated gross profits arising
principally from investment results, mortality and expense margins and
surrender charges based on historical and anticipated future experience,
updated at the end of each accounting period. The effect on the amortization
of deferred policy acquisition costs of revisions to estimated gross profits
is reflected in earnings in the period such estimated gross profits are
revised. The effect on the deferred policy acquisition cost asset that would
result from realization of unrealized gains (losses) is recognized with an
offset to unrealized gains (losses) in consolidated shareholder's equity as
of the balance sheet date.
Amortization charged to income amounted to $199.0 million, $200.2 million and
$135.5 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
F-6
<PAGE>
Policyholders' Account Balances and Future Policy Benefits
EVLICO's insurance contracts primarily are universal life and investment-type
contracts. Policyholders' account balances are equal to the policy account
values. The policy account values represent an accumulation of gross premium
payments plus credited interest less expense and mortality charges and
withdrawals.
The future policy benefit liabilities for the remainder of EVLICO's insurance
contracts, consisting primarily of supplementary contracts with life
contingencies and various policy riders, are computed by various valuation
methods based on assumed interest rates and mortality and morbidity
assumptions reflecting EVLICO's experience and industry standards.
Federal Income Taxes
EVLICO is included in a consolidated Federal income tax return with Equitable
Life and its other eligible subsidiaries. In accordance with an agreement
between EVLICO and Equitable Life, the amount of current income taxes as
determined on a separate return basis will be paid to, or received from,
Equitable Life. Benefits for losses, which are paid to EVLICO to the extent
they are utilized by Equitable Life, may not have been received in the
absence of such agreement. 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 the 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 EVLICO. Separate Accounts assets are subject to
General Account claims only to the extent the value of such assets exceeds
the Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for the
benefit of contractholders are shown as separate captions in the consolidated
balance sheets. Assets held in the Separate Accounts are carried at quoted
market values or, where quoted values are not available, at estimated fair
values as determined by management.
The investment results of Separate Accounts are reflected directly in
Separate Accounts liabilities. For the years ended December 31, 1995, 1994
and 1993, investment results of Separate Accounts were $342.2 million, $135.9
million and $344.1 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 of the Separate Accounts are included in
revenues.
F-7
<PAGE>
3. INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------------- ----------------- ----------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate................................. $ 3,053.5 $ 101.0 $ 22.0 $ 3,132.5
Mortgage-backed........................... 573.9 7.7 .4 581.2
U.S. Treasury securities and U.S.
government and agency securities....... 569.2 9.2 2.6 575.8
States and political subdivisions......... 4.3 .1 -- 4.4
Foreign governments....................... 16.2 .8 -- 17.0
Redeemable preferred stock................ 56.8 3.7 5.1 55.4
---------------- ----------------- ----------------- ---------------
Total Available for Sale.................... $ 4,273.9 $ 122.5 $ 30.1 $ 4,366.3
================ ================= ================= ===============
Equity Securities:
Common stock................................ $ 36.2 $ 10.3 $ 4.7 $ 41.8
================ ================= ================= ===============
December 31, 1994
-----------------
Fixed Maturities:
Available for Sale:
Corporate................................. $ 1,622.3 $ 5.1 $ 112.6 $ 1,514.8
Mortgage-backed........................... 221.9 .5 16.4 206.0
U.S. Treasury securities and U.S.
government and agency securities....... 365.4 1.4 20.7 346.1
States and political subdivisions......... 4.8 -- .6 4.2
Foreign governments....................... 14.8 .2 -- 15.0
Redeemable preferred stock................ 58.0 .1 5.4 52.7
---------------- ----------------- ----------------- ---------------
Total Available for Sale.................... $ 2,287.2 $ 7.3 $ 155.7 $ 2,138.8
================ ================= ================= ===============
Held to Maturity:
Corporate................................. $ 1,812.4 $ 11.9 $ 93.1 $ 1,731.2
U.S. Treasury securities and U.S.
government and agency securities....... 180.4 -- 21.7 158.7
States and political subdivisions......... 14.4 -- .9 13.5
Foreign governments....................... 1.3 .1 -- 1.4
---------------- ----------------- ----------------- ---------------
Total Held to Maturity...................... $ 2,008.5 $ 12.0 $ 115.7 $ 1,904.8
================ ================= ================= ===============
Equity Securities:
Common stock................................ $ 42.0 $ 10.1 $ 9.4 $ 42.7
================ ================= ================= ===============
</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, EVLICO has determined an estimated fair
value using a discounted cash flow approach, including provisions for credit
risk, generally based upon the assumption that such securities will be held
to maturity. Estimated fair value for equity securities, substantially all of
which do not have a readily ascertainable market value, has been determined
by EVLICO. Such estimated fair values do not necessarily represent the values
for which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1995 and 1994, respectively,
securities without a readily ascertainable market value having an amortized
cost of $1,233.7 million and $1,571.5 million, respectively, had estimated
fair values of $1,291.1 million and $1,512.2 million, respectively.
F-8
<PAGE>
The contractual maturity of bonds at December 31, 1995 are shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
----------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less............................................................. $ 133.3 $ 133.4
Due in years two through five....................................................... 1,416.4 1,444.9
Due in years six through ten........................................................ 1,361.5 1,391.8
Due after ten years................................................................. 732.0 759.6
Mortgage-backed securities.......................................................... 573.9 581.2
----------------- ----------------
Total............................................................................... $ 4,217.1 $ 4,310.9
================= ================
</TABLE>
Bonds not due at a single maturity date have been included in the above table
in the year of final maturity. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year.................................... $ 68.5 $ 87.3 $ 147.2
Additions charged to income.................................... 31.0 12.7 44.4
Deductions for writedowns and asset dispositions............... (33.8) (31.5) (104.3)
----------------- ----------------- -----------------
Balances, End of Year.......................................... $ 65.7 $ 68.5 $ 87.3
================= ================= =================
Balances, end of year comprise:
Mortgage loans on real estate............................... $ 15.9 $ 24.0 $ 46.7
Equity real estate.......................................... 49.8 44.5 40.6
----------------- ----------------- -----------------
Total.......................................................... $ 65.7 $ 68.5 $ 87.3
================= ================= =================
</TABLE>
Deductions for writedowns and asset dispositions for 1993 include a $20.2
million writedown of fixed maturity investments at December 31, 1993 as a
result of adopting a new accounting statement for the valuation of these
investments that requires specific writedowns instead of valuation
allowances.
At December 31, 1995, the carrying values of investments held for the
production of income which were non-income producing for the twelve months
preceding the consolidated balance sheet date were $21.5 million of fixed
maturities and $29.1 million of mortgage loans on real estate.
EVLICO'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. EVLICO seeks
to minimize the higher than normal credit risks associated with such
securities by monitoring the total investments in any single issuer or total
investment in a particular industry group. Certain of these corporate high
yield securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or an NAIC (National Association of
Insurance Commissioners) designation of 3 (medium grade), 4 or 5 (below
investment grade) or 6 (in or near default). At December 31, 1995,
approximately 11.0% of the $4,217.2 million aggregate amortized cost of bonds
held by EVLICO were considered to be other than investment grade.
In addition to its holding of corporate high yield securities, EVLICO is an
equity investor in limited partnership interests which primarily invest in
securities considered to be other than investment grade.
EVLICO has restructured or modified the terms of certain fixed maturity
investments. The fixed maturity portfolio, based on amortized cost, includes
$13.7 million and $13.3 million at December 31, 1995 and 1994, respectively,
of such restructured securities. The December 31, 1994 amount includes fixed
maturities which are in default as to principal and/or interest payments, are
to be restructured pursuant to commenced negotiations or where the borrowers
went into bankruptcy subsequent to acquisition (collectively, "problem fixed
maturities") of $5.6 million. Gross interest income that would have been
recorded in accordance with the original terms of restructured fixed
maturities amounted to $1.4 million, $1.1 million and $2.2 million in 1995,
1994 and 1993, respectively. Gross interest income on these fixed maturities
included in net investment income aggregated $1.4 million, $1.0 million and
$1.5 million in 1995, 1994 and 1993, respectively.
F-9
<PAGE>
At December 31, 1995 and 1994, mortgage loans on real estate with scheduled
payments 60 days (90 days for agricultural mortgages) or more past due or in
foreclosure (collectively, "problem mortgage loans on real estate") had an
amortized cost of $36.0 million (4.6% of total mortgage loans on real estate)
and $35.2 million (3.9% 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 $173.5 million and $130.8
million at December 31, 1995 and 1994, respectively. Gross interest income on
restructured mortgage loans on real estate that would have been recorded in
accordance with the original terms of such loans amounted to $16.1 million,
$12.3 million and $13.9 million in 1995, 1994 and 1993, respectively. Gross
interest income on these loans included in net investment income aggregated
$14.0 million, $11.4 million and $11.5 million in 1995, 1994 and 1993,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
DECEMBER 31, 1995
------------------
(IN MILLIONS)
Impaired mortgage loans with provision for losses.... $ 99.0
Impaired mortgage loans with no provision for losses. 24.5
------------------
Recorded investment in impaired mortgage loans....... 123.5
Provision for losses................................. 14.5
------------------
Net Impaired Mortgage Loans.......................... $ 109.0
==================
Impaired mortgage loans with no provision for losses are loans where the fair
value of the collateral or the net present value of the loan equals or
exceeds the recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a cash basis.
Interest income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at the
interest rate used to discount the cash flows. Changes in the present value
attributable to changes in the amount or timing of expected cash flows are
reported as investment gains or losses.
During the year ended December 31, 1995, EVLICO's average recorded investment
in impaired mortgage loans was $99.2 million. Interest income recognized on
these impaired mortgage loans totaled $8.2 million for the year ended
December 31, 1995, including $2.2 million recognized on a cash basis.
EVLICO's investment in equity real estate is through direct ownership and
through investments in real estate joint ventures. At December 31, 1995 and
1994, the carrying value of equity real estate available for sale amounted to
$55.6 million and $138.4 million, respectively. For the years ended December
31, 1995, 1994 and 1993, respectively, real estate of $12.2 million, $59.0
million and $92.1 million was acquired in satisfaction of debt. At December
31, 1995 and 1994, EVLICO owned $196.6 million and $230.5 million,
respectively, of real estate acquired in satisfaction of debt.
Depreciation on real estate is computed using the straight-line method over
the estimated useful lives of the properties, which generally range from 40
to 50 years. Accumulated depreciation on real estate was $51.0 million and
$51.1 million at December 31, 1995 and 1994, respectively. Depreciation
expense on real estate totaled $12.8 million, $12.7 million and $11.6 million
for the years ended December 31, 1995, 1994 and 1993, respectively.
F-10
<PAGE>
4. JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures (10
and 12 individual ventures as of December 31, 1995 and 1994, respectively)
and of other limited partnership interests accounted for under the equity
method, in which EVLICO has an investment of $10.0 million or greater and an
equity interest of 10% or greater is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994
------------------- ------------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost............................... $ 966.3 $ 1,047.0
Investments in securities, generally at estimated fair value.................. 648.5 3,061.2
Cash and cash equivalents..................................................... 99.2 46.4
Other assets.................................................................. 90.8 261.9
------------------- ------------------
Total assets.................................................................. 1,804.8 4,416.5
------------------- ------------------
Borrowed funds -- third party.................................................. 74.4 1,233.6
Other liabilities............................................................. 132.4 611.0
------------------- ------------------
Total liabilities............................................................. 206.8 1,844.6
------------------- ------------------
Partners' Capital............................................................. $ 1,598.0 $ 2,571.9
=================== ==================
Equity in partners' capital included above.................................... $ 243.8 $ 327.3
Equity in limited partnership interests not included above.................... 82.3 50.4
(Deficit) excess of equity in partners' capital over
investment cost and equity earnings........................................ (.4) 3.7
------------------- ------------------
Carrying Value................................................................ $ 325.7 $ 381.4
=================== ==================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............................ $ 152.3 $ 180.1 $ 136.6
Revenues of other limited partnership interests................... 86.9 102.5 318.9
Interest expense -- third party.................................... (23.1) (88.1) (79.7)
Interest expense -- The Equitable.................................. (5.6) -- --
Other expenses.................................................... (131.8) (172.4) (132.7)
----------------- ---------------- -----------------
Net Earnings...................................................... $ 78.7 $ 22.1 $ 243.1
================= ================ =================
Equity in net earnings included above............................. $ 14.4 $ 11.7 $ 34.0
Equity in net earnings of limited partnership
interests not included above................................... 12.9 6.3 12.0
Reduction of earnings in joint ventures
over equity ownership percentage and
amortization of differences in bases........................... -- (1.1) (.1)
----------------- ----------------- -----------------
Total Equity in Net Earnings...................................... $ 27.3 $ 16.9 $ 45.9
================= ================ =================
</TABLE>
F-11
<PAGE>
5. NET INVESTMENT INCOME AND INVESTMENT (LOSSES) GAINS
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................................. $ 319.5 $ 331.4 $ 319.9
Mortgage loans on real estate.................................... 70.3 86.7 105.7
Equity real estate............................................... 66.2 67.0 69.8
Policy loans..................................................... 86.8 79.5 76.1
Other equity investments......................................... 22.4 13.4 38.5
Other investment income.......................................... 30.5 24.5 17.0
----------------- ---------------- -----------------
Gross investment income.......................................... 595.7 602.5 627.0
Investment expenses.............................................. 66.6 75.7 69.4
----------------- ---------------- -----------------
Net Investment Income............................................ $ 529.1 $ 526.8 $ 557.6
================= ================ =================
</TABLE>
Investment (losses) gains, net, including changes in valuation allowances,
are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................................. $ 23.7 $ (6.8) $ 45.1
Mortgage loans on real estate.................................... (7.0) (13.3) (32.0)
Equity real estate............................................... (18.9) (5.3) (13.4)
Other equity investments......................................... 1.7 20.8 1.8
----------------- ---------------- -----------------
Investment (Losses) Gains, Net................................... $ (.5) $ (4.6) $ 1.5
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $11.1 million, $8.2 million and
$1.4 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
For the years ended December 31, 1995 and 1994, respectively, proceeds
received on sales of fixed maturities classified as available for sale
amounted to $2,551.6 million and $2,065.1 million. Gross gains of $49.6
million and $22.1 million and gross losses of $18.7 million and $24.4
million, respectively, were realized on these sales. The change in unrealized
investment gains (losses) related to fixed maturities classified as available
for sale for the years ended December 31, 1995 and 1994, amounted to $240.8
million and $(215.2) million, respectively.
Gross gains of $66.2 million and gross losses of $66.5 million were realized
on sales of investments in fixed maturities held for investment and available
for sale for the year ended December 31, 1993.
F-12
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity, and the changes for the
corresponding years are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year....................................... $ (72.6) $ 22.3 $ 11.1
Changes in unrealized investment gains (losses).................. 244.7 (241.8) 3.4
Effect of adopting SFAS No. 115.................................. -- -- 72.2
Changes in unrealized investment (gains) losses attributable to:
Deferred policy acquisition costs............................. (64.4) 95.8 (58.2)
Deferred Federal income taxes................................. (63.1) 51.1 (6.2)
----------------- ---------------- -----------------
Balance, End of Year............................................. $ 44.6 $ (72.6) $ 22.3
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................................ $ 92.4 $ (148.4) $ 66.8
Other equity investments.................................... 5.6 .7 25.6
Other....................................................... (2.7) (1.7) --
----------------- ---------------- -----------------
Total......................................................... 95.3 (149.4) 92.4
Amounts of unrealized investment (gains) losses attributable to:
Deferred policy acquisition costs........................... (26.8) 37.6 (58.2)
Deferred Federal income taxes............................... (23.9) 39.2 (11.9)
----------------- ---------------- -----------------
Total............................................................ $ 44.6 $ (72.6) $ 22.3
================= ================ =================
</TABLE>
6. FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated statements of
earnings is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current....................................................... $ -- $ (1.4) $ (3.4)
Deferred...................................................... 29.7 26.4 23.9
----------------- ---------------- -----------------
Total............................................................ $ 29.7 $ 25.0 $ 20.5
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and cumulative effect of accounting change by the
expected Federal income tax rate of 35%.
The sources of the difference and the tax effects of each are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense.............................. $ 30.0 $ 25.3 $ 16.6
Tax rate adjustment.............................................. -- -- 4.0
Other............................................................ (.3) (.3) (.1)
----------------- ---------------- -----------------
Federal Income Tax Expense....................................... $ 29.7 $ 25.0 $ 20.5
================= ================ =================
</TABLE>
F-13
<PAGE>
The components of the net deferred Federal income tax account are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------------- ---------------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------------- --------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Deferred policy acquisition costs, reserves and
reinsurance....................................... $ -- $ 253.8 $ -- $ 250.6
Investments.......................................... -- 20.5 38.4 --
Compensation and related benefits.................... 44.3 -- 52.2 --
Other................................................ 7.9 -- 25.6 --
--------------- --------------- --------------- ---------------
Total................................................ $ 52.2 $ 274.3 $ 116.2 $ 250.6
=============== =============== =============== ===============
</TABLE>
The deferred Federal income tax expense (benefit) impacting operations
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Deferred policy acquisition costs, reserves and
reinsurance................................................... $ 3.2 $ (11.4) $ (6.8)
Investments...................................................... (4.2) 26.1 11.4
Compensation and related benefits................................ 13.0 (2.8) 1.9
Other............................................................ 17.7 14.5 17.4
----------------- ---------------- -----------------
Deferred Federal Income Tax Expense.............................. $ 29.7 $ 26.4 $ 23.9
================= ================ =================
</TABLE>
At December 31, 1995, EVLICO had net operating loss carryforwards of
approximately $10.2 million. These loss carryforwards are available to offset
future tax payments to Equitable Life under the tax sharing agreement.
7. REINSURANCE AGREEMENTS
EVLICO cedes reinsurance to other insurance companies. EVLICO evaluates the
financial condition of its reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies. The effect of reinsurance is summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
----------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Direct premiums..................................................................... $ 34.1 $ 40.2
Reinsurance ceded................................................................... (.4) (.1)
----------------- ----------------
Premiums............................................................................ $ 33.7 $ 40.1
================= ================
Universal Life and Investment-type Product Policy Fee Income Ceded.................. $ 31.0 $ 24.9
================= ================
Policyholders' Benefits Ceded....................................................... $ 18.7 $ 8.3
================= ================
</TABLE>
EVLICO reinsures mortality risks in excess of $5.0 million on any single
life. EVLICO also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
F-14
<PAGE>
8. RELATED PARTY TRANSACTIONS
Under a cost sharing agreement, EVLICO reimburses Equitable Life for its use
of Equitable Life's personnel, property and facilities in carrying out
certain of its operations. Reimbursement for intercompany services is based
on the allocated cost of the services provided. The incurred balances of
these intercompany transactions, which are included in other operating costs
and expenses are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Personnel and facilities......................................... $ 249.8 $ 257.9 $ 252.7
Agent commissions and fees....................................... 127.4 122.6 103.0
</TABLE>
These cost allocations include various employee related obligations for
pensions and postretirement benefits. At December 31, 1995 and 1994, EVLICO
recorded as a reduction of shareholder's equity its allocated portion of an
additional minimum pension liability of $10.7 million and $1.2 million, net
of Federal income taxes, respectively, representing the excess of the
accumulated benefit obligation over the fair value of plan assets and accrued
pension liability.
During 1995, 1994 and 1993, Equitable Life restructured certain operations in
connection with cost reduction programs. EVLICO recorded provisions of $6.7
million, $6.9 million and $17.3 million in 1995, 1994 and 1993, respectively,
relating primarily to allocated lease obligations (net of sub-lease rentals)
and severance liabilities.
EVLICO incurred investment advisory and asset management fee expenses of
$17.6 million, $19.2 million and $16.0 million during 1995, 1994 and 1993,
respectively.
EVLICO and Equitable Life have an agreement whereby certain Equitable Life
policyholders may purchase EVLICO's policies without presenting evidence of
insurability. Under the agreement, Equitable Life pays EVLICO a conversion
charge for the extra mortality risk associated with issuing these policies.
EVLICO received payments of $2.9 million, $3.0 million and $3.1 million in
1995, 1994 and 1993, respectively, which were reported as other income.
On August 31, 1993, EVLICO sold $250.0 million of primarily privately placed
below investment grade fixed maturities to EQ Asset Trust 1993 (the "Trust").
EVLICO realized a $1.1 million gain, net of related deferred policy
acquisition costs and deferred Federal income taxes. In conjunction with this
transaction, EVLICO received $75.4 million of Class B notes issued by the
Trust. These notes have interest rates ranging from 6.85% to 9.45%. The Class
B notes are classified as other invested assets on the consolidated balance
sheets.
Net amounts payable to Equitable Life were $190.2 million and $226.7 million
at December 31, 1995 and 1994, respectively.
9. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
EVLICO primarily uses derivatives for asset/liability risk management and for
hedging individual securities. Derivatives mainly are utilized to reduce
EVLICO'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, 1995 was $444.8 million. The average unexpired terms at December
31, 1995 is 3.0 years. At December 31, 1995, the cost of terminating
outstanding matched swaps in a loss position was $10.1 million and the
unrealized gain on outstanding matched swaps in a gain position was $3.4
million. EVLICO has no intention of terminating these contracts prior to
maturity.
Fair Value of Financial Instruments
EVLICO defines fair value as the quoted market prices for those instruments
that are actively traded in financial markets. In cases where quoted market
prices are not available, fair values are estimated using present value or
other valuation techniques. The fair value estimates are made at a specific
point in time, based on available market information and judgments about the
financial instrument, including estimates of timing, amount of expected
future cash flows and the credit standing of counterparties. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time EVLICO'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 EVLICO was not
material at December 31, 1995 and 1994.
F-15
<PAGE>
Fair value for mortgage loans on real estate are estimated by discounting
future contractual cash flows using interest rates at which loans with
similar characteristics and credit quality would be made. Fair values for
foreclosed mortgage loans and problem mortgage loans are limited to the
estimated fair value of the underlying collateral if lower.
The estimated fair values for single premium deferred annuities ("SPDA") are
estimated using projected cash flows discounted at current offering rates.
The estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using discounted
cash flows based upon the estimated current offering rate.
The following table discloses carrying value and estimated fair value for
financial instruments not otherwise disclosed in Note 3:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------------- --------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate....................... $ 771.5 $ 809.4 $ 888.5 $ 865.3
Other joint ventures................................ 158.7 158.7 196.4 196.4
Policy loans........................................ 1,300.1 1,374.0 1,185.2 1,138.7
Policyholders' account balances:
SPDA............................................. 1,265.8 1,272.0 1,744.3 1,732.7
Annuities certain and SCNILC..................... 188.0 188.1 159.0 151.3
</TABLE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
EVLICO 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, EVLICO has purchased
single premium annuities from Equitable Life and directed Equitable Life to
make payments directly to the beneficiaries. A contingent liability exists
with respect to these agreements should Equitable Life be unable to meet its
obligations. Management believes the need to satisfy such obligations is
remote.
11. LITIGATION
A number of lawsuits have been filed against life and health insurers in the
jurisdictions in which EVLICO does business involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents,
and other matters. Some of the lawsuits have resulted in the award of
substantial judgments against other insurers, including material amounts of
punitive amounts, or in substantial settlements. In some states juries have
substantial discretion in awarding punitive damages. EVLICO, like other life
and health insurers, from time to time is involved in such litigation as
well as other legal actions and proceedings in connection with its
businesses. Some of these litigations 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 EVLICO's financial position or
results of operations.
12. STATUTORY FINANCIAL INFORMATION
EVLICO is restricted as to the amounts it may pay as dividends to Equitable
Life. Under the New York Insurance Law, the New York 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 the years ended December 31, 1995, 1994 and 1993,
statutory (loss) earnings totaled $(102.5) million, $27.3 million and
$(88.4) million, respectively. No amounts are expected to be available for
dividends from EVLICO to Equitable Life in 1996.
At December 31, 1995, EVLICO, in accordance with various government and
state regulations, had $4.2 million of securities deposited with such
government or state agencies.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles EVLICO's net change in
statutory surplus and capital stock and statutory surplus and capital stock
determined in accordance with accounting practices prescribed by the New
York Insurance Department with net earnings and equity on a GAAP basis.
F-16
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock................ $ (56.6) $ 64.8 $ 184.4
Change in asset valuation reserves............................... 57.8 18.5 26.0
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves.................................. 1.2 83.3 210.4
Adjustments:
Future policy benefits and policyholders' account balances.... (12.9) (13.5) (22.5)
Initial fee liability......................................... (34.2) (20.3) (11.6)
Deferred policy acquisition costs............................. 25.1 34.7 62.2
Deferred Federal income taxes................................. (29.7) (20.2) (23.9)
Valuation of investments...................................... 38.3 19.9 25.9
Limited risk reinsurance...................................... 146.9 .1 (5.4)
Contribution from Equitable Life.............................. (125.0) (50.0) (250.0)
Other, net.................................................... 46.4 2.0 41.7
----------------- ---------------- -----------------
Net Earnings..................................................... $ 56.1 $ 36.0 $ 26.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock.............................. $ 720.9 $ 777.6 $ 712.7
Asset valuation reserves......................................... 146.1 88.3 69.8
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset valuation reserves.... 867.0 865.9 782.5
Adjustments:
Future policy benefits and policyholders' account balances.... (367.4) (354.5) (341.1)
Initial fee liability......................................... (234.7) (200.5) (180.3)
Deferred policy acquisition costs............................. 2,037.8 2,077.1 1,946.7
Deferred Federal income taxes................................. (222.1) (134.4) (159.5)
Valuation of investments...................................... 68.4 (219.2) 4.4
Limited risk reinsurance...................................... (231.7) (378.6) (378.7)
Postretirement and other pension liabilities.................. (111.6) (105.8) (122.7)
Other, net.................................................... (68.0) (101.1) (98.6)
----------------- ---------------- -----------------
Shareholder's Equity............................................. $ 1,737.7 $ 1,448.9 $ 1,452.7
================= ================ =================
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Equitable Variable Life
Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash
flows present fairly, in all material respects, the financial position of
Equitable Variable Life Insurance Company and its subsidiaries ("EVLICO") at
December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of EVLICO'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, EVLICO
changed its methods of accounting for loan impairments in 1995, for
postemployment benefits in 1994 and for investment securities in 1993.
PRICE WATERHOUSE LLP
New York, New York
February 7, 1996
F-18
<PAGE>
APPENDIX A
MANAGEMENT
Here is a list of our directors and principal officers and a brief statement of
their business experience for the past five years. Unless otherwise noted, the
following persons have been involved in the management of Equitable and its
subsidiaries in various positions for the last five years. Unless otherwise
noted, their address is 787 Seventh Avenue, New York, New York 10019.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- - ----------------------- -------------------------
<S> <C>
DIRECTORS
Michel Beaulieu...................... Director of Equitable Variable since February 1992. Senior Vice President, Equitable, since
September 1991; prior thereto, Chief Life Actuary AXA group 1989 to 1991; Managing Director
Blondeau & CIE (France) 1986 to 1989. Director, Equity & Law (London).
Laurent Clamagirand.................. Director of Equitable Variable since February 1995; Vice President, Financial Reporting,
Equitable, since March 1996; prior thereto, Director from November 1994 to March 1996; prior
thereto, International Controller, AXA, January 1990 to October 1994; Director, Equitable of
Colorado, since March 1995.
William T. McCaffrey................. Director of Equitable Variable since February 1987; Senior Executive Vice President and
Chief Operating Officer, Equitable Life, since February 1996; prior thereto, Executive Vice
President, since February 1986 and Chief Administrative Officer since February 1988;
Director, Equitable Life, since February 1996 and Equitable Foundation since September 1986.
Michael J. Rich...................... Director of Equitable Variable since May 1995. Senior Vice President, Equitable, since
October 1994; prior thereto, Vice President of Underwriting, John Hancock Mutual Life
Insurance Co. since 1988.
Jose S. Suquet....................... Director of Equitable Variable since January 1995. Executive Vice President and Chief Agency
Officer, Equitable, since August 1994; prior thereto, Agency Manager, Equitable, since
February 1985.
OFFICERS -- DIRECTORS
James M. Benson...................... President and Chief Executive Officer, Equitable Variable since March 1996; prior thereto,
President from December 1993 to March 1996; Vice Chairman of the Board, Equitable Variable,
July 1993 to December 1993. President & Chief Executive Officer, Equitable Life, since
February 1996; President and Chief Operating Officer, Equitable, February 1994 to present;
Senior Executive Vice President, April 1993 to February 1994. Prior thereto, President,
Management Compensation Group, 1983 to February 1993. Director, Alliance Capital, October
1993 to present; National Mutual Association of Australasia, September 1995 to present and
AXA Re Life Insurance Co., January 1995 to present.
Harvey Blitz......................... Vice President, Equitable Variable since April 1995; Director of Equitable Variable since
October 1992. Senior Vice President, Equitable, since September 1987. Senior Vice President,
The Equitable Companies Incorporated, since July 1992. Director, Equico Securities, Inc.,
since September 1992; Equitable of Colorado, since September 1992; Equisource and its
subsidiaries since October 1992, and Chairman of the Board Frontier Trust since September
1995 and Director of Equitable Distributors, Inc. since February 1995.
Gordon Dinsmore...................... Senior Vice President, Equitable Variable, since February 1991. Senior Vice President,
Equitable, since September 1989; prior thereto, various other Equitable positions. Director
and Senior Vice President, March 1991 to present, Equitable of Colorado; Director, FHJV
Holdings, Inc., December 1990 to present; Director, Equitable Distributors, Inc., August
1993 to present, and Director, Equitable Foundation, May 1991 to present.
Jerry de St. Paer.................... Senior Investment Officer, Equitable Variable, since April 1995; Director of Equitable
Variable since April 1992. Senior Executive Vice President & Chief Financial Officer,
Equitable Life, since February 1996; prior thereto, Executive Vice President & Chief
Financial Officer, Equitable, since April 1992; Executive Vice President since December
1990; Senior Vice President & Treasurer June 1990 to December 1990; Senior Vice President,
Equitable Investment Corporation, January 1987 to January 1991; Executive Vice President &
Chief Financial Officer, The Equitable Companies Incorporated, since May 1992; Director,
Economic Services Corporation & various Equitable subsidiaries.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- - ----------------------- -------------------------
<S> <C>
OFFICERS -- DIRECTORS (Continued)
Joseph J. Melone..................... Chairman of the Board, Equitable Variable since March 1996; Chairman of the Board and Chief
Executive Officer, Equitable Variable, November 1990 to March 1996; Chairman of the Board,
Equitable Life, since February 1996; prior thereto, Chairman of the Board and Chief
Executive Officer, Equitable, February 1994 to February 1996; President and Chief Executive
Officer, September 1992 to February 1994; President and Chief Operating Officer from
November 1990 to September 1992. President & Chief Executive Officer of The Equitable
Companies Incorporated since February 1996; prior thereto, President and Chief Operating
Officer since July 1992. Prior thereto, President, The Prudential Insurance Company of
America, since December 1984. Director, Equity & Law (United Kingdom) and various other
Equitable subsidiaries.
Peter D. Noris....................... Executive Vice President and Chief Investment Officer, Equitable Variable, since September
1995. Director of Equitable Variable since June 1995. Executive Vice President and Chief
Investment Officer, Equitable, since May 1995; prior thereto, Vice President, Salomon
Brothers, Inc., 1992 to 1995; Principal of Equity Division, Morgan Stanley & Co. Inc., from
1984 to 1992. Director, various Equitable subsidiaries.
Samuel B. Shlesinger................. Senior Vice President, Equitable Variable, since February 1988. Senior Vice President and
Actuary, Equitable; prior thereto, Vice President and Actuary. Director, Chairman and CEO,
Equitable of Colorado.
Dennis D. Witte...................... Senior Vice President, Equitable Variable, since February 1991; Senior Vice President,
Equitable, since July 1990; prior thereto, various other Equitable positions; Director,
Equitable Distributors, Inc. since February 1995.
OFFICERS
Kevin R. Byrne....................... Treasurer, Equitable Variable, since September 1990; Vice President and Treasurer,
Equitable, since September 1993; prior thereto, Vice President from March 1989 to September
1993. Vice President and Treasurer, The Equitable Companies Incorporated, September 1993 to
present; Frontier Trust since August 1990; Equisource and its subsidiaries October 1990 to
present.
Stephen Hogan........................ Vice President and Controller, Equitable Variable, February 1994 to present. Vice President,
135 West 50th Street Equitable, January 1994 to present; prior thereto, Controller, John Hancock subsidiaries,
New York, New York 10020 from 1987 to December 1993.
J. Thomas Liddle, Jr................. Senior Vice President and Chief Financial Officer, Equitable Variable, since February 1986.
Senior Vice President, Equitable, since April 1991; prior thereto, Vice President and
Actuary, Equitable; Director, Equitable of Colorado since December 1985.
William A. Narducci.................. Vice President and Chief Claims Officer, Equitable Variable, since February 1989. Vice
200 Plaza Drive President, Equitable, since February 1988; prior thereto, Assistant Vice President.
Secaucus, New Jersey 07096
John P. Natoli....................... Vice President and Chief Underwriting Officer, Equitable Variable, since February 1988. Vice
President, Equitable.
</TABLE>
A-2
<PAGE>
APPENDIX B
COMMUNICATING PERFORMANCE DATA
In reports or other communications to policyowners or in advertising material,
we may describe general economic and market conditions affecting the Separate
Account and the Trust and may compare the performance or ranking of the Separate
Account Funds and Trust portfolios with (1) that of other insurance company
separate accounts or mutual funds included in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. or similar investment services that
monitor the performance of insurance company separate accounts or mutual funds,
(2) other appropriate indices of investment securities and averages for peer
universes of funds, or (3) data developed by us derived from such indices or
averages. Advertisements or other communications furnished to present or
prospective policyowners may also include evaluations of a Separate Account Fund
or Trust portfolio by financial publications that are nationally recognized such
as Barron's, Morningstar's Variable Annuities / Life, Business Week, Forbes,
Fortune, Institutional Investor, Money, Kiplinger's Personal Finance, Financial
Planning, Investment Adviser, Investment Management Weekly, Money Management
Letter, Investment Dealers Digest, National Underwriter, Pension & Investments,
USA Today, Investor's Daily, The New York Times, The Wall Street Journal, the
Los Angeles Times and the Chicago Tribune.
Performance data for peer universes of funds with similar investment objectives
are compiled by Lipper Analytical Services, Inc. (Lipper) in its Lipper Variable
Insurance Products Performance Analysis Service (Lipper Survey) and Morningstar,
Inc. in the Morningstar Variable Annuity / Life Report (Morningstar Report).
The Lipper Survey records performance data as reported to it by over 800 funds
underlying variable annuity and life insurance products. The Lipper Survey
divides these actively managed funds into 25 categories by portfolio objectives.
The Lipper Survey contains two different universes, which differ in terms of the
types of fees reflected in performance data. The "Separate Account" universe
reports performance data net of investment management fees, direct operating
expenses and asset-based charges applicable under variable insurance and annuity
contracts. The "Mutual Fund" universe reports performance net only of investment
management fees and direct operating expenses, and therefore reflects
asset-based charges that relate only to the underlying mutual fund.
The Morningstar Report consists of over 700 variable life and annuity funds, all
of which report their data net of investment management fees, direct operating
expenses and separate account level charges.
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 chart presents historical return trends
for various types of securities. The information presented, while not directly
related to the performance of the Funds of the Separate Account or the Trust
portfolios, may help to provide a perspective on the potential returns of
different asset classes over different periods of time. By combining this
information with your knowledge of your own financial needs, you may be able to
better determine how you wish to allocate your Incentive Life Plus premiums.
Historically, the investment performance of common stocks over the long term has
generally been superior to that of long or short-term debt securities, although
common stocks have been subject to more dramatic changes in value over short
periods of time. The Common Stock Fund of the Separate Account may, therefore,
be a desirable selection for policyowners who are willing to accept such risks.
Policyowners who have a need to limit short-term risk, may find it preferable to
allocate a smaller percentage of their net premiums to those funds that invest
primarily in common stock. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The chart on page A-2 illustrates the average annual compound rates of return
over selected time periods between December 31, 1925 and December 31, 1995 for
common stocks, long-term government bonds, long-term corporate bonds,
intermediate-term government bonds and Treasury Bills. The Consumer Price Index
is shown as a measure of inflation for comparison purposes. The average annual
returns assume the reinvestment of dividends, capital gains and interest.
The information presented is an historical record of unmanaged groups of
securities and is neither an estimate nor a guarantee of future results. In
addition, investment management fees and expenses and charges associated with a
variable life insurance policy, are not reflected.
The rates of return illustrated do not represent returns of the Separate Account
or the Trust and do not constitute a representation that the performance of the
Separate Account funds or the Trust portfolios will correspond to rates of
return such as those illustrated in the chart. For a comparative illustration of
performance results of The Hudson River Trust, see page A-1 of the Trust's
prospectus.
B-1
<PAGE>
AVERAGE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
FOR THE
FOLLOWING LONG-TERM LONG-TERM INTERMEDIATE U.S. CONSUMER
PERIODS ENDING COMMON GOVERNMENT CORPORATE TERM GOV'T TREASURY PRICE
12/31/95: STOCKS BONDS BONDS BONDS BILLS INDEX
- - -------- ------ ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
1 year.................. 37.43 31.67 26.39 16.80 5.60 2.74
3 years................. 15.26 12.82 10.47 7.22 4.13 2.72
5 years................. 16.57 13.10 12.07 8.81 4.29 2.83
10 years................. 14.84 11.92 11.25 9.08 5.55 3.48
20 years................. 14.59 10.45 10.54 9.69 7.28 5.23
30 years................. 10.68 7.92 8.17 8.36 6.72 5.39
40 years................. 10.78 6.38 6.75 7.02 5.73 4.46
50 years................. 11.94 5.35 5.75 5.87 4.80 4.36
60 years................. 11.34 5.20 5.46 5.34 4.01 4.10
Since 1926............... 10.54 5.17 5.69 5.25 3.72 3.12
Inflation Adjusted
Since 1926............... 7.20 1.99 2.49 2.07 0.58 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 1996
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 1969-1995, represented by the
Salomon Brothers Long-Term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers' Index was backdated using Salomon Brothers'
monthly yield data and a methodology similar to that used by Salomon for
1969-1995; for the period 1926-1945, 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.
B-2
<PAGE>
VM-520
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EQUITABLE VARIABLE LIFE Bulk Rate
INSURANCE COMPANY U.S. Postage
Mailing Address: Paid
2 Penn Plaza Permit No. 148
New York, New York 10121 Brooklyn, N.Y.
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