<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 2-74667
EQUITABLE LIFE'S 300+ SERIES
CERTIFICATES UNDER GROUP ANNUITY
CONTRACTS
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PROSPECTUS [EQUITABLE LOGO]
MAY 1, 1999
<PAGE>
EQUITABLE LIFE'S 300+ SERIES
CERTIFICATES UNDER GROUP ANNUITY CONTRACTS
PROSPECTUS DATED MAY 1, 1999
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This prospectus contains important information that you should know before
purchasing, or taking any other action under a Certificate. Also, at the end of
this prospectus you will find attached the prospectuses for The Hudson River
Trust and EQ Advisors Trust, which contain important information about the
Funds. Please read and keep these prospectuses for future reference.
WHAT IS EQUITABLE LIFE'S 300+ SERIES?
Equitable Life's 300+ Series Certificates are annuity contracts issued by The
Equitable Life Assurance Society of the United States. They provide a means for
the accumulation of retirement savings and for income. You invest to accumulate
on a tax-deferred basis in one or more of our variable investment funds
("Funds") or guaranteed rate accounts ("GRAs"), the "investment options" in
Equitable Life's 300+ Series.
<TABLE>
<CAPTION>
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VARIABLE INVESTMENT FUNDS
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<S> <C>
o Alliance Money Market o Alliance Conservative
o Alliance Intermediate Investors
Government Securities o Alliance Growth Investors
o Alliance High Yield o MFS Emerging Growth
o Alliance Balanced Companies
o Alliance Growth & Income o BT Equity 500 Index
o Alliance Common Stock o Lazard Small Cap Value
o Alliance Aggressive Stock o T. Rowe Price International
o Alliance Global Stock
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</TABLE>
You may allocate amounts to any of the Funds. They, in turn, invest in a
corresponding securities portfolio ("Portfolio") of The Hudson River Trust or EQ
Advisors Trust. Your investment results in a Fund will depend on the investment
experience of the related Portfolio and timing of transactions such as
contributions and transfers. Each Fund is a subaccount of our Separate Account
No. 301.
GUARANTEED RATE ACCOUNTS. You may allocate amounts to the GRAs which offer
guarantees of principal, as well as interest at rates we set.
TYPES OF CONTRACTS. We offer the Certificates for use as:
o Regular IRAs or Roth IRAs
o Tax Sheltered Annuities ("TSAs")
o Simplified Employee Pensions ("SEP")
o Savings Incentive Match Plans for Employees ("SIMPLE")
A registration statement relating to this offering has been filed with the
Securities and Exchange Commission ("SEC"). A Statement of Additional
Information, or "SAI," dated May 1, 1999, which is part of the registration
statement, is available free of charge upon request by writing to us or calling
1-800-248-2138, our toll-free number. The SAI has been incorporated by reference
into this prospectus. The table of contents for the SAI appears at the back of
this prospectus.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK
GUARANTEED. THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL.
---------------------------------
Copyright 1999 The Equitable Life Assurance Society of the United States, New
York, New York 10104. All rights reserved.
<PAGE>
CONTENTS OF THIS PROSPECTUS
2
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EQUITABLE LIFE'S 300+ SERIES
<TABLE>
<S> <C>
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Index of Key Words and Phrases 4
Equitable Life's 300+ Series Certificates at a Glance -
Key Features 5
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FEE TABLE 6
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Examples 7
Condensed financial information 8
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CERTIFICATE FEATURES 9
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How Do I Purchase and Contribute to My Certificate? 9
Owner and Annuitant Requirements 10
How Do I Make My Contributions? 10
What Are My Investment Options Within the Certificate 11
Allocating Your Contributions 12
Your Right to Cancel Within a Certain Number of Days 13
2
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DETERMINING YOUR CERTIFICATE'S VALUE 14
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Your Account Balance in the Funds 14
Your Account Balance in the GRAs 14
3
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TRANSFERRING YOUR MONEY AMONG
INVESTMENT OPTIONS 15
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</TABLE>
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"We," "our" and "us" refers to Equitable Life.
When we address the reader of this prospectus with words such as "you" and
"your," we mean the person who has the right or responsibility that the
prospectus is discussing at that point. This is usually the Certificate owner
who we may also refer to as the "participant."
<PAGE>
3
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<TABLE>
<S> <C>
4
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ACCESSING YOUR MONEY 16
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Withdrawing Your Account Balance 16
Choosing Your Retirement Payout Options 16
5
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CHARGES AND EXPENSES 19
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Charges that Equitable Life Deducts 19
Charges for State Premium and Other Applicable Taxes 19
Expenses That the Trusts Incur 19
Certain Expense Limitations 20
Life Annuity Administrative Charge 20
SEP and SIMPLE Enrollment Fee 20
Guaranteed Rate Accounts Withdrawal Charge 21
6
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PAYMENT OF DEATH AND DISABILITY BENEFIT 22
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Your Beneficiary and Payment of Death Benefit 22
When the Participant Dies Before Distributions Begin 22
When the Participant Dies After the Retirement Date 22
Disability Payment 22
7
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TAX INFORMATION 23
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Tax Changes 23
Tax-Sheltered Annuity Arrangements (TSAs) 23
Individual Retirement Annuities (Regular and Roth IRAs) 23
IRAs Under Simplified Employee Pension Plans (SEPs and
SIMPLEs) 23
8
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MORE INFORMATION 25
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About Equitable Life 25
About Separate Account No. 301 25
About The Hudson River Trust and EQ Advisors Trust 25
About the General Account 26
Dates and Prices at Which Certificate Events Occur 27
About Your Voting Rights 27
About the Group Annuity Contracts 28
IRS Disqualification 28
About Our Year 2000 Progress 29
About Legal Proceedings 29
About Our Independent Accountants 29
Transfers of Ownership, Collateral Assignments, Loans,
and Borrowing 29
Underwriter 29
Reports and Additional Information 30
9
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INVESTMENT PERFORMANCE 31
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Benchmarks 31
10
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APPENDIX I: CONDENSED FINANCIAL
INFORMATION A-1
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11
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TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION S-1
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12
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HOW TO REACH US back cover
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</TABLE>
<PAGE>
EQUITABLE LIFE'S 300+ SERIES
4
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INDEX OF KEY WORDS AND PHRASES
This index should help you locate more
information on the terms used in this
prospectus.
<TABLE>
<CAPTION>
TERM PAGE
<S> <C>
Accessing Your Money 16
account balance 14
annuitant 17
Annuity Payout Options 17
beneficiary 22
Business Day 10
cash value 14
Charges and Expenses 19
contributions 10
Death Benefit 22
Guaranteed Rate Accounts 12
Investment Options 11
Investment Performance 30
Key Features 5
Payout Options 16
Portfolio cover
Processing Office back cover
Regular IRA 23
Retirement Payout Options 16
Right to Cancel 13
Roth IRA 23
SAI S-1
SEPs 23
SIMPLEs 23
Tax Information 23
Transferring Your Money 15
TSA 23
Unit 14
Variable Investment Funds 11
Voting Rights 26
</TABLE>
<PAGE>
EQUITABLE LIFE'S 300+ SERIES
5
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EQUITABLE 300+ SERIES CERTIFICATES AT A
GLANCE - KEY FEATURES
PROFESSIONAL INVESTMENT MANAGEMENT
Equitable Life's 300+ Series Funds invest in 14 different Portfolios managed by
professional investment advisers.
GUARANTEED RATE ACCOUNTS
o New GRAs with one and three-year guarantee periods offered quarterly.
o Principal guaranteed; interest guaranteed when GRA is held to maturity of
guarantee period.
TAX ADVANTAGES OF PLAN
o On contributions
Pre-tax contributions except for certain IRAs and for Roth IRAs.
o On earnings inside the Certificate
No tax on any dividends, interest or capital gains until you make
withdrawals or receive distributions.
o On transfers inside the Certificate
No tax on transfers among investment options.
o On payout
Tax-favored payout alternatives.
If you are buying a contract to fund a retirement plan that already provides
tax deferral under Federal income tax rules, you should do so for the
contract's features and benefits other than tax deferral. The tax deferral of
the contract does not provide additional benefits
MINIMUM CONTRIBUTION AMOUNTS
o Equitable Life has no minimum (If you are contributing through an employer,
the employer may have a minimum).
ACCESS TO YOUR MONEY
o Lump sum withdrawals (You may be subject to a withdrawal charge for certain
withdrawals or transfers from the GRAs. You may also incur income tax and a
penalty tax on any withdrawal.)
PAYOUT ALTERNATIVES
o Fixed annuity payout benefit
o Periodic distribution option
o Single sum payment
o Other annuity or optional retirement benefits we may offer
ADDITIONAL FEATURES
o Unlimited transfers among the Funds.
o Transfers from the GRAs, subject to special rules
o Toll-free telephone access to information regarding your account and use of
AIM system for transfers
FEES AND CHARGES
o Participant service charge assessed quarterly for certain administrative
services. Maximum of $30 per year.
o Administrative charge, for expenses not covered by the participant service
charge, assessed daily against assets of the Funds at an annual rate of
0.25%.
o Other expenses charged directly to the Funds for operating expenses.
o 7% charge, not to exceed interest earned, on amounts withdrawn or transferred
from GRAs. There are exceptions to withdrawal charge.
o Annual expenses of The Hudson River Trust and EQ Advisors Trust Portfolios
are calculated as a percentage of net assets in each Portfolio. These
expenses include management and advisory fees ranging from 0.25% to 0.80%
annually, other expenses and, for EQ Advisors Trust, 12b-1 fees of 0.25%
annually.
o One-time enrollment fee of $25 for each employee Certificate owner
participating in a SEP or SIMPLE; payable by the employee or the employer.
o Annuitization fee of up to $350 if a participant elects an annuity option at
retirement. A higher fee may apply when an optional annuity benefit, other
than the normal form of annuity, is elected.
The above is not a complete description of all material provisions of the
Certificates. For more detailed information we urge you to read the contents of
this prospectus, as well as your Certificate. Please feel free to speak with us
if you have any questions.
<PAGE>
FEE TABLE
6
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The fee table below will help you understand the various charges and expenses
that apply under your Certificate. The table reflects Fund charges you will
directly incur under the Certificate, as well as charges and expenses of the
Portfolios that you will bear indirectly. Charges for taxes, such as state or
local premium taxes, and enrollment fees may also apply. Each of the charges and
expenses, including an annuity administrative charge, is further discussed under
"Charges and Expenses" later in this prospectus. For a complete description of
Portfolio charges and expenses, please see the attached prospectuses for The
Hudson River Trust and EQ Advisors Trust. In the fee table, we refer to The
Hudson River Trust as "HRT," and to EQ Advisors Trust as "EQAT." The Fund
charges shown in the table are expressed as an annual percentage of daily net
assets, in each Fund. The Hudson River Trust and EQ Advisors Trust annual
expenses are shown as a percentage of average daily net assets in each
Portfolio.
<TABLE>
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CERTIFICATE OWNER TRANSACTION EXPENSES:
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<S> <C>
Sales load on purchases None
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Maximum annual participant service charge $30
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</TABLE>
<TABLE>
<CAPTION>
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Alliance
Alliance Intermediate Alliance
The Hudson Money Government High Alliance
River Trust Market Securities Yield Balanced
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUND RELATED
EXPENSES
Administration
charge 0.25% 0.25% 0.25% 0.25%
Other expenses 0.15 0.22 0.33 0.13
Total 0.40% 0.47% 0.58% 0.38%
- -------------------------------------------------------------------------
TRUST RELATED
EXPENSES
Management and
advisory fees 0.35%(1) 0.35%(1) 0.60% 0.41%
Other expenses 0.02 0.05 0.03 0.04
Total 0.37%(1) 0.40%(1) 0.63% 0.45%
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TOTAL FUND AND HRT PORTFOLIO ANNUAL EXPENSES (AFTER EXPENSE LIMITATION AS
TO ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES)(2)
0.77% 0.87%(1) 1.21% 0.83%
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<CAPTION>
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Alliance Alliance
Alliance Alliance Aggres- Conserva- Alliance
The Hudson Growth Common sive Alliance tive Growth
River Trust & Income Stock Stock Global Investors Investors
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<S> <C> <C> <C> <C> <C> <C>
FUND RELATED
EXPENSES
Administration
charge 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other expenses 0.24 0.13 0.22 0.24 0.53 0.44
Total 0.49% 0.38% 0.47% 0.49% 0.78% 0.69%
- ------------------------------------------------------------------------------------
TRUST RELATED
EXPENSES
Management and
advisory fees 0.55% 0.36% 0.54% 0.64% 0.48% 0.51%
Other expenses 0.03 0.03 0.02 0.07 0.05 0.04
Total 0.58% 0.39% 0.56% 0.71% 0.53% 0.55%
- ------------------------------------------------------------------------------------
TOTAL FUND AND HRT PORTFOLIO ANNUAL EXPENSES (AFTER EXPENSE LIMITATION AS TO
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES)(2)
1.07% 0.77% 1.03% 1.20% 1.31% 1.24%
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</TABLE>
(1) The annual amount of management and advisory fees applicable to the
Alliance Money Market Portfolio and Alliance Intermediate Government
Securities Portfolio is, in each case, limited to 0.35% of the value of
the Portfolio's average daily net assets. This limitation is a
Certificate right for participants who enrolled prior to May 1, 1987 and
cannot be changed without their consent. Equitable Life has voluntarily
agreed to impose this limitation for all other participants in those
Portfolios and reserves the right to discontinue the limitation at any
time. Absent this limitation, the management and advisory fees for the
Alliance Intermediate Government Securities Portfolio would be 0.50% and
for the Alliance Money Market Portfolio would be 0.35%, the same as the
limitation. See " Charges and Expenses-Expense Limitations."
(2) The investment management and advisory fee for each Portfolio of The
Hudson River Trust may vary from year to year depending upon the average
daily net assets of the respective Portfolios. The maximum investment
management fee and advisory fees for each Portfolio, however, cannot be
increased without a vote of the Portfolio's shareholders. The amounts
shown in the Table under "Fund Annual Expenses" and under "HRT Portfolio
Annual Expenses" for the Alliance Money Market, Alliance Intermediate
Government Securities, Alliance Balanced and Alliance Common Stock
Funds/Portfolios, when added together, are limited by the Certificates to
1% of the value of the Alliance Money Market option's average daily net
assets and 1.5% of the value of the Alliance Common Stock, Alliance
Intermediate Government Securities and Alliance Balanced Funds'
respective average daily net assets. For the Alliance High Yield,
Alliance Aggressive Stock and Alliance Global Funds, Equitable Life
applies a voluntary combined Fund/Portfolio expense limitation at an
effective annual rate of 1.5% of average daily net assets of each Fund.
See "Charges and Expenses-Expense Limitations."
<PAGE>
7
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<TABLE>
<CAPTION>
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MFS Emerging T. Rowe Price
Growth BT Equity Lazard Small International
EQ Advisors Trust Companies 500 Index Cap Value Stock
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<S> <C> <C> <C> <C>
FUND RELATED EXPENSES
Administration charge 0.45% 0.45% 0.45% 0.45%
Other expenses - - - -
Total 0.45% 0.45% 0.45% 0.45%
- ----------------------------------------------------------------------------------
TRUST RELATED EXPENSES
Management and advisory
fees 0.55% 0.25% 0.80% 0.75%
12b-1 fee (1) 0.25 0.25 0.25 0.25
Other expenses 0.05 0.05 0.15 0.20
Total (after expense
limitation)(2) 0.85% 0.55% 1.20% 1.20%
- ----------------------------------------------------------------------------------
TOTAL FUND AND
EQAT PORTFOLIO ANNUAL
EXPENSES 1.30% 1.00% 1.65% 1.65%
- ----------------------------------------------------------------------------------
</TABLE>
(1) The Funds purchase Class IB shares of EQ Advisors Trust which are subject
to fees imposed under distribution plans adopted by EQ Advisors Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Rule
12b-1 plans provide that EQ Advisors Trust, in behalf of each Portfolio,
may pay annually up to 0.25% of the average daily net assets of a
Portfolio attributable to its Class IB shares for activities primarily
intended to result in the sale of the Class IB shares.
(2) The maximum investment management and advisory fees for each Portfolio
cannot be increased without a vote of that Portfolio's shareholders. The
amounts shown as "Other Expenses" will fluctuate from year to year
depending on actual expenses, however, EQ Financial Consultants, Inc.
("EQ Financial"), EQ Advisors Trust's manager, has entered into an
expense limitation agreement with respect to each Portfolio, pursuant to
which EQ Financial has agreed to waive or limit its fees and assume other
expenses. Under the expense limitation agreement, total annual operating
expenses of each Portfolio (other than interest, taxes, brokerage
commissions, capitalized expenditures, extraordinary expenses and Rule
12b-1 plan fees) are limited for the respective average daily net assets
of each Portfolio as follows: 0.60% for MFS Emerging Growth Companies;
0.30% for BT Equity 500 Index; and 0.95% for Lazard Small Cap Value and
T. Rowe Price International Stock.
Absent the expense limitation, "Other Expenses" for 1998 on an annualized
basis would have been: 0.24% for MFS Emerging Growth Companies, 0.33% for
BT Equity 500 Index, 0.49% for Lazard Small Cap Value and 0.40% for T.
Rowe Price International Stock.
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the expense limitation
agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio.
EXAMPLES
The examples below show the expenses that a hypothetical participant would pay,
assuming a $1,000 contribution is invested in one of the Funds listed, and a 5%
annual return on assets(1). The expenses are the same whether or not the
participant withdraws amounts held in any of the Funds. For purposes of the
examples, the participant service charge is computed by applying a charge of $12
to the average number of participants for the year, divided by average assets
for each Fund for the same period.
These examples should not be considered a representation of past or future
expenses for each Fund or Portfolio. Actual expenses may be greater or less than
those shown below. Similarly, the annual rate of return assumed in the examples
is not an estimate or guarantee of future investment performance.
<PAGE>
8
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<TABLE>
<CAPTION>
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1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
Alliance Money Market $ 8.21 $ 25.65 $ 44.58 $ 99.23
Alliance Intermediate Government
Securities 9.22 28.81 50.01 111.01
Alliance High Yield 12.68 39.47 68.27 150.14
Alliance Balanced 11.26 35.09 60.79 134.20
Alliance Growth & Income 8.82 27.55 47.84 106.32
Alliance Common Stock 8.21 25.65 44.58 99.23
Alliance Aggressive Stock 10.85 33.84 58.65 129.60
Alliance Global 12.58 39.16 67.74 149.01
Alliance Conservative Investors 13.70 42.58 73.58 161.37
Alliance Growth Investors 12.99 40.40 69.89 153.52
MFS Emerging Growth Companies 13.55 42.12
BT Equity 500 Index 10.55 32.90
Lazard Small Cap Value 17.14 53.10
T. Rowe Price International Stock 17.14 53.10
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</TABLE>
(1) The amount accumulated from the $1,000 contribution could not be paid in
the form an annuity at the end of any of the periods shown in the
examples. This is because the minimum amount applied must be $2,000 and
the initial annuity payment must be at least $20. See "Certificate
Provisions-Retirement Benefits." In some cases, charges for state premium
or other taxes will be deducted from the amount applied.
If you elect an annuity payout option under which we deduct a $350 annuitization
fee:
Assuming an annuity payout option could be issued, the expenses shown in
the above example would, in each case, be increased by $4.43 based on the
average amount applied to annuity payout options in 1998.
CHARGE FOR WITHDRAWALS OR TRANSFERS FROM GRAS. We impose a charge of 7% of the
amount withdrawn or transferred (including the amount of the withdrawal charge),
but not more than the accumulated interest, on the amount withdrawn or
transferred, from any GRA. The charge does not apply to your contributions or at
maturity of the GRA, among other exceptions.
ANNUITIZATION FEE. If you elect the fixed annuity benefit available under your
Certificate we will deduct a charge of up to $350 at the time we provide that
benefit. The charge may be greater if, at that time, we offer more favorable
annuity purchase rates for the same benefit.
CONDENSED FINANCIAL INFORMATION
Please see APPENDIX I, at the end of this prospectus, for the unit values, as of
the dates shown, for each of the Funds.
<PAGE>
CERTIFICATE FEATURES
9
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HOW DO I PURCHASE AND CONTRIBUTE TO MY CERTIFICATE?
You or your employer may purchase and contribute to a Certificate by making
payments to us. You may contribute under a Regular IRA, Roth IRA, SIMPLE IRA or
under a SEP. Your employer contributes under a SEP, TSA, or SIMPLE IRA. We have
no minimum contribution amount. However, an employer may establish a minimum
contribution amount for payroll deductions. The following table summarizes
certain information regarding the Certificates and contributions.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CERTIFICATE TYPE CONTRIBUTION SOURCES CONTRIBUTION LIMITATIONS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Regular IRA o "Regular" IRA contributions not to o No additional regular IRA contributions
exceed $2,000 each year. after age 70 1/2.
- - typically pre-tax contributions o Rollovers from a qualified plan. o Rollover or direct transfer
- - distributions are taxable o Rollovers from a TSA. o Rollovers from contributions after age 70 1/2 must
another traditional individual be net of required minimum
retirement arrangement. distributions.
o Direct custodian-to-custodian transfers
from other traditional individual
retirement arrangements.
- -----------------------------------------------------------------------------------------------------------------------------
Roth IRA o "Regular Roth" IRA contributions not o Conversion rollovers after age
to exceed $2,000 each year. 70 1/2 must be net of required
- - after tax contributions o Conversion rollovers from a Regular minimum distributions for the Regular
- - distributions are tax-free IRA. IRA you are rolling over.
when conditions met o Rollovers from another Roth IRA. o You cannot make a conversion rollover
o Direct transfers from another Roth IRA. from a Regular IRA if your adjusted
gross income is $100,000 or more.
- -----------------------------------------------------------------------------------------------------------------------------
TSA o Employer remitted "salary reduction" o Maximum amount of contributions subject
and/or "nonelective" employer to tax law formula which varies;
- - favorable tax treatment for contributions. maximum salary reduction contribution
employees of tax-exempt o Rollovers from another TSA contract or is $10,000 for 1999.
organizations and public schools arrangement. o Rollover or direct transfer
o Direct transfers from another contract contributions after age 70 1/2 must
or arrangement complying with Code be net of required minimum
Section 403(b) by means of IRS Revenue distributions.
Ruling 90-24.
- -----------------------------------------------------------------------------------------------------------------------------
SEP o Employer contributions. o Annual employer contributions up to the
- - simplified employee pension plans o Employee contributions permitted. lesser of $24,000 or 15% of employee
- - employer contributions to a Regular compensation.
IRA issued to and owned by employee o Employee contributions subject to
Regular IRA limits.
- -----------------------------------------------------------------------------------------------------------------------------
SIMPLE IRA
- - savings incentive match o Employee salary reduction and employer o Salary reduction contributions up to
plan for employees matching contributions. $6,000; employer matching contributions
- - employer contributions to a Regular up to 3% of employee compensation.
IRA issued to and owned by employee
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
10
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See "Tax Information" for a more detailed discussion of certain contribution and
other limitations.
OWNER AND ANNUITANT REQUIREMENTS
The annuitant and the owner must be the same person.
HOW DO I MAKE MY CONTRIBUTIONS?
Contributions must be in the form of a check drawn on a bank in the U.S.
clearing through the Federal Reserve System, in U.S. dollars and made payable
to Equitable Life. We do not accept third party checks endorsed to us except
for rollover contributions, tax-free exchanges or trustee checks that involve
no refund. All checks are subject to collection. We reserve the right to reject
a payment if it is received in an unacceptable form.
We do not monitor whether contributions exceed limitations in the Internal
Revenue Code. However, we reserve the right to refuse contributions that we
believe to exceed those limitations.
You make contributions under a Regular IRA or Roth IRA Certificate by sending
your payment directly to us. For TSA, SEP or SIMPLE IRA Certificates, your
employer sends contributions to us on your behalf. Payroll deduction amounts
will be automatically transferred to us for allocation to the investment options
as you direct.
We invest your contributions on the date we receive them, provided they are
accompanied by a properly completed instructions form. If the date of receipt is
not a Business Day, we invest your contributions on the next Business Day.
Initial contributions must be accompanied by an application and any other form
we require to process the payments. We may retain your initial contribution for
five Business Days while we attempt to obtain any information that is missing or
unclear. If we cannot obtain the information we require within the five Business
Days, our Processing Office will inform you or your employer of the
circumstances and return the contribution unless you or your employer
specifically consent to our retaining your contribution until we receive the
required information.
OUR "BUSINESS DAY" GENERALLY IS ANY DAY ON WHICH THE NEW YORK STOCK EXCHANGE
AND EQUITABLE LIFE IS OPEN FOR TRADING AND GENERALLY ENDS AT 4 P.M. EASTERN
TIME. WE MAY, HOWEVER, CLOSE DUE TO EMERGENCY CONDITIONS.
DISCONTINUANCE AND RESUMPTION OF CONTRIBUTIONS
If contributions are discontinued your participation under a Certificate will
remain in effect and contributions may be resumed at any time. However, under
SEP and SIMPLE Certificates, contributions may not be resumed. We reserve the
right to close a participant's account and terminate the Certificate if no
contributions are made within 120 days of the issue date of a Certificate.
We also reserve the right to close a participant's account and pay any account
balance if contributions are discontinued for at least three years from the date
of the last contribution, and either (1) the account balance does not exceed
$2,000 or (2) the annuity which the existing account balance would purchase at
the participant's retirement date would be less than $20 per month based on the
current annuity rates in effect under the Certificate.
<PAGE>
11
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WHAT ARE MY INVESTMENT OPTIONS WITHIN THE CERTIFICATE
We allocate your contributions among the investment options available under the
Certificates according to your instructions. Your investment options are the
Funds and the GRAs.
VARIABLE INVESTMENT FUNDS
Your investment results in any one of the 14 Funds will depend on the investment
performance of the underlying Portfolios. Listed below are the currently
available Portfolios, their investment objectives, and their advisers. YOU CAN
CHOOSE AMONG 14 FUNDS THAT INVEST IN CORRESPONDING PORTFOLIOS.
PORTFOLIOS OF THE HUDSON RIVER TRUST
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Name Objective Adviser
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Money Market High level of current income while preserving assets and Alliance Capital Management L.P.
maintaining liquidity
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Intermediate Government High current income consistent with relative stability of Alliance Capital Management L.P.
Securities principal
- --------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield High return by maximizing current income and, to the Alliance Capital Management L.P.
extent consistent with that objective, capital
appreciation
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Balanced High return through a combination of current income Alliance Capital Management L.P.
and capital appreciation
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Growth & Income Long-term growth through a combination of current Alliance Capital Management L.P.
income and capital appreciation
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Common Stock Long-term growth of capital and increasing income Alliance Capital Management L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock Long-term growth of capital Alliance Capital Management L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Global Long-term growth of capital Alliance Capital Management L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors High total return without, in the adviser's opinion, Alliance Capital Management L.P.
undue risk to principal
- --------------------------------------------------------------------------------------------------------------------------------
Alliance Growth Investors High total return consistent with the adviser's Alliance Capital Management L.P.
determination of reasonable risk
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIOS OF EQ ADVISORS TRUST
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Name Objective Adviser
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
MFS Emerging Growth Companies Long-term growth of capital Massachusetts Financial Services Company
- ----------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Replicate as closely as possible (before the Bankers Trust Company
deduction of Portfolio expenses) the total return
of the S&P 500
- ----------------------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value Capital appreciation Lazard Asset Management
- ----------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Long-term growth of capital Rowe Price-Fleming International, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other important information about the Portfolios is included in the separate
prospectuses for The Hudson River Trust and EQ Advisors Trust attached at
the end of this prospectus. We may add or delete Portfolios under the Funds.
See "Proposed Substitution of Portfolios" under "More Information" for
information regarding the proposed substitution of newly created Portfolios of
EQ Advisors Trust for Portfolios of The Hudson River Trust currently available
under the variable investment options.
<PAGE>
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GUARANTEED RATE ACCOUNTS
You can allocate contributions to the GRAs that provide principal and interest
guarantees. These amounts become part of our general account assets. We discuss
our general account under "More Information."
Currently, we offer GRAs with guarantee periods of one and three years. We may
offer additional or different guarantee periods in the future.
New one-year and three-year guarantee periods are offered each calendar quarter.
We announce a fixed interest rate for each guarantee period at least 10 days
before the beginning of the quarter. Interest rates are set according to our
procedures at the time. Thus, different interest rates may apply to different
amounts in the GRAs. All interest rates are effective interest rates, reflecting
daily compounding and the deduction of the participant service charge. The
guaranteed annual rate of interest will never be less than 3%.
At the end of a guarantee period (the maturity date), unless you instruct us
otherwise, we will automatically contribute the accumulated amount to a new
guarantee period of similar duration. If we are offering no guarantee period of
a similar duration, we will transfer the amount to the maturity period of the
shortest duration we then offer.
You may allocate amounts in maturing guarantee periods to one or more other
[investment options] by using the AIM System. We must receive instructions
before the maturity date. We will apply those instructions to all maturing
guarantee periods until we receive other instructions.
The amount of your contributions to the GRAs is guaranteed by us (before
deduction of any participant service charge). However, withdrawals and transfers
out of a guarantee period before a maturity date, may be subject to a withdrawal
charge. See "Charges and Expenses." For futher information regarding the GRAs,
please see "The Guaranteed Rate Accounts" in the SAI.
ALLOCATING YOUR CONTRIBUTIONS
You may allocate your contributions to one or more, or all, of the Funds or
GRAs. Allocations must be in whole percentages, which you may change at any time
in writing or by telephone using our AIM System. Changes are effective on the
date we receive all necessary information. Allocation changes have no effect on
amounts already invested.
OUR ACCOUNT INVESTMENT MANAGEMENT SYSTEM (AIM SYSTEM)
Participants may use our automated AIM System to transfer between investment
options, obtain account information, change the allocation of future
contributions and maturing GRAs and hear investment performance information. To
use the AIM System, you must have a touch-tone telephone. We assign a personal
security code ("PSC") number to you after we receive your completed enrollment
form.
We have established procedures to reasonably confirm the genuineness of
instructions communicated to us by telephone when using the AIM System. The
procedures require personal identification information, including your PSC
number, prior to acting on telephone instructions, and providing written
confirmation of the transfers. Thus, we will not be liable for following
telephone instructions we reasonably believe to be genuine.
A transfer request will be effective on the Business Day we receive the request.
We will confirm all transfers in writing.
<PAGE>
13
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YOUR RIGHT TO CANCEL WITHIN A CERTAIN NUMBER OF DAYS
If for any reason you are not satisfied with your Certificate, you may return it
to us for a refund. To exercise this cancellation right, you must mail the
Certificate directly to our Processing Office within 10 days after you receive
it. In some states, this "free look" period may be longer.
Your refund will equal your contributions under the Certificate or, if greater,
with respect to contributions allocated to the Funds, your account value,
computed on the date we receive your Certificate.
We follow these same procedures if you change your mind before you receive your
Certificate, but after you make a contribution. Please see "Tax Information" for
possible consequences of canceling your Certificate.
If you fully convert an existing Regular IRA Certificate to a Roth IRA
Certificate, you may cancel your Roth IRA Certificate and return to a Regular
IRA Certificate by following the instructions in the request for full conversion
form available from our Processing Office.
<PAGE>
DETERMINING YOUR CERTIFICATE'S VALUE
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We credit the full amount of your contributions under your Certificate. At any
time, the value of your Certificate is the "account balance" in the Funds and
the GRAs to which you have allocated contributions. These amounts are subject to
certain fees and charges that are reflected in your account balance, as
applicable. See "Charges and Expenses."
We refer to the amount of the account balance attributable to the GRAs as their
"cash value." The cash value of a GRA guarantee period reflects a withdrawal
charge, as described below.
YOUR ACCOUNT BALANCE IN THE FUNDS
Your contributions to one or more of the Funds are, in turn, invested in shares
of a corresponding Portfolio. The value of your interest in each Fund is
measured by "units" that are purchased with your contributions. Your units will
increase or decrease in value as though you had invested in the corresponding
Portfolio's shares directly. Your account balance, however, will decrease by the
amount of the fees and charges that we deduct under the Certificate. Your
account balance will also decrease by the dollar amount of any withdrawals that
you make.
We determine the number of units of a Fund you purchase by dividing the amount
of your contribution by the Fund's unit value for the Business Day on which we
receive your contribution. On any day, the value of your interest in a Fund
equals the number of units credited to your Certificate under that Fund,
multiplied by the value for one unit. The number of your units in any Fund does
not change unless you make additional contributions, make a withdrawal, or
transfer amounts between investment options.
YOUR ACCOUNT BALANCE IN THE GRAS
Your account balance in the GRAs, represented by their cash value, is equal to
your contributions and transfers to those options, plus accrued interest, less
withdrawals and transfers out of the GRAs and charge deductions. The cash value
of your GRAs will be less any withdrawal charge that applies on withdrawals,
including transfers, from any of your GRA guarantee periods prior to maturity.
Thus, if you withdrew an amount from a GRA period, before the maturity date, we
would pay you the cash value. Please see "The Guaranteed Rate Accounts" in the
SAI for more information.
<PAGE>
TRANSFERRING YOUR MONEY AMONG INVESTMENT OPTIONS
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At any time before the date annuity benefit payments begin, you can transfer
some or all of your account balance among the investment options. Withdrawals or
transfers from the GRAs before a maturity date are restricted and may be subject
to a withdrawal charge. See "Charges and Expenses."
You may request a transfer by telephone using our AIM System. Transfer requests
should specify:
o your Social Security number,
o the amounts or percentages to be transferred, and
o the investment options to and from which the amounts are to be transferred.
We will make transfers involving the Funds as of the Business Day we receive
your transfer request and all necessary information.
Transfers are permitted to and from the guarantee periods of the GRAs, but
transfers may not be made from one guarantee period to another, nor during the
"open period" in calendar quarters when new guarantee periods are offered for
GRAs. In the case of trustee-to-trustee transfers during the open period, we
will impose a withdrawal charge. Transfers from a GRA guarantee period, like
withdrawals, may be subject to a withdrawal charge.
<PAGE>
ACCESSING YOUR MONEY
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WITHDRAWING YOUR ACCOUNT BALANCE
You can withdraw your account balance at any time before annuity benefits begin.
Withdrawals from the GRAs will be withdrawals of cash value, giving effect to
any withdrawal charge. No withdrawal charge applies to withdrawals from any of
the Funds.
Partial withdrawals under a periodic distribution option are subject to certain
restrictions that we describe below under "Choosing Your Retirement Payout
Options." Distributions under TSA Certificates may also be subject to certain
restrictions. For the tax consequences and restrictions relating to withdrawals
see "Tax Information" below and in the SAI.
We will consider withdrawal requests that result in a total remaining account
balance of less than $100 as a request to surrender your Certificate, unless you
tell us otherwise.
Your request for a withdrawal should be in writing on our specified form. For a
partial withdrawal, you must specify the investment options from which you want
to take the withdrawal. Otherwise, we will withdraw from each investment option
on a pro rata basis. If you request a full surrender, you must also send us your
Certificate with the request. When we receive the information we require, the
withdrawal or full surrender will become effective. If we receive only partial
information, our Processing Office will contact you for complete instructions
before processing your request.
SURRENDERING YOUR CERTIFICATE TO RECEIVE YOUR ACCOUNT BALANCE
You may surrender your Certificate to receive your account balance at any time
before you begin to receive annuity payments. For a surrender to be effective,
we must receive your written request on our prescribed form at our Processing
Office. We will determine your account balance on the date we receive the
required information. All benefits under the Certificate will terminate as of
that date.
You may receive your account balance in a single sum payment or apply all or
part of it to one or both of the annuity payout options described under
"Choosing Your Annuity Payout Options" below. For the tax consequences of
surrenders, see "Tax Information" below and in the SAI.
WHEN TO EXPECT PAYMENTS
Generally, we will fulfill requests for payments upon a withdrawal or surrender
within seven calendar days after the date we receive all necessary information
and documents we require in the circumstances. We may postpone such payments or
application of proceeds for any period during which:
(1) the New York Stock Exchange is closed or restricts trading,
(2) sales of securities or determination of the fair value of a Fund's assets is
not reasonably practicable because of an emergency, or
(3) the SEC, by order, permits us to defer payment to protect persons remaining
in the Funds.
CHOOSING YOUR RETIREMENT PAYOUT OPTIONS
When you are ready to receive retirement benefits you have a choice of several
options:
o Single sum benefit payment.
o Periodic distribution option.
o Fixed full cash refund annuity.
o Other forms of annuities we may offer.
If you choose a single sum benefit payment, your account value in the Funds and
cash value in the GRAs will be applied to provide the benefit. The cash value
may reflect a withdrawal charge.
The same amounts will be applied to provide a periodic distribution option or
the fixed full cash refund annuity under the Certificate, or any other optional
fixed annuity we may offer. However, if you elect a periodic distribution or
annuity, no withdrawal charge will be imposed on amounts derived from the GRAs.
<PAGE>
17
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ANNUITY PAYOUT OPTIONS
You can choose from among the following annuity payout options:
FULL CASH REFUND ANNUITY. This is the "normal form of annuity benefit." It
provides a fixed annuity for the lifetime of the annuitant. The participant's
beneficiary will receive a cash refund if, at the participant's death, the total
annuity payments do not equal the amount that we applied to provide the annuity.
This refund equals the difference between the amount applied to purchase the
annuity and the annuity payments actually received.
Once fixed payments begin, the amount of each payment does not change. We
determine the minimum amount from tables in the Certificate that show monthly
payments for each $1,000 applied (after deduction of any applicable tax charges
and the annuitization fee). If our group annuity rates for payment of proceeds
or our rate for single premium immediate annuities then in effect produces a
larger payment, we pay the larger benefit. We may change the amount of monthly
payments shown in Certificates for new participants.
PERIODIC DISTRIBUTION OPTION. An annuity option that pays out your entire
account balance in monthly, quarterly, semi-annual or annual installment
payments over a period of at least three years, as you or your beneficiary
choose. The payout period may not generally exceed applicable life expectancy
limitations, as described in "Tax Information" in the SAI.
To calculate the amount of each payment, you specify a dollar amount or a time
period. If a time period, we determine the amount of a payment by dividing the
remaining account balances by the number of remaining payments. We make
withdrawals pro-rata from each investment option. Currently, we distribute
periodic payments from the GRAs without withdrawal charges. We retain the right
to suspend these distributions from the GRAs in the future.
We require an initial monthly payment of at least $50 under the periodic
distribution option. After payments begin, you may continue to transfer amounts
among the investment options, according to our rules. By written notice, you may
make a partial withdrawal or elect to stop the periodic distribution payments
and receive your remaining account balance in a single sum.
OTHER ANNUITIES OR OPTIONAL RETIREMENT BENEFITS. You may elect forms of fixed
annuities, other than the normal form of annuity benefit, we offer, including
joint and survivor annuities. Payments under life or joint life annuities that
do not specify a minimum distribution period terminate with the death of the
last surviving annuitant.
You may specify a minimum distribution period under which benefits continue to a
beneficiary. You may not specify a minimum distribution period that is greater
than your life expectancy or the life expectancy of the beneficiary. If the
beneficiary is someone other than your spouse, payments to the surviving
beneficiary are limited as the Proposed Treasury Regulations provide.
Once a life annuity takes effect, the annuitant may not redeem or change it to
any other form of benefit. If payment under an annuity continues to a
beneficiary, the beneficiary will have the right to redeem the annuity for its
commuted value. An annuity payout is available only if the amount applied to pay
the annuity is $2,000 or more and results in an initial payment of at least $20.
If you are participating under a TSA program and have not chosen a retirement
benefit the normal form of annuity will be provided unless the TSA provides
otherwise. Under certain TSAs you may be required to elect a joint and survivor
annuity payout unless your spouse consents in writing to a different election.
You can choose the date annuity payments are to begin. This is your "retirement
date." If you do not advise us of your retirement date, we will assume that it
is the date you attain age 65. You can change your retirement date in writing,
but the date must be the first day of a calendar month. Also, that date may not
be later than the date applicable for the type of qualified plan in which you
use the Certificate.
<PAGE>
18
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If you have not already selected a form of annuity payout, we will send you a
form on which you may do so or confirm that the normal form of annuity is to be
provided. We will send the form six months before your retirement date. Your
account balance will remain invested until we receive your instructions. Once
you have selected a payout option and payments have begun, you may make no
further change.
The amount of the annuity payments will depend on:
o the amount applied to purchase the annuity,
o the type of payout option you choose, and,
o in the case of a life annuity, your age (or your and your joint annuitant's
ages) and in certain instances, gender.
<PAGE>
CHARGES AND EXPENSES
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CHARGES THAT EQUITABLE LIFE DEDUCTS
We deduct the charges described below during the accumulation period, or if you
elect either the fixed annuity option or the periodic distribution option. We
will not increase these charges for the life of your Certificate, except as
noted.
PARTICIPANT SERVICE CHARGE
On the last day of each calendar quarter, we charge your account balance to
reimburse us for certain administration expenses under the Certificates, such as
salaries and other overhead costs, travel, legal, actuarial and accounting
costs. The charge is up to $15 per year for SEP and SIMPLE IRA Certificates, and
up to $30 per year for Regular IRA, Roth IRA, and TSA Certificates. We deduct
these charges from the amounts held in the investment options in accordance with
our administrative procedures then in effect.
The participant service charge applicable to a Certificate depends on several
factors. It will vary depending on:
o whether contributions are made by payroll deduction or direct contribution,
o the number of participants contributing through the same payroll deduction
facility or group, and the total contributions that we receive from an
affiliated group, and the nature of the group purchasing the Certificates,
and the extent to which an employer provides services that we would otherwise
provide, and other circumstances that may have an impact on administrative
expenses.
We reserve the right to change the participant service charge on advance written
notice, or to impose the charge on a less or more frequent basis. In no case,
will the charge exceed $30 per year.
ADMINISTRATION CHARGE
We impose a daily charge at the annual rate of 0.25% of the net assets of each
Fund. The charge is to reimburse us for administration expenses not covered by
the participant service charge. We reflect this charge in the computation of
unit values for each Fund.
OTHER EXPENSES
We also charge certain additional costs and expenses directly to the Funds.
These include, among other things, certain expenses we incur in the operation of
the Funds, taxes, interest, SEC charges, and certain related expenses including
printing of registration statements and amendments, outside auditing and legal
expenses and recordkeeping.
We reflect these expenses in the unit values for each Fund.
CHARGES FOR STATE PREMIUM AND OTHER APPLICABLE TAXES
We deduct a charge for applicable taxes such as state premium taxes that your
state may impose. If an annuity option is elected, we may deduct the charge from
the amount applied to provide the annuity or from contributions. If the periodic
distribution is elected we will deduct the charge from each payment when made.
No charge is applied if you elect a single sum payment. The current tax charge
varies by state and ranges from 0% to 2%.
EXPENSES THAT THE TRUSTS INCUR
The Hudson River Trust and EQ Advisors Trust incur the following types of fees
and expenses:
o Investment advisory fees ranging from 0.25% to 0.80%.
o 12b-1 fees of 0.25% applicable to Class IB shares of EQ Advisors Trust.
o Operating expenses, such as trustees' fees, independent auditors' fees, legal
counsel fees, administrative service fees, custodian fees, and liability
insurance.
o Investment-related expenses, such as brokerage commissions.
<PAGE>
20
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These expenses are reflected in the daily share price of each Portfolio. For
more information about the calculation of these expenses, including applicable
expense limitations, please refer to the prospectuses of the Trusts.
CERTAIN EXPENSE LIMITATIONS
We will reimburse the Funds named below for certain expenses they incur in any
calendar year, as follows:
ALLIANCE MONEY MARKET, ALLIANCE COMMON STOCK, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES AND ALLIANCE BALANCED FUNDS
The types of expenses included are:
o Investment advisory fees and certain other expenses attributable to assets of
the Funds invested of the corresponding Portfolio of The Hudson River Trust.
o Administration expenses that the Funds bear directly.
The expenses subject to reimbursement do not include the following Portfolio
expenses: interest, taxes, brokerage, and extraordinary expenses permitted by
appropriate state regulatory authorities.
The annual expense limitations, above which we will reimburse the Funds, are:
o 1% of the Alliance Money Market Fund's average daily net assets.
o 1.5% of the Alliance Common Stock, Alliance Intermediate Government
Securities, and Alliance Balanced Funds' respective average daily net assets.
We cannot change these expense limitations without the participant's consent.
ALLIANCE HIGH YIELD, ALLIANCE AGGRESSIVE STOCK AND ALLIANCE GLOBAL FUNDS
We reimburse these Funds for their aggregate expenses in excess of 1.5% of the
value of their respective average daily net assets. We may change this voluntary
expense limitation at our discretion.
ALLIANCE MONEY MARKET AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUNDS
If the amount of the respective management fees charged to the related
Portfolios exceeds 0.35% of their average daily net asset value, we will
reimburse the corresponding Funds for such excess. This expense limitation is a
contractual right for participants who enrolled before May 1, 1987, and cannot
be changed without the consent of those participants. We have voluntarily agreed
to put in place this expense limitation for participants who enrolled after
May 1, 1987, and we reserve the right to discontinue this voluntary limitation
at any time.
LIFE ANNUITY ADMINISTRATIVE CHARGE
If you elect the fixed annuity option under the Certificate, at retirement we
will deduct up to $350 from the amount applied to purchase the annuity. This
amount is designed to reimburse us for administrative expenses we incur in
processing the application for the annuity and issuing each monthly payment. The
specific amount of the charge will depend on your date of enrollment. We may
give you a better annuity purchase rate than those currently guaranteed in the
Certificates. In that case, the annuity administrative charge may be greater
than $350, unless we otherwise provide in your Certificate.
SEP AND SIMPLE ENROLLMENT FEE
We charge a non-refundable fee of $25 upon the enrollment of each Participant in
a SEP or SIMPLE IRA. We collect the fee from the employer, or we deduct it from
the first contribution.
<PAGE>
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GUARANTEED RATE ACCOUNTS WITHDRAWAL CHARGE
We impose a charge on withdrawals or transfers before the maturity of a GRA
guarantee period. The charge is 7% of the amount withdrawn or transferred from
the guarantee period, or, if less, the accumulated interest. The charge,
however, does not apply:
o at maturity of the GRA guarantee period;
o to withdrawals due to death or disability;
o when the periodic distribution installment option is elected; or
o when an annuity retirement option is elected.
However, the withdrawal charge applies to any other pre-maturity withdrawals at
retirement.
<PAGE>
PAYMENT OF DEATH AND DISABILITY BENEFIT
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YOUR BENEFICIARY AND PAYMENT OF DEATH BENEFIT
You designate your beneficiary when you apply for your Certificate. You may
change your designation by writing to our Processing Office. You may be limited
as to the beneficiary you can designate in TSA Certificate.
The death benefit is equal to your account balance. We determine the amount of
the death benefit as of the date we receive satisfactory proof of death and any
required instructions as to the method of payment.
WHEN THE PARTICIPANT DIES BEFORE DISTRIBUTIONS BEGIN
If you die before distributions begin, we will pay the death benefit to your
beneficiary.
If the designated beneficiary is your surviving spouse, the distribution of the
account balance may begin at the earlier of (a) the date you would have attained
age 70 1/2 or (b) the date the surviving spouse elects payment to commence.
Depending on your election, we will pay the death benefit as a single sum, in
periodic installments, as an annuity or as a combination of the three. If no
death benefit election is in effect, the beneficiary may elect a single sum or
an alternate form of benefit payment.
WHEN THE PARTICIPANT DIES AFTER THE RETIREMENT DATE
If you die after distributions begin, the amount and payment mode of the
distributions may continue to the beneficiary on the same basis as before your
death, subject to minimum distribution rules.
DISABILITY PAYMENT
In the case of disability (refer to your certificate for a definition of
disability) before your retirement date, we will pay you the account balance.
TSA plans may be subject to certain restrictions.
<PAGE>
TAX INFORMATION
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TAX CHANGES
Federal income tax rules include the United States laws in the Internal Revenue
Code and Treasury Department Regulations, and Internal Revenue Service
interpretations of the Internal Revenue Code. These tax rules may change. We
cannot predict whether, when, or how these rules could change. Any change could
affect Contracts purchased before the change.
TAX-SHELTERED ANNUITY ARRANGEMENTS (TSAS)
If you are an employee of a public educational institution or a tax-exempt
organization described in Code Section 501(c)(3), your employer may purchase a
TSA for you. Contributions to the TSA, whether they are made by your salary
reduction or non-elective employer contributions, are not taxable to you,
subject to annual limitations. Annuity payments, withdrawals or surrenders of
the TSA are generally taxable to you. Premature withdrawals may be subject to an
additional 10% penalty on the taxable amount. In addition, amounts attributable
to salary reduction contributions cannot be distributed before your age 59 1/2,
death, disability, separation from service or hardship. In the event of
hardship, only the salary reduction contributions can be distributed.
INDIVIDUAL RETIREMENT ANNUITIES (REGULAR AND ROTH IRAs)
You may make compensation-based contributions, subject to annual limitations, to
individual retirement arrangements. For both Regular and Roth IRAs, you must
have compensation at least equal to the amount of the contribution. Generally,
$2,000 is the maximum amount of annual contributions you may make to all of your
Regular and Roth IRAs. You may deduct all or a part of your contribution to a
Regular IRA depending on your income for the year.
You may make contributions to a Regular IRA until the year you reach age 70 1/2.
You may make contributions to a Roth IRA even after age 70 1/2, if you have
compensation and your income is within specified federal income tax limits.
These limits do not apply to rollover or custodian-to-custodian contributions
into either kind of IRA. You and your nonworking spouse can together contribute,
annually, an aggregate maximum of $4,000 to Regular and Roth IRAs for you and
your spouse (but no more than $2,000 to any one IRA certificate).
Income credited to Regular IRAs is generally not taxable until you get a
distribution from the Certificate. Distributions from Regular IRAs are generally
fully taxable as ordinary income. Roth IRA distributions are not taxable until
all contributions to all of your Roth IRAs are recovered. After recovery of
contributions, distributions are taxable. Beginning in 2003, in certain
circumstances, Roth IRA distributions may be eligible to be fully non taxable.
The taxable portion of certain early withdrawals from Regular and Roth IRAs may
be subject to an additional 10% Federal income tax penalty.
IRAs UNDER SIMPLIFIED EMPLOYEE PENSION PLANS (SEPS AND SIMPLES)
An employer can establish a SEP for its employees and can make contributions to
a SEP for each eligible employee. A Regular IRA funding a SEP is like other
IRAs. If you are an eligible employee, you own the SEP. Most of the rules
applicable to Regular IRAs also apply. One major difference is the amount of
permissible contributions. Under contribution limits effective in 1999, an
employer can annually contribute an amount for an employee up to the lesser of
$24,000 or 15% of the employee's compensation. The employer makes this
determination without taking into account its contribution to the employee's
SEP. This limit may be subject to cost of living changes in future years.
An eligible employer may establish a "SIMPLE" plan to contribute to special
individual retirement accounts or individual retirement annuities for its
employees (SIMPLE IRAs). A SIMPLE IRA is a form of IRA, which the employee owns.
Generally, the rules applicable to Regular IRAs discussed above apply, with
certain differences, as follows:
o the employee salary reduction contribution is limited (up to $6,000 in 1999)
<PAGE>
24
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o the employer must make contributions, generally a dollar-for-dollar, up to 3%
of the employee's compensation or a 2% non-elective contribution to all
eligible employees;
o employees who have not participated in the employer's SIMPLE IRA plan for at
least two full years may be subject to an increased penalty tax on
withdrawals or transfers of SIMPLE IRA funds.
Further discussion of tax aspects of TSA, Regular IRA, Roth IRA, SEP and SIMPLE
IRA contributions, distributions and other matters is available in the SAI.
<PAGE>
MORE INFORMATION
25
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ABOUT EQUITABLE LIFE
We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a stock life insurance company that issues the Certificates. We are a
New York corporation and have been doing business since 1859. Equitable Life is
a wholly owned subsidiary of The Equitable Companies, Inc., whose majority
shareholder is AXA, a French insurance holding company. As a majority
shareholder, and under its other arrangements with Equitable Life's parent, AXA
exercises significant influence over the operations and capital structure of
Equitable Life and its parent. Equitable Life's related companies, however, have
no legal responsibility to pay amounts that Equitable Life owes under the
Certificates. During 1999, the Equitable Companies, Inc. plans to change its
name to AXA Financial, Inc.
We manage over $347.5 billion in assets as of December 31, 1998. For over 100
years we have been among the largest insurance companies in the United States.
We are licensed to sell life insurance and annuities in all fifty states, the
District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office
is located at 1290 Avenue of the Americas, New York, NY 10104.
ABOUT SEPARATE ACCOUNT NO. 301
Each Fund is a subaccount of our Separate Account No. 301. We established
Separate Account No. 301 in 1981 under special provisions of the New York
Insurance Law. These provisions prevent creditors from any other business we
conduct from reaching the assets we hold in our Separate Account No. 301 for
owners of our variable annuity contracts, including the Certificates. The
results of Separate Account No. 301's operations are accounted for without
regard to our other operations. We are the legal owner of all of the assets in
Separate Account No. 301 and may withdraw any amounts that exceed our reserves
and other liabilities with respect to the Funds under our contracts.
Separate Account No. 301 is registered under the Investment Company Act of 1940
and is classified by that act as a "unit investment trust." The SEC, however,
does not manage or supervise Equitable or Separate Account No. 301.
Each subaccount (Fund) within Separate Account No. 301 invests solely in Class
IA or Class IB shares, respectively, issued by the corresponding Portfolio of
The Hudson River Trust and EQ Advisors Trust.
We reserve the right, subject to compliance with laws that apply, to:
(1) to add Funds to, or to remove Funds from, Separate Account No. 301, or to
add other separate accounts;
(2) combine any two or more Funds;
(3) transfer the assets we determine to be the shares of the class of contracts
to which the Certificates belong from any Fund to another Fund;
(4) operate Separate Account No. 301 or any Fund as a management investment
company under the Investment Company Act of 1940 (in which case, charges and
expenses that otherwise would be assessed against an underlying mutual fund
would be assessed against Separate Account No. 301 or a Fund directly);
(5) deregister Separate Account No. 301 under the Investment Company Act of
1940;
(6) restrict or eliminate any voting rights as to Separate Account No. 301; and
(7) cause one or more Funds to invest some or all of their assets in one or more
other trusts or investment companies.
ABOUT THE HUDSON RIVER TRUST AND EQ ADVISORS TRUST
Both of the Trusts are registered under the Investment Company Act of 1940 and
are classified as "open-end management investment companies," more commonly
called mutual funds. Each Trust issues different series of shares relating to a
different Portfolio of the Trust.
The Trusts do not impose sales charges or "loads" for buying and selling their
shares. All dividends and other distributions on a Trust's shares are reinvested
in full. The Board of Trustees of each Trust may establish additional
<PAGE>
26
- --------------------------------------------------------------------------------
Portfolios or eliminate existing Portfolios at any time. More detailed
information about the Trusts, their investment objectives, policies,
restrictions, risks, expenses, the Rule 12b-1 plan relating to the Class IB
shares of EQ Advisors Trust and other aspects of their operations, appears in
their attached prospectuses, or in their SAIs, which are available upon request.
PROPOSED SUBSITUTION OF PORTFOLIOS. We are asking the SEC to approve the
subsitution of 14 newly created Portfolios of the Eq Advisors Trust for The
Hudson River Trust Portfolios currently available under the variable investment
options (the "Substitution"). The EQ Advisors Trust Portfolios will have
substantially identical investment objectives, strategies, and policies as those
of The Hudson River Trust Portfolios they would replace. The assets of any
Portfolio of The Hudson River Trust underlying your contract would be
transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of investment options with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the Portfolios,
rather than the two separate prospectuses you now receive. EQ Financial
Consultants Inc. will be the manager of the new EQ Advisors Trust Portfolios,
and Alliance Capital Management L.P. will continue to provide the day-to-day
advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your account value and
contributions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution transaction.
o The management fees for the new Portfolios will be the same as those for the
corresponding Portfolios of The Hudson River Trust. Certain of the new EQ
Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your account value
(i.e., the units you own) in the variable investment options will be the
same as before the transaction.
o The Substitution will have no tax consequences for you.
Please review the EQ Advisors Trust prospectus that accompanies this prospectus.
It contains more information about the Trust, including its management
structure, advisory arrangements, and general fees and expenses that will be of
interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your account value among
the investment options, as usual.
We will notify you when we receive SEC approval, and again when the Substitution
is complete.
ABOUT THE GENERAL ACCOUNT
Our general account supports all of our policy and contract guarantees,
including those that apply to the guaranteed rate options, and our general
obligations.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations of
all jurisdictions where we are authorized to do business. Because of exemptions
and exclusionary provisions that apply, interests in the general account have
not been registered under the Securities Act of 1933. The general account is not
an investment company under the Investment Company Act of 1940.
We have been advised that the staff of the SEC has not reviewed the portions of
this prospectus that relate to the general account. The disclosure, however, may
be subject to certain provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
DATES AND PRICES AT WHICH CERTIFICATE EVENTS OCCUR
We describe below the general rules for when, and at what prices, events under
your Certificate will occur. Other portions of this prospectus describe
circumstances that may cause exceptions. We generally do not repeat those
exceptions below.
BUSINESS DAY
Our Business Day is generally any day that the New York Stock Exchange is open
for trading. Our Business Day ends at 4:00 p.m., Eastern Time for purposes of
determining the date when we apply contributions and process any other
transaction requests. We will apply contributions and process any other
transaction requests when we receive them along with all the required
information.
If your contribution, transfer or any other transaction request, containing all
the required information, reaches us on a non-Business Day or after 4:00 on a
Business Day, we will use the next Business Day.
CONTRIBUTIONS AND TRANSFERS
o We invest contributions allocated to the Funds at the value next determined
after the close of the Business Day.
o Contributions allocated to a GRA will receive the interest rate for that GRA
in effect for that Business Day.
o We will make transfers to or from Funds at the value next determined after
the close of the Business Day.
o Transfers to a GRA will be based on the interest rate for that GRA in effect
for the Business Day of the transfer.
ABOUT YOUR VOTING RIGHTS
As the owner of the shares of The Hudson River Trust and EQ Advisors Trust, we
have the right to vote on certain matters involving the Portfolios, such as:
o The election of Trustees.
o The ratification of independent auditors selected for each Trust.
o Any other matters described in the prospectuses for the Trusts or requiring a
shareholders' vote under the Investment Company Act of 1940.
We will give Certificate owners the opportunity to instruct us how to vote the
number of shares attributable to their Certificates if a shareholder vote is
taken. If we do not receive instructions in time from all Certificate owners, we
will vote the shares of a Portfolio for which no instructions have been received
in the same proportion as we vote shares of that Portfolio for which we have
received instructions. We will also vote any shares that we are entitled to vote
directly
<PAGE>
27
- --------------------------------------------------------------------------------
because of amounts we have in a Portfolio in the same proportions that
Certificate owners vote.
VOTING RIGHTS OF OTHERS
Currently, we control each Trust. EQ Advisors Trust shares are sold only to our
separate accounts and an affiliated qualified plan trust. The Hudson River Trust
shares are held by other separate accounts of ours and by separate accounts of
insurance companies unaffiliated with us. Shares held by these separate accounts
will probably be voted according to the instructions of the owners of insurance
policies and contracts issued by those insurance companies. While this will
dilute the effect of the voting instructions of the Certicate owners, we
currently do not foresee any disadvantages because of this. The Hudson River
Trust Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts that may arise and to determine what action,
if any, should be taken in response. If we believe that a response to any of
those events insufficiently protects our Certificate owners, we will see to it
that appropriate action is taken.
SEPARATE ACCOUNT NO. 301 VOTING RIGHTS
If actions relating to Separate Account No. 301 require Certificate owner
approval, Certificate owners will be entitled to one vote for each unit they
have in the Funds. We will cast votes attributable to any amounts we have in the
Funds in the same proportion as votes cast by Certificate owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
federal securities laws. To the extent that those laws or the regulations
published under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
ABOUT THE GROUP ANNUITY CONTRACTS
The Certificates are issued under group annuity contracts between us and Chase
Manhattan Bank, N.A. ("Chase"), whose sole purpose is to serve as a party to the
group annuity contracts. Chase has no responsibility for the administration of
any of the retirement programs described in this prospectus, for payments to the
investment options or to Participants, or for any other duties other than to
serve as the group annuity contractholder.
IRS DISQUALIFICATION
If a retirement program funded by the Certificates is found not to qualify under
the Internal Revenue Code, we may terminate the Certificate and pay the
participant, plan trustees or other designated person, the account balance. We
will, however, make a deduction for any federal income tax payable by us because
of the non-qualification.
ABOUT OUR YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer your
Certificate and operate the investment options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the Year 2000 before, on or after January 1, 2000, and
Equitable Life has identified those of its systems critical to business
operations that were not Year 2000 compliant. By year end 1998, the work of
modifying or replacing non-compliant systems was substantially completed.
Equitable Life has begun comprehensive testing of its Year 2000 compliance and
expects that the testing will be substantially completed by June 30, 1999.
Equitable Life has contacted third-party services providers to seek
confirmations that they are acting to address the Year 2000 issue with the goal
of avoiding any material adverse effect on services provided to policyowners and
on operations of the investment options. Most third-party service providers have
provided Equitable Life confirmations of their Year 2000 compliance. Equitable
Life believes it is on
<PAGE>
28
- --------------------------------------------------------------------------------
schedule for substantially all such systems and services, including those
considered to be mission-critical, to be confirmed as Year 2000 compliant,
renovated, replaced or the subject of contingency plans, by June 30, 1999,
except for one investment accounting system which is scheduled to be replaced by
August 31, 1999 and confirmed as Year 2000 compliant by September 30, 1999.
Additionally, Equitable Life will be supplementing its existing business
continuity and disaster recovery plans to cover certain categories of
contingencies that could arise as a result of Year 2000 related failures. Year
2000 specific contingency plans are anticipated to be in place by June 30, 1999.
There are many risks associated with Year 2000 issues, including the risk that
Equitable Life's computer systems will not operate as intended. Additionally,
there can be no assurance that the systems of third parties will be Year 2000
compliant. Any significant unresolved difficulty related to the Year 2000
compliance initiatives could result in an interruption in, or a failure of,
normal business operations and, accordingly, could have a material adverse
effect on our ability to administer your policy and operate the investment
options.
To the fullest extent permitted by law, the foregoing Year 2000 discussion is a
"Year 2000 Readiness Disclosure" within the meaning of The Year 2000 Information
and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
ABOUT LEGAL PROCEEDINGS
Equitable Life and its affiliates are parties to various legal proceedings. In
our view, none of these proceedings is likely to have a material adverse effect
upon Separate Account No. 301, our ability to meet our obligations under the
Certificates, or the distribution of the Certificates.
ABOUT OUR INDEPENDENT ACCOUNTANTS
The financial statements of Separate Account No. 301 as of December 31, 1998 and
for each of the two years in the period ended December 31, 1998, and the
financial statements of Equitable Life as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998 have been so
included in the Statement of Additional Information (SAI), and incorporated by
reference in the Prospectus, in reliance upon the reports of
PricewaterhouseCoopers LLP, independent accountants, given upon their authority
as experts in accounting and auditing.
TRANSFERS OF OWNERSHIP, COLLATERAL ASSIGNMENTS, LOANS, AND BORROWING
You cannot assign or transfer ownership of a Regular IRA, Roth IRA, TSA, SEP, or
SIMPLE Certificate except by surrender to us. Loans are not available and you
cannot assign Regular IRA, Roth IRA, TSA, SEP, and SIMPLE Certificates as
security for a loan or other obligation.
You may direct the transfer of account balances under your Regular IRA, Roth
IRA, TSA, SEP, or SIMPLE Certificate to another similar arrangement. We can
impose a withdrawal charge if one applies.
UNDERWRITER
EQ Financial Consultants, Inc. ("EQ Financial"), a wholly-owned subsidiary of
Equitable Life, performs all sales functions for the Certificates and may be
deemed to be the principal underwriter of Separate Account No. 301. EQ Financial
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.
EQ Financial's principal business address is 1290 Avenue of the Americas, New
York, NY 10104. During 1999, EQ Financial plans to change its name to AXA
Advisors, Inc. The offering of the Certificates is intended to be continuous. We
have paid no underwriting commissions during any of the last three fiscal years
with respect to units of interest under the Certificates.
<PAGE>
29
- --------------------------------------------------------------------------------
REPORTS AND ADDITIONAL INFORMATION
Before payments start under your Certificate, we will send you, at least
annually, a report showing as of a specified date: (1) the number of units you
have credited to each Fund, (2) the unit values, (3) your account balance in
each Fund and GRA and the total balance and (4) the cash values of your GRAs.
Similar reports will be sent to you if you are receiving payments under the
periodic distribution option. All transactions will be individually confirmed.
As required by the Investment Company Act of 1940, each participant will be
sent, semi-annually, a report containing financial statements and a list of the
securities held by each Portfolio.
As permitted by the SEC's rules, we omitted certain portions of the registration
statement filed with the SEC from this prospectus and SAI. You may obtain the
omitted information by: (1) requesting a copy of the registration statement from
the SEC's principal office in Washington, D.C., and paying prescribed fees, or
(2) by accessing the EDGAR Database at the SEC's web site at http://www.sec.gov.
<PAGE>
INVESTMENT PERFORMANCE
30
- --------------------------------------------------------------------------------
We provide the following tables to show two different measurements of the
investment performance of the Funds. We include these tables because they may be
of general interest to you. THE RESULTS SHOWN REFLECT PAST PERFORMANCE. THEY DO
NOT INDICATE HOW THE FUNDS MAY PERFORM IN THE FUTURE. THEY ALSO DO NOT REPRESENT
THE RESULTS EARNED BY ANY PARTICULAR INVESTOR. YOUR RESULTS WILL DIFFER.
Tables 1 and 2 show the rates of return of the Funds on a year-by-year and an
annualized basis. These tables take into account all asset-based charges under
the Certificate, but do not reflect the participant service charge. The results
shown are based on the actual historical investment experience of the Portfolio
in which the Fund invests. All rates of return presented are time-weighted and
include reinvestment of investment income, including interest and dividends.
BENCHMARKS
Table 2 compares the performance of the Funds to market indices that serve as
benchmarks. Market indices are not subject to any charges for investment
advisory fees, brokerage commission or other operating expenses typically
associated with a managed portfolio. Also, they do not reflect any Certificate
charges. Comparisons with these benchmarks, therefore, may be of limited use. We
include them because they are widely known and may help you to understand the
universe of securities from which each Portfolio is likely to select its
holdings. Benchmark data reflect the reinvestment of dividend income. The
benchmarks include:
ALLIANCE MONEY MARKET:
Salomon Brothers Three-Month T-Bill Index.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES:
Lehman Intermediate Government Bond Index
ALLIANCE HIGH YIELD:
Merrill Lynch High Yield Master Index.
ALLIANCE BALANCED:
50% S&P 500 Index and 50% Lehman Government/Corporate Bond Index.
ALLIANCE GROWTH & INCOME:
75% Standard & Poor's 500 Stock Index/25% Value Line Convertible Index.
ALLIANCE COMMON STOCK:
Standard & Poor's 500 Index.
ALLIANCE AGGRESSIVE STOCK:
50% Russell 2000 Small Stock Index and 50% Standard & Poor's Mid-Cap Total
Return Index.
ALLIANCE GLOBAL:
Morgan Stanley Capital International World Index.
ALLIANCE CONSERVATIVE INVESTORS:
70% Lehman Treasury Bond Composite Index and 30% Standard & Poor's 500 Index.
ALLIANCE GROWTH INVESTORS:
30% Lehman Government/Corporate Bond Index and 70% Standard & Poor's 500 Index.
MFS EMERGING GROWTH COMPANIES:
Russell 2000 Index.
BT EQUITY 500 INDEX:
Standard & Poor's 500 Index.
LAZARD SMALL CAP VALUE:
Russell 2000 Index.
T. ROWE PRICE INTERNATIONAL STOCK:
Morgan Stanley Capital Int'l (MSCI) EAFE Index.
<PAGE>
31
- --------------------------------------------------------------------------------
TABLE 1
ANNUAL PERCENT CHANGES IN UNIT VALUE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Periods Ended December 31
-------------------------------------------------
1989 1990 1991 1992 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market ......................... 8.7% 7.7% 5.6% 3.0% 2.5%
- -------------------------------------------------------------------------------------------------
Alliance Intermediate Government Securities(a) 15.1 5.9 13.7 4.9 10.0
- -------------------------------------------------------------------------------------------------
Alliance High Yield ........................... 0.6 (4.8) 24.6 11.3 22.3
- -------------------------------------------------------------------------------------------------
Alliance Balanced ............................. 25.4 (0.4) 40.7 (3.3) 11.9
- -------------------------------------------------------------------------------------------------
Alliance Common Stock ......................... 23.9 (12.4) 43.7 2.7 24.4
- -------------------------------------------------------------------------------------------------
Alliance Aggressive Stock ..................... 43.3 7.0 75.6 3.8 16.0
- -------------------------------------------------------------------------------------------------
Alliance Global ............................... 24.9 6.2 26.4 (1.3) 31.3
- -------------------------------------------------------------------------------------------------
Alliance Growth & Income ...................... - - - - -
- -------------------------------------------------------------------------------------------------
Alliance Growth Investors ..................... - - - -
- -------------------------------------------------------------------------------------------------
Alliance Conservative Investors ............... - - - - -
- -------------------------------------------------------------------------------------------------
MFS Emerging Growth Cos. ...................... - - - - -
- -------------------------------------------------------------------------------------------------
BT Equity 500 Index ........................... - - - - -
- -------------------------------------------------------------------------------------------------
Lazard Small Cap Value ........................ - - - - -
- -------------------------------------------------------------------------------------------------
T. Rowe Price Int'l Stock ..................... - - - - -
- -------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Periods Ended December 31
-------------------------------------------------------------
1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market ......................... 3.8% 5.3% 4.9% 5.0% 4.9%
- -------------------------------------------------------------------------------------------------------------
Alliance Intermediate Government Securities(a) (4.3) 13.0 3.4 6.9 7.4
- -------------------------------------------------------------------------------------------------------------
Alliance High Yield ........................... (3.5) 19.2 22.0 17.8 (5.7)
- -------------------------------------------------------------------------------------------------------------
Alliance Balanced ............................. (8.1) 19.2 11.2 14.5 17.6
- -------------------------------------------------------------------------------------------------------------
Alliance Common Stock ......................... (2.6) 31.9 23.8 28.7 28.9
- -------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock ..................... (4.1) 30.9 21.6 10.3 (0.2)
- -------------------------------------------------------------------------------------------------------------
Alliance Global ............................... 4.9 18.2 14.0 11.0 21.2
- -------------------------------------------------------------------------------------------------------------
Alliance Growth & Income ...................... (1.2)(b) 23.1 19.2 26.1 20.2
- -------------------------------------------------------------------------------------------------------------
Alliance Growth Investors ..................... (3.1)(b) 24.9 11.6 15.8 18.3
- -------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors ............... (1.1)(b) 18.8 3.9 11.9 13.0
- -------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Cos. ...................... - - - - 9.4(c)
- -------------------------------------------------------------------------------------------------------------
BT Equity 500 Index ........................... - - - - 7.5(c)
- -------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value ........................ - - - - (8.8)(c)
- -------------------------------------------------------------------------------------------------------------
T. Rowe Price Int'l Stock ..................... - - - - (0.3)(c)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Prior to September 6, 1991, the Bond Fund.
(b) From May 1, 1994, the date contributions were first allocated to these
Funds.
(c) From July 1, 1998, the date contributions were first allocated to these
Funds.
Rates of return are time weighted and include reinvestment of investment income.
The annualized rate assumes an investment of the same amount invested at the
beginning of each year with the percentage demonstrating the effective annual
rate over the period shown.
PAST PERFORMANCE IS NOT A GUARANTEE OR INDICATION OF FUTURE PERFORMANCE. NO
PROVISIONS HAVE BEEN MADE FOR THE EFFECT OF TAXES ON INCOME AND GAINS, OR ANY
TAX PENALTIES, UPON DISTRIBUTION.
<PAGE>
32
- --------------------------------------------------------------------------------
TABLE 2
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DATE OF
1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET .......... 4.9% 4.9% 4.8% 5.1% 6.4%
Salmon Bros. 3-Mo.
T-Bill Index ................. 5.0 5.2 5.1 5.4 6.8 2/5/82
- ------------------------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE
GOV'T SECURITIES (A) ......... 7.4 5.9 5.1 7.4 9.8
Lehman Intermediate
Gov't Bond Index ............. 8.5 6.7 6.5 - 7.6 2/5/82
- ------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD ............ (5.7) 10.7 9.3 9.7 9.8
Merrill Lynch Master
High Yield ................... 3.7 9.1 9.0 11.0 10.7 6/2/87
- ------------------------------------------------------------------------------------------------------
ALLIANCE BALANCED .............. 17.6 14.4 10.4 12.0 13.4
50% S&P 500 Index/50% Lehman
Gov't .Corp. Bond Index ...... 19.0 18.7 16.9 15.2 14.6 2/5/82
- ------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK .......... 28.9 27.1 21.4 18.1 18.4
Standard & Poor's 500
Index ........................ 28.6 28.2 24.1 19.2 16.0 6/1/87
- ------------------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE
STOCK ........................ (0.2) 10.2 11.0 17.5 13.6
50% S&P Midcap Total
Return Index/50%
Russell 2000 Small
Stock Index .................. 8.3 17.8 15.6 16.5 14.8 6/2/87
- ------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL ................ 21.2 15.3 13.7 13.8 11.4
Morgan Stanley Capital
Int'l World Index ............ 24.3 17.8 15.7 10.7 9.5 6/2/87
- ------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH &
INCOME ....................... 20.2 21.8 - - 18.5
75% Standard & Poor's
500 Stock Index/25%
Value Line Convertible
Index ........................ 20.1 24.0 21.1 - 20.5 5/1/94
- ------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH
INVESTORS .................... 18.3 15.2 - - 14.3
30% Lehman Gov't/Corp.
Bond Index/70%
Standard & Poor's 500
Index ........................ 22.9 22.7 20.0 - 15.6 5/1/94
- ------------------------------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE
INVESTORS .................... 13.0 9.5 - - 9.8
70% Lehman Treasury
Bond Composite
Index/30% Standard &
Poor's 500 Index ............. 15.6 14.4 13.4 12.1 5/1/94
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
33
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Date of
1 Year 3 Years 5 Years 10 Years Since Inception Inception
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MFS EMERGING GROWTH
COMPANIES ..................... 9.4(b) - - - 9.4(c)
Russell 2000 Index ............ (2.6) - - - - 7/1/98
- -------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX ............. 7.5(b) - - - 7.5(c)
Standard & Poor's 500 Index ... 28.6 - 7/1/98
- -------------------------------------------------------------------------------------------------------------
LAZARD SMALL CAP
VALUE ......................... (8.8)(b) - - - (8.8)(c)
Russell 2000 Index ............ (6.5) - 7/1/98
- -------------------------------------------------------------------------------------------------------------
T. ROWE PRICE
INTERNATIONAL STOCK ........... (0.3)(b) - - - (0.3)(c) 7/1/98
MSCI EAFE Index ................. 20.0 - - - -
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Prior to September 6, 1991, the "Bond Fund."
(b) From July 1, 1998, the date contributions were first allocated to these
Funds.
Rates of return as are time weighted and include reinvestment of investment
income. The annualized rate assumes an investment of the same amount invested at
the beginning of each year with the percentage demonstrating the effective
annual rate over the period shown.
PAST PERFORMANCE IS NOT A GUARANTEE OR INDICATION OF FUTURE PERFORMANCE. NO
PROVISIONS HAVE BEEN MADE FOR THE EFFECT OF TAXES ON INCOME AND GAINS, OR ANY
TAX PENALTIES, UPON DISTRIBUTION.
<PAGE>
APPENDIX I: CONDENSED FINANCIAL INFORMATION
36
- --------------------------------------------------------------------------------
The following table shows the unit values and number of units outstanding, as of
the applicable date each Fund was first available under the Certificates and the
last business day of the periods shown.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
FOR THE YEARS ENDING DECEMBER 31,
---------------------------------------------------
1989 1990 1991 1992 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET
Unit Value ........................ $18.73 20.17 21.29 21.93 22.48
Number of units outstanding (000's) 1,708 1,919 1,528 1,301 1,035
- ----------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOV'T
SECURITIES
Unit Value ........................ $27.19 28.79 32.73 34.34 37.77
Number of units outstanding (000's) 223 242 177 184 188
- ----------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD
Unit Value ........................ $11.67 11.11 13.84 15.40 18.84
Number of units outstanding (000's) 18 16 27 53 78
- ----------------------------------------------------------------------------------------
ALLIANCE BALANCED
Unit Value ........................ $33.91 33.76 47.50 45.92 51.38
Number of units outstanding (000's) 1,260 1,217 949 827 756
- ----------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK
Unit Value ........................ $40.94 35.87 51.55 52.97 65.89
Number of units outstanding (000's) 963 930 790 736 715
- ----------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK
Unit Value ........................ $12.47 13.34 23.43 22.54 26.14
Number of units outstanding (000's) 27 48 125 156 125
- ----------------------------------------------------------------------------------------
ALLIANCE GLOBAL
Unit Value ........................ $11.97 11.23 14.20 14.01 18.40
Number of units outstanding (000's) 19 32 42 55 153
- ----------------------------------------------------------------------------------------
ALLIANCE GROWTH & INCOME
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE
INVESTORS
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
MFS EMERGING GROWTH
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
BT EQUITY 500 INDEX
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
LAZARD SMALL CAP VALUE
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
STOCK
Unit Value ........................ - - - - -
Number of units outstanding (000's) - - - - -
- ----------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
FOR THE YEARS ENDING DECEMBER 31,
-------------------------------------------------------
1994 1995 1996 1997 1998 DATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET 2/5/82
Unit Value ........................ 23.32 24.55 25.77 27.05 28.38
Number of units outstanding (000's) 1,028 850 804 736 708
- ----------------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOV'T
SECURITIES 2/5/82
Unit Value ........................ 36.13 40.82 42.20 45.11 48.43
Number of units outstanding (000's) 166 153 130 116 133
- ----------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD 6/2/87
Unit Value ........................ 18.18 21.67 26.45 31.16 29.39
Number of units outstanding (000's) 80 87 107 136 111
- ----------------------------------------------------------------------------------------------
ALLIANCE BALANCED 2/5/82
Unit Value ........................ 47.03 56.07 62.36 71.42 84.01
Number of units outstanding (000's) 681 617 559 523 492
- ----------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK 6/1/87
Unit Value ........................ 64.13 84.56 104.68 134.77 173.65
Number of units outstanding (000's) 694 673 692 678 666
- ----------------------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK 6/2/87
Unit Value ........................ 24.95 32.67 39.73 43.83 43.73
Number of units outstanding (000's) 141 190 187 201 199
- ----------------------------------------------------------------------------------------------
ALLIANCE GLOBAL 6/2/87
Unit Value ........................ 19.25 22.76 25.95 28.80 34.89
Number of units outstanding (000's) 195 201 214 206 196
- ----------------------------------------------------------------------------------------------
ALLIANCE GROWTH & INCOME 5/1/94
Unit Value ........................ $9.92 12.21 14.55 18.35 22.06
Number of units outstanding (000's) 105 134 231 324 344
- ----------------------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE
INVESTORS 5/1/94
Unit Value ........................ $9.92 11.79 12.25 13.71 15.49
Number of units outstanding (000's) 50 75 71 67 145
- ----------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS 5/1/94
Unit Value ........................ $9.79 12.23 13.64 15.80 18.69
Number of units outstanding (000's) 37 93 105 126 133
- ----------------------------------------------------------------------------------------------
MFS EMERGING GROWTH 7/1/98
Unit Value ........................ - - - - $11.76
Number of units outstanding (000's) - - - - 4
- ----------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX 7/1/98
Unit Value ........................ - - - - $11.31
Number of units outstanding (000's) - - - - 52
- ----------------------------------------------------------------------------------------------
LAZARD SMALL CAP VALUE 7/1/98
Unit Value ........................ - - - - $8.94
Number of units outstanding (000's) - - - - 7
- ----------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
STOCK 7/1/98
Unit Value ........................ - - - - $10.05
Number of units outstanding (000's) - - - - 4
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
S-1
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Tax Information .................................. SAI-2
The Guaranteed Rate Accounts ..................... SAI-19
How We Determine Unit Values ..................... SAI-23
Alliance Money Market Yield Information .......... SAI-23
Financial Statements ............................. SAI-24
</TABLE>
PLEASE SEND ME A FREE COPY OF THE STATEMENT
OF ADDITIONAL INFORMATION.
Equitable 300+ Series
Box 2468 G.P.O.
New York, New York 10116
ATTN: SAI Request for Separate Account
No. 301
- -----------------------------------------------------------------------------
Name
- -----------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------
City State Zip
<PAGE>
S-2
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HOW TO REACH US
You may communicate with our Processing Offices listed below for any of the
following purposes:
o FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
Equitable 300+ Series
P.O. Box 13871
Newark, New Jersey 07188-0014
o FOR ALL OTHER COMMUNICATIONS (E.G.,
WITHDRAWALS, OR REQUIRED NOTICES) SENT BY
REGULAR MAIL:
Equitable 300+ Series
P.O. Box 2468 G.P.O.
New York, New York 10016
TOLL-FREE TELEPHONE SERVICE: You may also use our AIM System to reach us
toll-free at 1-800-248-2138 for a recording of:
o Daily unit values for the Funds.
o Guaranteed rates applicable to the GRAs.
o Performance results for each Fund.
You may also use our toll-free number to change allocation instructions, make
telephone transfers among the investment options, or, during our regular
business hours, to speak with one of our customer service representatives.
We have established procedures to reasonably confirm that the instructions
communicated by telephone are genuine. For example, we will require certain
personal identification information before we act on telephone instructions and
we will provide written confirmation of your transfers. We will not be liable
for following telephone instructions we reasonably believe to be genuine.
You should send all contributions, notices, and requests to our Processing
Office at the address above.
SIGNATURES:
The proper person to sign forms, notices and requests would normally be the
certificate owner. If there are joint owners both must sign. Any irrevocable
beneficiary or assignee that we have on our records also must sign certain types
of requests.
NO PERSON IS AUTHORIZED BY THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED
STATES TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND THE SAI, OR IN OTHER PRINTED OR WRITTEN
MATERIAL ISSUED BY EQUITABLE LIFE. YOU SHOULD NOT RELY ON ANY OTHER INFORMATION
OR REPRESENTATION.
<PAGE>
- --------------------------------------------------------------------------------
THE EQUITABLE 300+ SERIES
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
MAY 1, 1999
CERTIFICATES UNDER GROUP ANNUITY CONTRACTS
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS, NEW YORK, NY 10104
- --------------------------------------------------------------------------------
This SAI is not a prospectus. It should be read in conjunction with the related
Equitable 300+ Series prospectus, dated May 1, 1999. That prospectus provides
detailed information concerning the Certificates and the Funds, as well as the
GRAs, that fund the Certificates. Each Fund is a subaccount of Equitable Life's
Separate Account No. 301. The GRAs are part of Equitable's general account.
Definitions of special terms used in the SAI are found in the prospectus.
A copy of the prospectus is available free of charge by writing to the
Processing Office (Post Office Box 2468, G.P.O. New York, NY 10116), or by
calling 1-800-248-2138 toll-free.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Information ....................................... SAI-2
The Guaranteed Rate Accounts .......................... SAI-19
How We Determine Unit Values .......................... SAI-23
Alliance Money Market Fund Yield Information .......... SAI-23
Financial Statements .................................. SAI-24
</TABLE>
- ----------
Copyright 1999 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved.
<PAGE>
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TAX INFORMATION
This section of the SAI discusses the current federal income tax rules that
generally apply to the retirement programs described in the prospectus. The tax
rules can differ, depending on the type of program, whether Regular IRA, Roth
IRA, TSA, SEP IRA, or SIMPLE IRA. Therefore, we discuss the tax aspects of each
type of Certificate separately.
We cannot provide detailed information on all tax aspects of the Certificates.
Moreover, the tax aspects that apply to a particular participant's Certificate
may vary depending on the facts applicable to that person. We do not discuss
state income and other state taxes, federal income tax and withholding rules
for non-U.S. taxpayers, or federal gift and estate taxes. Transfers of the
Certificates, rights under the Certificates, or payments under the Certificates
may be subject to gift or estate taxes. You should not rely only on this
document, but should consult your tax adviser before you purchase.
Federal income tax rules include the United States laws in the Internal Revenue
Code, and Treasury Department Regulations and Internal Revenue Service
interpretations of the Internal Revenue Code. Certain retirement plans may also
be subject to The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which The Department of Labor ("DOL") administers. These rules may
change. We cannot predict whether, when, or how these rules could change. Any
change could affect Certificates purchased before the change.
TAX SHELTERED ANNUITY ARRANGEMENTS (TSAS)
An employer eligible to maintain a TSA plan (also referred to as a "403(b)"
plan, program, or arrangement) for its employees may make contributions to an
annuity contract purchased for the benefit of the employee. These
contributions, if properly made, will not be currently taxable compensation to
the employee. Moreover, the employee will not be taxed on the earnings in the
annuity contract until he/she takes distributions.
Two different types of employers are eligible to maintain 403(b) plans: public
schools and specified tax-exempt organizations under Section 501(c)(3) of the
Code.
CONTRIBUTIONS TO TSAS
Annual Contributions to TSAs
Annual contributions to TSAs made through the employer's payroll are limited.
(Tax-free transfer or tax-deferred rollover contributions from another 403(b)
arrangement are not subject to these annual contribution limits.)
Commonly, some or all of the contributions to the TSA are made under a salary
reduction agreement between the employee and the employer. These contributions
are called "salary reduction" or "elective deferral" contributions. However, a
TSA can also be wholly or partially funded through nonelective employer
contributions or after-tax employee contributions. To determine the permissible
annual contribution to the participant's TSA, a participant generally must
calculate tentative annual contributions under several formulas.
Generally, this contribution limit is the lowest of the following:
o the annual "maximum exclusion allowance" for the employee in Section
403(b)(2) of the Code,
o the annual limit under Section 415 of the Code on employer
contributions to defined contribution plans and
o the annual limit on all elective deferrals.
If contributions to a TSA exceed the applicable limit in any year, the excess
will be taxable to the employee as ordinary income. In certain situations, we
may distribute excess contributions to avoid tax penalties.
SAI-2
<PAGE>
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The annual maximum exclusion allowance for the employee under Section 403(b)(2)
of the Code is 20% of includable compensation times years of service minus
previous contributions to all qualified plans, 403(b) plans and Section 457
plans the participant participates with this employer.
The annual limit under Section 415 of the Code on employer contributions to
defined contribution plans is the lesser of $30,000 or 25% of compensation,
disregarding compensation over $160,000 in 1999.
In 1999, the annual limit on all salary reduction or elective deferral
contributions for an employee under all plans of any employer is generally
$10,000. Note, however, that the maximum salary reduction contribution by an
employee who participates in both a TSA arrangement and a Section 457 plan is
the lower maximum allowed under Section 457 of the Code. In 1999, this maximum
is $8,000.
Any excess deferral contributions not withdrawn by April 15 after the year of
the deferral may cause the contract to fail TSA rules.
Special provisions may allow "catch-up" contributions to compensate for smaller
contributions in prior years.
ROLLOVER OR DIRECT TRANSFER CONTRIBUTIONS TO TSAS
You may make rollover contributions to your TSA Certificate from TSAs under
Section 403(b) of the Code (including custodial accounts under Section
403(b)(7) of the Code). See "Tax Deferred Rollovers and Transfers" below for a
description of rollovers. With appropriate written documentation, we will
accept rollover contributions from "conduit IRAs" for TSA funds. See "Regular
Individual Retirement Annuities" below for a description of "Conduit IRAs."
We will also accept direct transfer of TSA funds under Revenue Ruling 90-24 if:
o you provide us with acceptable documentation as to the source of funds,
and
o the Certificate that receives the funds has provisions at least as
restrictive as the source Certificate.
DISTRIBUTIONS FROM TSAS
WITHDRAWAL LIMITATIONS
You may not be able to withdraw or take payments from all or part of your TSA
until you:
o attain age 59 1/2,
o die,
o are disabled (special Federal income tax definition),
o separate from service with the employer who provided the TSA funds, or
o suffer a financial hardship. (Hardship withdrawals are limited to the
amount of your salary reduction contributions, without earnings.)
These restrictions apply to salary reduction (elective deferral) contributions
and earnings on those contributions.
These restrictions do not apply to the value of your TSA Certificate as of
December 31, 1988 attributable to salary reduction contributions and earnings.
If you directly transfer any amounts to this Certificate you must properly
notify us in writing at our Processing Office of your December 31, 1988 account
balance. Otherwise, we will view all amounts transferred as subject to
restrictions.
TAX TREATMENTS OF DISTRIBUTIONS FROM TSAS
Amounts held under TSAs are generally not subject to Federal income tax until
benefits are distributed.
SAI-3
<PAGE>
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Distributions include withdrawals and annuity payments from your TSA. Death
benefits paid to a beneficiary are also taxable distributions. Unless an
exception applies, amounts distributed from TSAs are includible as ordinary
income. If you have made after-tax contributions you will have a tax basis in
your Certificate which will be recovered tax-free. You may have a tax basis in
the Certificate if the employer made contributions that were included in your
gross income in the year of the employer's contribution, for example.
The amount of any partial distribution from a TSA before the annuity starting
date is generally taxable as ordinary income to you except to the extent the
distribution is a withdrawal of your basis. Distributions are generally pro
rata withdrawals of tax basis and earnings on that tax basis.
If you elect an annuity distribution, the nontaxable portion of each payment is
(1) your tax basis in the contract divided by (2) an expected return determined
under IRS tables. The balance of each payment is taxable. The entire amount of
the payments you receive after you recover your tax basis is taxable. If you
die before recovering your tax basis and the annuity has a refund feature, the
beneficiary of the refund may recover the remaining tax basis as payments are
made. If you (and your beneficiary under a joint and survivor annuity) die
before recovering the entire basis of the annuity, a deduction is allowed on
your (or your beneficiary's) final tax return.
EARLY DISTRIBUTION PENALTY TAX
Distributions from a TSA will be subject to an additional 10% penalty tax,
unless the distribution occurs on or after you:
o die,
o are disabled (special Federal income tax definition),
o reach age 59 1/2
o separate from service and elect a payout over your life or life
expectancy (or joint and survivor lives or life expectancies of you and
your beneficiary)
o separate from service after age 55 (any form of payout), or
o use the distribution to pay certain extraordinary medical expenses
(special Federal income tax definition).
TAX DEFERRED ROLLOVERS AND TRANSFERS
You may roll over an "eligible rollover distribution" into another eligible
retirement plan, either as a direct rollover or as a rollover you do yourself
within 60 days after you receive the distribution. To the extent that a
distribution is rolled over, it remains tax deferred.
A distribution from a TSA may be rolled over to another TSA that will accept
rollover contributions, or to a Regular IRA. Death benefits received by a
spousal beneficiary may be rolled over only to a Regular IRA.
The taxable portion of most distributions will be eligible for rollover.
However, Federal income tax rules exclude certain distributions from rollover
treatment, including (1) periodic payments for life or for a period of 10 years
or more, (2) hardship withdrawals, and (3) any required minimum distributions.
We discuss eligible rollover distributions in greater detail under "Federal and
State Income Tax Withholding and Information Reporting," below, including rules
requiring 20% income tax withholding on certain distributions from TSAs.
Amounts held under TSAs may be directly transferred (under Revenue Ruling
90-24) to another TSA issuer in a tax-free transaction, if the successor TSA
contains the same or greater restrictions as the original TSA.
SAI-4
<PAGE>
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REQUIRED MINIMUM DISTRIBUTIONS
The Required Minimum Distribution rules discussed below under "Traditional
Individual Retirement Annuities (Regular IRAs)--Required Minimum Distributions"
apply to TSAs, with this difference:
When you have to take the first required minimum distribution:
The minimum distribution rules force TSA participants to start computing and
taking annual distributions from their TSAs by a required date. When minimum
distributions must begin depends on, among other things, your age and
retirement status. Generally, you must take the first required minimum
distribution with respect to the calendar year in which you turn age 70 1/2. You
may be entitled to delay commencement of required minimum distributions for all
or part of your account balance until after age 70 1/2. These exceptions apply
to the following individuals:
o For TSA participants who have not retired from service with the
employer who provided the funds for the TSA by the calendar year the
participant turns age 70 1/2, the Required Beginning Date for minimum
distributions is extended to April 1 following the calendar year of
retirement.
o TSA plan participants may also delay commencement to age 75 of the
portion of their account balance attributable to their December 31,
1986 TSA account balance, even if retired at age 70 1/2.
IRAs
GENERAL DISCUSSION OF IRAs
"IRA" stands for individual retirement arrangement and the two basic types of
such arrangements, individual retirement accounts and individual retirement
annuities. In an individual retirement account, a trustee or custodian holds
the assets for the benefit of the IRA owner. The assets can include mutual
funds and certificates of deposit. In an individual retirement annuity, an
insurance company issues an annuity contract that serves as the IRA.
There are several types of IRAs, as follows:
o "Regular IRAs," typically funded on a pre-tax basis;
o Roth IRAs, first available in 1998, funded on an after-tax basis; and
o SEP-IRAs and SIMPLE-IRAs, issued and funded in connection with
employer-sponsored retirement plans.
Regardless of the type of IRA, your ownership interest in the IRA cannot be
forfeited. You or your beneficiaries who survive you are the only ones who can
receive the IRA's benefits or payments.
You can hold your IRA assets in as many different accounts and annuities as you
would like, as long as you meet the rules for setting up and making
contributions to IRAs. However, if you own multiple IRAs, you may be required
to aggregate IRA values or contributions for tax purposes. For further
information about individual retirement arrangements, you can read Internal
Revenue Service Publication 590 (Individual Retirement Arrangements (IRAs)).
This Publication is usually updated annually, and can be obtained from any IRS
district office or the IRS Website (www.irs.ustreas.gov).
The Equitable 300+ Series IRAs are designed to qualify as "individual
retirement annuities" under Section 408(b) of the Internal Revenue Code. This
SAI and the prospectus contain the information that the Internal Revenue
Service ("IRS") requires you to have before you purchase an IRA. This section
of the SAI covers some of the special tax rules that apply to IRAs. The next
section covers Roth IRAs. We do not discuss Education IRAs in this SAI because
they are not available in individual retirement annuity form.
We have received favorable opinion letters from the IRS approving the form of
Group Individual Retirement Annuity No. 301-10,001-93 as a Regular IRA. The
Roth IRA endorsement is issued pursuant to an IRS Form and is deemed approved
as to form. This IRS approval is a determination only as to the
SAI-5
<PAGE>
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form of the annuity. It does not represent a determination of the merits of the
annuity as an investment. The IRS approval does not address every feature
possibly available under the Equitable 300+ Series IRAs.
Cancellation
You can cancel an Equitable 300+ Series IRA Certificate by following the
directions under "Your Right to Cancel within a Certain Number of Days" in the
prospectus. You can cancel an Equitable 300+ Series Roth IRA certificate issued
as a result of a full conversion of an Equitable 300+ Series Regular IRA
certificate by following the instructions in the request for full conversion
form. The form is available from our Processing Office or your registered
representative. If you cancel a Regular IRA or Roth IRA certificate, we may
have to withhold tax, and we must report the transaction to the IRS. A
Certificate cancellation could have unfavorable tax impact.
You must also use our form to recharacterize Roth IRA Certificates as Regular
IRAs and vice versa.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (REGULAR IRAs)
Contributions to Regular IRAs
Individuals may make three different types of contributions to a Regular IRA:
o "regular" contributions out of earned income or compensation;
o tax-free "rollover" contributions; or
o direct custodian-to-custodian transfers from other Regular IRAs
("direct transfers").
Limits on Contributions
Generally, $2,000 is the maximum amount of regular contributions that you may
make to all IRAs (including Roth IRAs) in any taxable year. When your earnings
are below $2,000, your earned income or compensation for the year is the most
you can contribute. This $2,000 limit does not apply to rollover contributions
or direct custodian-to-custodian transfers into a Regular IRA. You have to stop
making Regular IRA contributions for the tax year in which you reach age 70 1/2
or any tax year after that.
Special Rules for Spouses
If you are married and file a joint income tax return, you and your spouse may
aggregate your compensation to determine the permissible amount of
contributions to Regular IRAs (and Roth IRAs discussed below). Even if one
spouse has no compensation or compensation under $2,000, married individuals
filing jointly can contribute up to $4,000 for any taxable year to any
combination of Regular IRAs and Roth IRAs. (Any contributions to Roth IRAs
reduce the ability to contribute to Regular IRAs and vice versa.) The maximum
amount may be less if earned income is less and the other spouse has made IRA
contributions. No more than a combined total of $2,000 can be contributed
annually to either spouse's Traditional and Roth IRAs. Each spouse owns his or
her Regular IRAs and Roth IRAs even if contributions were funded by the other
spouse. A working spouse age 70 1/2 or over can contribute up to the lesser of
$2,000 or 100% of "earned income" to a Regular IRA for a nonworking spouse
until the year in which the nonworking spouse reaches age 70 1/2.
Deductibility of Contributions
The amount of Regular IRA contributions that you can deduct for a tax year
depends on whether you are covered by an employer-sponsored tax-favored
retirement plan, as defined under special federal income tax rules. Your W-2
form will indicate whether or not you are covered by such a retirement plan.
IF YOU ARE NOT COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, you
can make fully deductible contributions to your Regular IRAs for each tax year
up to $2,000 or, if less, your earned income.
SAI-6
<PAGE>
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IF YOU ARE COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, and your
adjusted gross income ("AGI") is BELOW THE LOWER DOLLAR FIGURE IN A PHASE-OUT
RANGE, you can make fully deductible contributions to your Regular IRAs for
each tax year up to $2,000 or, if less, your earned income.
IF YOU ARE COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, and your
AGI falls within a PHASE-OUT range, you can make PARTIALLY DEDUCTIBLE
CONTRIBUTIONS to your Regular IRAs.
IF YOU ARE COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, and your
AGI falls ABOVE THE HIGHER FIGURE IN THE PHASE-OUT RANGE, you may not deduct
any of your contribution to your Regular IRAs.
If you are single and covered by a retirement plan during any part of the
taxable year, the deduction for IRA contributions phases out with AGI between
$31,000 and $41,000 in 1999. This range will increase every year until 2005
when the range is $50,000-$60,000.
If you are married and file a joint return, and you are covered by a retirement
plan during any part of the taxable year, the deduction for Regular IRA
contributions phases out with AGI between $51,000 and $61,000 in 1999. This
range will increase every year until 2007 when the range is $80,000-$100,000.
Married individuals filing separately and living apart at all times are not
considered married for purposes of this deductible contribution calculation.
Generally, the active participation in an employer-sponsored retirement plan of
an individual is determined independently for each spouse. Where spouses have
"married filing jointly" status, however, the maximum deductible Regular IRA
contribution for an individual who is not an active employee (but whose spouse
is an active participant) is phased out for taxpayers with AGI of between
$150,000 and $160,000.
To determine the deductible amount of the contribution in 1999, you determine
AGI and subtract $31,000 if you are single, or $51,000 if you are married and
file a joint return with your spouse. The resulting amount is your Excess AGI.
You then determine the limit on the deduction for Regular IRA contributions
using the following formula:
<TABLE>
<S> <C> <C> <C> <C>
($10,000-Excess AGI) times $2,000 Equals the Adjusted
Divided by x (or earned = deductible
$10,000 income, if less) contribution
limit
</TABLE>
Nondeductible Contributions
If you are not eligible to deduct part or all of the Regular IRA contribution,
you may still make nondeductible contributions on which earnings will
accumulate on a tax-deferred basis. The combined deductible and nondeductible
contributions to your Regular IRA (or the nonworking spouse's Regular IRA) may
not, however, exceed the maximum $2,000 per person limit. See "Excess
Contributions" below. You must keep your own records of deductible and
nondeductible contributions in order to prevent double taxation on the
distribution of previously taxed amounts. See "Withdrawals, Payments and
Transfer of Funds Out of Regular IRAs" below.
If you are making nondeductible contributions in any taxable year, or you have
made nondeductible contributions to a Regular IRA in prior years and are
receiving distributions from any Regular IRA, you must file the required
information with the IRS. Moreover, if you are making nondeductible Regular IRA
contributions, you must retain all income tax returns and records pertaining to
such contributions until interests in all Regular IRAs are fully distributed.
When You Can Make Contributions
If you file your tax returns on a calendar year basis like most taxpayers, you
have until the April 15 return filing deadline (without extensions) of the
following calendar year to make your Regular IRA contributions for a tax year.
SAI-7
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Excess Contributions
Excess contributions to Regular IRAs are subject to a 6% excise tax for the
year in which made and for each year after until withdrawn. The following are
excess contributions to Regular IRAs:
o "regular" contributions of more than $2,000;
o "regular" contributions of more than earned income for the year, if
that amount is under $2,000;
o "regular" contributions to a Regular IRA made after you reach age
70 1/2; and
o rollover contributions of amounts that are not eligible to be rolled
over (for example, after-tax contributions to a qualified plan or
minimum distributions required to be made after age 70 1/2).
You can avoid the excise tax by withdrawing an excess contribution (rollover or
"regular") before the due date (including extensions) for filing your federal
income tax return for the year. If it is an excess "regular" Regular IRA
contribution, you cannot take a tax deduction for the amount withdrawn. The
excess contribution withdrawn is not includable in income and is not subject to
the 10% additional penalty tax on early distributions (discussed below under
"Early Distribution Penalty Tax"). You do have to withdraw any earnings
attributable to the excess contribution. The withdrawn earnings would be
includable in your gross income and could be subject to the 10% penalty tax.
Even after the due date for filing your return, you may withdraw an excess
rollover contribution, without income inclusion or 10% penalty, if (1) the
rollover was from a qualified retirement plan to a Regular IRA, (2) the excess
contribution was due to incorrect information that the plan provided, and (3)
you took no tax deduction for the excess contribution.
ROLLOVERS AND TRANSFERS
You may make rollover contributions to a Regular IRA from these sources:
o qualified plans;
o TSAs (including Internal Revenue Code Section 403(b)(7) custodial
accounts); and
o other Regular IRAs.
You may also recharacterize Roth IRA funds as Regular IRA funds, in accordance
with special federal income tax rules, if you use the forms we prescribe.
Any amount contributed to a Regular IRA after you attain age 70 1/2 must be net
of your required minimum distribution for the year in which the rollover or
direct transfer contribution is made.
ROLLOVERS FROM QUALIFIED PLANS OR TSAS
There are two ways to do rollovers:
o Do it yourself
You actually receive a distribution that can be rolled over and you
roll it over to a Regular IRA within 60 days after the date you receive
the funds. The distribution from your qualified plan or TSA will be net
of 20% mandatory federal income tax withholding. If you want, you can
replace the withheld funds yourself and roll over the full amount.
o Direct rollover
You tell your qualified plan trustee or TSA issuer/custodian/fiduciary
to send the distribution directly to your Regular IRA issuer. Direct
rollovers are not subject to mandatory federal income tax withholding.
All distributions from a TSA or qualified plan are eligible rollover
distributions, unless the distribution is:
o only after-tax contributions you made to the plan;
o "required minimum distributions" after age 70 1/2 or separation from
service;
SAI-8
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o a hardship withdrawal;
o substantially equal periodic payments made at least annually for your
life (or life expectancy) or the joint lives (or joint life
expectancies) of you and your designated beneficiary;
o substantially equal periodic payments made for a specified period of 10
years or more;
o if you have contributed too much, corrective distributions which fit
specified technical tax rules;
o a loan that is treated as a deemed distribution;
o a death benefit payment to a beneficiary who is not your surviving
spouse; and
o a qualified domestic relations order distribution to a beneficiary who
is not your current spouse or former spouse.
ROLLOVERS FROM REGULAR IRAs TO REGULAR IRAs
You may roll over amounts from one Regular IRA to one or more of your other
Regular IRAs if you complete the transaction within 60 days after you receive
the funds. You may make such a rollover only once in every 12-month period for
the same funds. Trustee-to-trustee or custodian-to-custodian direct transfers
are not rollover transactions. You can make these more frequently than once in
every 12-month period.
The surviving spouse beneficiary of a deceased individual can roll over or
directly transfer an inherited Regular IRA to one or more other Regular IRAs.
Also, in some cases, Regular IRAs can be transferred on a tax-free basis
between spouses or former spouses as a result of a court ordered divorce or
separation decree.
WITHDRAWALS, PAYMENTS AND TRANSFERS OF FUNDS OUT OF REGULAR IRAs
No Federal Income Tax Law Restrictions on Withdrawals
You can withdraw any or all of your funds from a Regular IRA at any time. You
do not need to wait for a special event like retirement.
Taxation of Payments
Earnings in Regular IRAs are not taxable until you or your beneficiary receives
them. Taxable payments or distributions include withdrawals from your
Certificate, surrender of your Certificate and annuity payments from your
Certificate. Death benefits are also taxable. Except as discussed below, the
amount of any distribution from a Regular IRA is fully taxable as ordinary
income.
If you have ever made nondeductible IRA contributions to any Regular IRA (it
does not have to be to this particular Regular IRA Certificate), those
contributions are recovered tax free when you get distributions from any
Regular IRA. You must keep permanent tax records of all of your nondeductible
contributions to Regular IRAs. At the end of any year in which you have
received a distribution from any Regular IRA, you compute the nontaxable
portion of the distribution as follows:
o divide (1) your total nondeductible Regular IRA contributions (less any
amounts previously withdrawn tax free) by (2) the total account
balances of all Regular IRAs you own at the end of the year plus all
Regular IRA distributions made during the year;
o multiply this amount by all distributions from the Regular IRA during
the year.
In addition, a distribution is not taxable if:
o the amount received is a withdrawal of excess contributions, as
described under "Excess Contributions" above;
o the entire amount received is rolled over to another Regular IRA (see
"Rollovers and Transfers" above); or
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o in certain limited circumstances, where the Regular IRA acts as a
"conduit," you roll over the entire amount into a qualified plan or TSA
that accepts rollover contributions. To get this "conduit" Regular IRA
treatment:
o the source of funds you used to establish the Regular IRA must
have been a rollover contribution from a qualified plan, and
o the entire amount received from the Regular IRA (including any
earnings on the rollover contribution) must be rolled over into
another qualified plan within 60 days of the date received.
Similar rules apply in the case of a TSA.
You may lose conduit treatment, if you make an eligible rollover distribution
contribution to a Regular IRA and you commingle this contribution with other
contributions. In that case, you may not be able to roll over these eligible
rollover distribution contributions and earnings to another qualified plan (or
TSA) at a future date.
Distributions from a Regular IRA are not eligible for favorable five-year
averaging available through 1999 (or, in some cases, ten-year averaging and
long-term capital gain treatment available) to certain distributions from
qualified plans.
REQUIRED MINIMUM DISTRIBUTIONS
Lifetime Required Minimum Distributions
You must start taking annual distributions from your Regular IRAs beginning at
age 70 1/2.
When you have to take the first required minimum distribution
The first required minimum distribution is for the calendar year in which you
turn age 70 1/2. You have the choice to take this first required minimum
distribution during the calendar year you actually reach age 70 1/2, or to
delay taking it until the first three-month period in the next calendar year
(January 1 -- April 1). Distributions must start no later than your "Required
Beginning Date," which is April 1st of the calendar year after the calendar
year in which you turn age 70 1/2. If you choose to delay taking the first
annual minimum distribution, then you will have to take two minimum
distributions in that year, the delayed one for the first year and the actual
one for that year. Once minimum distributions begin, they must be made at some
time each year.
How you can calculate required minimum distributions
There are two approaches to taking required minimum distributions,
"account-based" or "annuity-based." If you choose an "account-based" method,
you divide the value of your Regular IRA as of December 31st of the past
calendar year by a life expectancy factor from IRS tables. This gives you the
required minimum distribution amount for that particular IRA for that year. If
you choose an account-based method, the required minimum distribution amount
will vary each year as the account value and your life expectancy factors
change. If you choose an "annuity-based" method, you do not have to do annual
calculations. You apply the account value to an annuity payout for your life or
the joint lives of you and a designated beneficiary, or for a period certain
not extending beyond applicable life expectancies.
If you pick an account-based method, you have a choice of life expectancy
factors, depending on whether you choose a method based only on your life
expectancy, or the joint life expectancies of you and another individual. You
can decide to "recalculate" your life expectancy every year by using your
current life expectancy factor. You can decide instead to use the "term
certain" method, where you reduce your life expectancy by one every year after
the initial year. If your spouse is your designated beneficiary for figuring
out annual account-based required minimum distributions, you can also annually
"recalculate" your spouse's life expectancy if you want. If you choose someone
who is not your spouse as your
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designated beneficiary for the purpose of figuring out annual account-based
required minimum distributions, you have to use the "term certain" method of
calculating that person's life expectancy. If you pick a nonspouse designated
beneficiary, you may also have to do another special calculation.
If you pick an account-based method, you can later apply your Regular IRA funds
to a life annuity-based payout. You can only do this if you already chose to
recalculate your life expectancy annually (and your spouse's life expectancy if
you select a spousal joint annuity). For example, if you anticipate selecting a
form of life annuity payout after you are age 70 1/2, you must have elected to
recalculate life expectancies.
Whether you have to pick the same method to calculate your required minimum
distributions for all of your Regular IRAs and other retirement plans.
You can choose a different method and a different beneficiary for each of your
Regular IRAs and other retirement plans. For example, you can choose an annuity
payout from one IRA, a different annuity payout from a qualified plan, and an
account-based annual withdrawal from another IRA.
If you take more than you need to for any year.
The correct required minimum distribution amount for your Regular IRAs is
calculated on a year-by-year basis. There are no carry-back or carry-forward
provisions. Also, you cannot apply required minimum distribution amounts you
take from your qualified plans to the amounts you have to take from your
Regular IRAs and vice-versa. However, the IRS will let you figure out the
required minimum distribution for each Regular IRA that you maintain, using the
method that you picked for that particular IRA. You can add these required
minimum distribution amount calculations together. As long as the total amount
you take out every year satisfies your overall Regular IRA required minimum
distribution amount, you may choose to take your annual required minimum
distribution from any one or more Regular IRAs that you own.
If you take less than you need to for any year.
Your IRA could be disqualified, and you could have to pay tax on the entire
value. Even if your IRA is not disqualified, you could have to pay a 50%
penalty tax on the shortfall (required amount for Regular IRAs less amount
actually taken). It is your responsibility to meet the required minimum
distribution rules. We will remind you when our records show that your age
70 1/2 is approaching. If you do not select a method with us, we will assume you
are taking your required minimum distribution from another Regular IRA that you
own.
Required minimum distribution payments after you die.
If you die after either (1) the start of annuity payments, or (2) your Required
Beginning Date, your beneficiary must receive payment of the remaining values
in the certificate at least as rapidly as under the distribution method before
your death. In some circumstances, your surviving spouse may elect to become
the owner of the Regular IRA and halt distributions until he or she reaches age
70 1/2.
If you are using the recalculation method for determining life expectancy, the
payments to a beneficiary may accelerate after your death.
If you die before your Required Beginning Date and before annuity payments
begin, federal tax rules require complete distribution of your entire value in
the Certificate within five years after your death. Payments to a designated
beneficiary over the beneficiary's life or over a period certain that does not
extend beyond the beneficiary's life expectancy are also permitted, if these
payments start within one year of your death. A surviving spouse beneficiary
can also (1) delay starting any payments until you would have attained 70 1/2 or
(2) roll over your Regular IRA into his or her own Regular IRA.
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PAYMENTS TO A BENEFICIARY AFTER YOUR DEATH
Regular IRA death benefits are taxed the same as Regular IRA distributions.
BORROWING AND LOANS ARE PROHIBITED TRANSACTIONS
You cannot get loans from a Regular IRA. You cannot use a Regular IRA as
collateral for a loan or other obligation. If you borrow against your IRA or
use it as collateral, its tax-favored status will be lost as of the first day
of the tax year in which this prohibited event occurs. If this happens, you
must include in federal gross income for that year an amount equal to the fair
market value of the Regular IRA Certificate as of the first day of that tax
year, less the amount of any nondeductible contributions not previously
recovered. Also, the early distribution penalty tax of 10% will apply if you
have not reached age 59 1/2 before the first day of that tax year.
EARLY DISTRIBUTION PENALTY TAX
A penalty tax of 10% of the taxable portion of a distribution applies to
distributions from a Regular IRA made before you reach age 59 1/2. The extra
penalty tax does not apply if the distribution is covered by an exception. No
penalty tax applies to pre-age 59 1/2 distributions made:
o on or after your death;
o because you are disabled (special federal income tax definition);
o used to pay certain extraordinary medical expenses (special federal
income tax definition);
o used to pay medical insurance premiums for unemployed individuals
(special federal income tax definition);
o used to pay certain first-time home buyer expenses (special federal
income tax definition);
o used to pay certain higher education expenses (special federal income
tax definition); or
o in the form of substantially equal periodic payments made at least
annually over your life (or your life expectancy), or over the joint
lives of you and your beneficiary (or your joint life expectancy) using
an IRS-approved distribution method.
ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRAs)
This section of the SAI covers some of the special tax rules that apply to Roth
IRAs. If the rules are the same as those that apply to Regular IRAs, we will
refer you to the same topic under "Regular IRAs."
The Equitable 300+ Series Roth IRA Certificate is designed to qualify as a Roth
individual retirement annuity under Sections 408A and 408(b) of the Internal
Revenue Code.
Contributions to Roth IRAs
Individuals may make four different types of contributions to a Roth IRA:
o "regular" after-tax contributions out of earnings;
o taxable "rollover" contributions from Regular IRAs ("conversion"
contributions); tax-free rollover contributions from other Roth IRAs;
or tax-free direct custodian-to-custodian transfers from other Roth
IRAs ("direct transfers").
REGULAR CONTRIBUTIONS TO ROTH IRAs
Limits on regular Contributions:
Generally, $2,000 is the maximum amount that you may contribute to all IRAs
(including Roth IRAs) in any taxable year. This $2,000 limit does not apply to
rollover contributions or direct custodian-to--
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custodian transfers into a Roth IRA. Any contributions to Roth IRAs reduce the
ability to contribute to Regular IRAs and vice versa. When your earnings are
below $2,000, your earned income or compensation for the year is the most you
can contribute. If you are married and file a joint income tax return, you and
your spouse may combine your compensation to determine the amount of regular
contributions you are permitted to make to Roth IRAs and Regular IRAs. See the
discussion above under Regular IRAs.
With a Roth IRA, you can make regular contributions when you reach 70 1/2, as
long as you have sufficient earnings. But, you cannot make contributions for
any year that:
o your federal income tax filing status is "married filing jointly" and
your adjusted gross income is over $160,000; or;
o your federal income tax filing status is "single" and your adjusted
gross income is over $110,000.
However, you can make regular Roth IRA contributions in reduced amounts when:
o your federal income tax filing status is "married filing jointly" and
your adjusted gross income is between $150,000 and $160,000; or,
o your federal income tax filing status is "single" and your adjusted
gross income is between $95,000 and $110,000.
If you are married and filing separately and your adjusted gross income is
between $0 and $10,000 the amount of regular contribution you are permitted to
make is phased out. If your adjusted gross income is more than $10,000 you
cannot make a regular Roth IRA contribution.
When you can make Contributions
Same as Regular IRAs.
Deductibility of Contributions
Roth IRA contributions are not tax-deductible.
ROLLOVERS AND DIRECT TRANSFERS
You may make rollover contributions to a Roth IRA from only two sources:
o another Roth IRA ("tax-free rollover contribution"); or
o another Regular IRA, including a SEP-IRA or SIMPLE-IRA, in a taxable
"conversion" rollover ("conversion contribution").
You may not make contributions to a Roth IRA from a qualified plan under
Section 401(a) of the Internal Revenue Code, or a tax-sheltered arrangement
under Section 403(b) of the Internal Revenue Code. You may make direct transfer
contributions to a Roth IRA only from another Roth IRA.
The difference between a rollover transaction and a direct transfer transaction
is the following: In a rollover transaction you actually take possession of the
funds rolled over, or constructively receive them in the case of a change from
one type of plan to another. In a direct transfer transaction, you never take
possession of the funds, but direct the first Roth IRA custodian, trustee, or
issuer to transfer the first Roth IRA funds directly to Equitable, as the Roth
IRA issuer. You can make direct transfer transactions only between identical
plan types (for example, Roth IRA to Roth IRA). You can also make rollover
transactions between identical plan types. However, you can only use rollover
transactions between different plan types (for example, Regular IRA to Roth
IRA).
You may make both Roth IRA to Roth IRA rollover transactions and Roth IRA to
Roth IRA direct transfer transactions. This can be accomplished on a completely
tax-free basis. However you may make Roth IRA to Roth IRA rollover transactions
only once in any 12-month period for the same funds. Trustee-to-trustee or
custodian-to-custodian direct transfers can be made more frequently than once a
year. Also, if you send us the rollover contribution to apply it to a Roth IRA,
you must do so within 60 days after you receive the proceeds from the original
IRA to get rollover treatment.
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The surviving spouse beneficiary of a deceased individual can roll over or
directly transfer an inherited Roth IRA to one or more other Roth IRAs. In some
cases, Roth IRAs can be transferred on a tax-free basis between spouses or
former spouses because of a court-ordered divorce or separation decree.
CONVERSION CONTRIBUTIONS TO ROTH IRAs
In a conversion rollover transaction, you withdraw (or are deemed to withdraw)
all or a portion of funds from a Regular IRA you maintain and convert it to a
Roth IRA within 60 days after you receive (or are deemed to receive) the
Regular IRA proceeds. Unlike a rollover from a Regular IRA to another Regular
IRA, the conversion rollover transaction is not tax exempt. Instead, the
distribution from the Regular IRA is generally fully taxable. For this reason,
we are required to withhold 10% federal income tax from the amount converted
unless you elect out of such withholding. (If you have ever made nondeductible
regular contributions to any Regular IRA--whether or not it is the Regular IRA
you are converting--a pro rata portion of the distribution is tax exempt.)
There is, however, no early distribution penalty tax on the Regular IRA
withdrawal that you are converting to a Roth IRA, even if you are under age
59 1/2.
You cannot make conversion contributions to a Roth IRA for any taxable year in
which your adjusted gross income exceeds $100,000. (For this purpose, you
compute your adjusted gross income without the gross income stemming from the
Regular IRA conversion.) You also cannot make conversion contributions to a
Roth IRA for any taxable year in which your federal income tax filing status is
"married filing separately."
Finally, you cannot make conversion contributions to a Roth IRA to the extent
that the funds in your Regular IRA are subject to the annual required minimum
distribution rule applicable to Regular IRAs beginning at age 70 1/2.
WITHDRAWALS, PAYMENTS AND TRANSFERS OF FUNDS OUT OF ROTH IRAs
You can withdraw any or all of your funds from a Roth IRA at any time without
restriction. You do not need to wait for a special event like retirement.
DISTRIBUTIONS FROM ROTH IRAs
Distributions include withdrawals from your Certificate, surrender of your
Certificate and annuity payments from your Certificate. Death benefits are also
distributions.
The following distributions from Roth IRAs are free of income tax:
o rollovers from a Roth IRA to another Roth IRA;
o direct transfers from a Roth IRA to another Roth IRA;
o "qualified distributions" from Roth IRAs; and
o return of excess contributions or amounts recharacterized to a Regular
IRA.
Qualified Distributions from Roth IRAs
A qualified distribution from a Roth IRA is any distribution made (1) after the
five-taxable year period beginning with the first taxable year for which you
made any contribution to any Roth IRA (whether or not the one from which the
distribution is being made) and (2) for one of the following reasons:
o you reach age 59 1/2;
o you die;
o you become disabled (special federal income tax definition); or
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o your distribution is a "qualified first-time homebuyer distribution"
(special federal income tax definition; $10,000 lifetime total limit
for these distributions from all of your Traditional and Roth IRAs).
It is not possible to have a tax-free qualified distribution from a Roth IRA
before 2003 because of the five year aging requirement.
Nonqualified Distributions from Roth IRAs
Distributions from Roth IRAs that are not qualified distributions are
potentially taxable as ordinary income. Nonqualified distributions receive
return-of-investment-first treatment. Only the difference between the amount of
the distribution and the amount of contributions to all of your Roth IRAs is
taxable. You have to reduce the amount of contributions to all of your Roth
IRAs to reflect any previous tax-free recoveries.
You must keep your own records of regular and conversion contributions to all
Roth IRAs to assure appropriate taxation. You may have to file information on
your contributions to and distributions from any Roth IRA on your tax return.
You may have to retain all income tax returns and records pertaining to such
contributions and distributions until your interests in all Roth IRAs are
distributed.
Like Regular IRAs, taxable distributions from a Roth IRA are not eligible for
favorable five-year averaging available through 1999 (or, in some cases,
ten-year averaging and long-term capital gain treatment available) to certain
distributions from qualified plans.
REQUIRED MINIMUM DISTRIBUTIONS AFTER YOUR DEATH
If you die before we have distributed the entire amount of your Roth IRA to
you, federal tax rules require complete distribution of your entire value in
the Certificate within five years after your death. Payments to a designated
beneficiary over the beneficiary's life or over a period certain that does not
extend beyond the beneficiary's life expectancy are also permitted, if these
payments start within one year of your death. If your surviving spouse is the
designated beneficiary required minimum distributions need not be made until
after the surviving spouse's death.
PAYMENTS TO A BENEFICIARY AFTER YOUR DEATH
Distributions to a beneficiary generally receive the same tax treatment as if
the distribution had been to you.
BORROWING AND LOANS ARE PROHIBITED TRANSACTIONS
You cannot get loans from a Roth IRA. You cannot use a Roth IRA as collateral
for a loan or other obligation. If you borrow against your Roth IRA or use it
as collateral, its tax-favored status will be lost as of the first day of the
tax year in which this prohibited event occurs. If this happens, you must
include in federal gross income for that year an amount equal to the fair
market value of the Roth IRA Certificate as of the first day of that tax year,
less the amount of any nondeductible contributions not previously recovered.
Also, the early distribution penalty tax of 10% will apply if you have not
reached age 59 1/2 before the first day of that tax year.
EXCESS CONTRIBUTIONS
Excess contributions to Roth IRAs are subject to a 6% excise tax for the year
in which made and for each year after until withdrawn. The following are excess
contributions to Roth IRAs:
o "regular" contributions of more than $2,000;
o "regular" contributions of more than earned income for the year, if
that amount is under $2,000; and
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o rollover contributions of amounts that are not eligible to be rolled
over (for example, conversion rollovers from a Regular IRA for
individuals with adjusted gross income in excess of $100,000 in the
conversion year.)
You can withdraw or recharacterize any contribution to a Roth IRA before the
due date (including extensions) for filing your federal income tax return for
the tax year. If you do this, you must also withdraw or recharacterize any
earnings attributable to the contribution.
EARLY DISTRIBUTION PENALTY TAX
A penalty tax of 10% of the taxable portion of a distribution applies to
distributions from a Roth IRA made before you reach age 59 1/2. The extra
penalty tax does not apply if the distribution is covered by an exception. No
penalty tax applies to pre-age 59 1/2 distributions made:
o on or after your death;
o because you are disabled (special federal income tax definition);
o used to pay certain extraordinary medical expenses (special federal
income tax definition);
o used to pay medical insurance premiums for unemployed individuals
(special federal income tax definition);
o used to pay certain first-time home buyer expenses (special federal
income tax definition);
o used to pay certain higher education expenses (special federal income
tax definition); or
o in the form of substantially equal periodic payments made at least
annually over your life (or your life expectancy), or over the joint
lives of you and your beneficiary (or your joint life expectancy) using
an IRS-approved distribution method.
Special penalty rules may apply to amounts withdrawn attributable to 1998
conversion rollovers.
IRAs UNDER SIMPLIFIED EMPLOYEE PENSION PLANS (SEP)
When an employer establishes a SEP for its employees, it can contribute to a
Regular IRA certificate for each eligible employee. The employee may also
contribute to that SEP certificate. A SEP IRA Certificate is a form of Regular
IRA Certificate, owned by the employee-participant and most of the rules
applicable to Regular IRAs discussed above apply. A major difference is the
amount of permissible contributions.
Under 1999 statutory limits, an employer can annually contribute an amount for
an employee up to the lesser of $24,000 or 15% of the employee's compensation,
which is determined without the employer's contribution to the SEP. The $24,000
maximum may be adjusted for cost of living changes in future years. These
limits may be reduced by contributions the employer makes to other qualified
plans. The employer must contribute for each employee who has reached age 21
and has worked for the employer during at least three of the preceding five
years. The employer does not have to contribute for employees who (1) earn less
than $400 in 1999, (2) are covered by a collective bargaining agreement or (3)
are non-resident aliens who receive no earned income from sources within the
United States.
Employers make their contributions under a written program that provides for
(1) withdrawals, (2) contributions under an allocation formula, and (3)
contributions that bear a uniform relationship to actual compensation, not
greater than $160,000 in 1999. Contributions cannot discriminate in favor of
highly compensated employees. An employer may integrate contributions to the
SEP with Social Security. Call our toll-free number for assistance.
SIMPLE IRAs
An eligible employer may establish a "SIMPLE" plan to make contributions to
special individual retirement accounts or individual retirement annuities for
its employees ("SIMPLE IRAs"). A SIMPLE IRA is a form of regular IRA owned by
the employee. Generally, the rules applicable to Regular IRAs,
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discussed above, apply. There are differences in the amount and type of
permissible contributions. Also, employees who have not participated in the
employer's SIMPLE IRA plan for at least two full years may be subject to an
increased penalty tax on withdrawals of SIMPLE IRA funds.
The employer cannot maintain any other qualified plan, SEP or TSA arrangement
if it makes contributions under a SIMPLE IRA plan. (Eligible employers may
maintain EDC plans.)
An employer establishing a SIMPLE plan should consult its tax advisor
concerning the various technical rules applicable to establishing and
maintaining SIMPLE IRA plans. For example, the definition of employee's
"compensation" varies depending on whether it appears in the context of
employer eligibility, employee participation, and employee or employer
contributions.
Participation must be open to all employees who (1) received at least $5,000 in
compensation from the employer in any two preceding years (they do not have to
be consecutive years) and (2) are reasonably expected to receive at least
$5,000 in compensation during the year. (Certain collective bargaining unit and
alien employees may be excluded.)
The only permitted contributions to a SIMPLE IRA are (1) contributions under a
salary reduction agreement entered into between the employer and the
participating employee and (2) required employer contributions (employer
matching contributions or employer nonelective contributions). (Direct transfer
and rollover contributions from other SIMPLE IRAs, but not Regular IRAs, may
also be made.) Salary reduction contributions can be any percentage of
compensation (or a specific dollar amount, if the employer's plan permits) but
are limited to $6,000 in 1999. The $6,000 elective deferral limit may be
indexed for cost of living adjustments in future years.
The employer is required to make matching contributions on behalf of each
eligible employee in an amount equal to the salary reduction contributions, up
to 3% of the employee's compensation or a 2% non-elective contribution to all
eligible employees. The employer must also follow the notification and filing
requirements outlined in the SIMPLE IRA model amendment, to avoid
non-discrimination tests.
Amounts contributed to SIMPLE IRAs are not currently taxable to employees. Only
the employer can deduct SIMPLE IRA contributions, not the employee. An employee
eligible to participate in a SIMPLE IRA is an active participant in an employer
plan and thus may not be able to deduct all or a portion of regular
contributions to his/her own IRA.
As with Regular IRAs in general, contributions and earnings accumulate tax
deferred until withdrawn and are then fully taxable. There are no withdrawal
restrictions applicable to SIMPLE IRAs. However, because of the level of
employer involvement, SIMPLE IRA plans are subject to ERISA. See "ERISA
Matters" below. The same 10% penalty on taxable early withdrawals that applies
to Regular IRAs applies to SIMPLE IRAs, subject to the same exceptions for
death, disability and attainment of age 59 1/2. For employees who have not
participated in the employer's SIMPLE IRA for two full years, that penalty is
25%.
Amounts withdrawn from a SIMPLE IRA can be rolled over to another SIMPLE IRA,
to a Regular IRA or a Roth IRA (if under the conversion rollover rules
discussed above). No rollovers from a SIMPLE IRA to any other type of IRA are
permitted for individuals under age 59 1/2 who have not participated in the
employer's SIMPLE IRA plan for two full years. For such employees, any amounts
withdrawn from a SIMPLE IRA are taxable and subject to a 25% additional tax
penalty with the exceptions noted in the preceding paragraph.
FEDERAL AND STATE INCOME TAX WITHHOLDING AND INFORMATION REPORTING
We must withhold federal income tax from distributions from annuity contracts.
You may be able to elect out of this income tax withholding in some cases.
Generally, we do not have to withhold if your distributions are not taxable.
The rate of withholding will depend on the type of distribution and, in certain
cases, the amount of your distribution. Any income tax withheld is a credit
against your income tax liability. If you do not have sufficient income tax
withheld or do not make sufficient estimated income tax payments, you may incur
penalties under the estimated income tax rules.
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You must file your request not to withhold in writing before the payment or
distribution is made. Our Processing Office will provide forms for this
purpose. You cannot elect out of withholding unless you provide us with your
correct Taxpayer Identification Number and a United States residence address.
You cannot elect out of withholding if we are sending the payment out of the
United States.
You should note the following special situations:
o We might have to withhold on amounts we pay under a free look or
cancellation.
o We are generally required to withhold on conversion rollovers of
Regular IRAs to Roth IRAs, as the deemed withdrawal from the Regular
IRA is taxable.
o We are required to withhold on the gross amount of a distribution from
a Roth IRA unless you elect out of withholding. This may result in tax
being withheld even though the Roth IRA distribution is not taxable in
whole or in part.
Special withholding rules apply to foreign recipients and United States
citizens residing outside the United States. We do not discuss these rules
here. Certain states have indicated that state income tax withholding will also
apply to payments from the Certificates made to residents. In some states, you
may elect out of state withholding, even if federal withholding applies.
Generally, we will consider an election out of federal withholding to be an
election out of state withholding. If you need more information concerning a
particular state or any required forms, call our Processing Office at the
toll-free number.
FEDERAL INCOME TAX WITHHOLDING ON PERIODIC ANNUITY PAYMENTS
We withhold differently on "periodic" and "non-periodic" payments. For a
periodic annuity payment, for example, unless you specify a different number of
withholding exemptions, we withhold assuming that you are married and claiming
three withholding exemptions. If you do not give us your correct Taxpayer
Identification Number, we withhold as if you are single with no exemptions.
Based on the assumption that you are married and claiming three withholding
exemptions, if you receive less than $14,700 in periodic annuity payments in
1999 your payments will generally be exempt from federal income tax
withholding. You could specify a different choice of withholding exemption or
request that we withhold tax. Your withholding election remains effective
unless and until you revoke it. You may revoke or change your withholding
election at any time.
FEDERAL INCOME TAX WITHHOLDING ON NON-PERIODIC ANNUITY PAYMENTS (WITHDRAWALS)
For a non-periodic distribution (total surrender or partial withdrawal), we
withhold generally at a flat 10% rate. We apply that rate to the taxable amount
in the case of nonqualified Certificates, and to the payment amount in the case
of IRAs and Roth IRAs).
You cannot elect out of withholding if the payment is an "eligible rollover
distribution" from a TSA. If a non-periodic distribution from a TSA is not an
"eligible rollover distribution" then the 10% withholding rate applies.
MANDATORY WITHHOLDING FROM TSAS
Unless you have the distribution go directly to the new plan, eligible rollover
distributions from TSAs are subject to mandatory 20% withholding. An eligible
rollover distribution from a TSA can be rolled over to another TSA or a Regular
IRA. All distributions from a TSA are eligible rollover distributions unless
they are on the following list of exceptions:
o any after-tax contributions you made to the plan;
o any distributions that are "required minimum distributions" after age
70 1/2 or separation from service;
o hardship withdrawals;
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o substantially equal periodic payments made at least annually for your
life (or life expectancy) or the joint lives (or joint life expectancy)
of you and your designated beneficiary;
o substantially equal periodic payments made for a specified period of 10
years or more;
o if you have contributed too much, corrective distributions which fit
specified technical tax rules;
o a death benefit payment to a beneficiary who is not your surviving
spouse; and
o a qualified domestic relations order distribution to a beneficiary who
is not your current spouse or former spouse.
A death benefit payment to your surviving spouse, or a qualified domestic
relations order distribution to your current or former spouse, may be a
distribution subject to a mandatory 20% withholding.
ERISA MATTERS
Certain TSAs and SIMPLE IRAs may be subject to some or all rules applicable to
ERISA plans. For TSAs subject to ERISA (but not SIMPLE IRAs), you need spousal
consent to make a withdrawal or other distribution under the Certificate. In
addition, unless you and your spouse elect otherwise, the retirement benefits
payable under the plan or arrangement must be in the form of a qualified joint
and survivor annuity ("QJSA"). A QJSA is an annuity payable for your life, with
a survivor annuity for the life of your spouse. The amount payable to your
spouse must be at least one-half of the amount payable to you during your
lifetime. In addition, your beneficiary must be your spouse, unless your spouse
consents in writing to the designation of a different beneficiary.
Section 404(c) of ERISA and the related DOL regulation excuses a plan fiduciary
from liability for investment losses due to your investment decisions. Thus, in
situations to which Section 404(c) and the related DOL regulation apply, you
can make and you are responsible for the results of your own investment
decisions. Section 404(c) plans must provide, among other things that a broad
range of investment choices are available to plan participants and
beneficiaries and must provide such plan participants and beneficiaries with
enough information to make informed investment decisions. Compliance with the
Section 404(c) regulation is completely voluntary by the plan sponsor. The
Equitable 300+ Series TSA and SIMPLE IRA programs provide the broad range of
investment choices and information needed in order to meet the requirements of
the Section 404(c) regulation. If the plan is intended to be a Section 404(c)
plan, it is, however, the plan sponsor's responsibility to see that the
requirements of the DOL regulation are met. Equitable Life will not be
responsible if a plan fails to meet the requirements of Section 404(c).
IMPACT OF TAXES TO EQUITABLE
The Certificates provide that we may charge Separate Account No. 301 for taxes.
We do not now, but may in the future set up reserves for such taxes.
THE GUARANTEED RATE ACCOUNTS
Contributions to a guaranteed rate account, or GRA, become part of our general
account, which supports all of our insurance and annuity guarantees as well as
our general obligations.
THE GUARANTEES
We credit contributions to a GRA with interest at a fixed rate for each
guarantee period. We guarantee the amount of the contribution (before deduction
of any applicable participant service charge). The effective annual guaranteed
interest rate will always be at least 3%.
Currently, we offer GRAs with new one-year and three-year guarantee periods
each calendar quarter. We express the fixed interest rate as an effective
annual interest rate, and apply it to contributions made
SAI-19
<PAGE>
- --------------------------------------------------------------------------------
throughout the calendar quarter, or "open period," for each guarantee period.
We may close a guarantee period offered during an open period. In that case, we
may offer a new guaranteed rate [for the same guarantee period] for the
remainder of the open period.
We reserve the right to close a guarantee period being offered at any time
based on market conditions. Subsequent interest rate changes will not affect
contributions made during the open period. All guarantee periods of the same
duration that are opened during an open period mature on the same day. After
the last day of the open period we will apply no further contributions to those
guarantee periods. In accordance with instructions, we will allocate
contributions to guarantee periods during the next open period at the new
interest rates for that subsequent open period. You may obtain the new
guaranteed rates by calling us at the number listed on the front of this SAI.
CONTRIBUTIONS
We credit contributions to a GRA until maturity of a guarantee period with the
interest rate in effect on the date of receipt. We express the rate as an
effective annual rate, reflecting daily compounding and the deduction of the
participant service charge.
Your written request for a change in the percentage of contributions that you
allocate to a GRA guarantee period becomes effective on the date that we
receive it. Alternatively, you may make allocation or contribution instructions
by telephone through the AIM System.
WITHDRAWALS AND TRANSFERS
Amounts in the GRAs will be withdrawn or transferred on a last-in, first-out
basis, unless you specify otherwise. All [other] amounts withdrawn or
transferred will be subject to a withdrawal charge as discussed under "Charges
and Expenses" in the prospectus. We will deduct the withdrawal charge from (1)
the remaining amounts in your guarantee period after we process the withdrawal
or transfer payment, or (2) the amount you withdrew or transferred if remaining
amounts are insufficient.
EXAMPLE OF WITHDRAWAL CHARGE
You contribute $2,000 GRA on January 1, allocating the contribution to a
three-year guarantee period with a guaranteed interest rate of 4%. On December
31, you make a premature withdrawal of $1,000 from that GRA guarantee period.
The maximum participant service charge applicable is $30 per year ($7.50 per
quarter). We will calculate the withdrawal charge as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PARTICIPANT PREMATURE
SERVICE AMOUNT WITHDRAWAL CHECK ACCOUNT
DATE CONTRIBUTION INTEREST CHARGE REQUESTED CHARGE AMOUNT BALANCE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/1 $2,000 -- -- -- -- -- $2,000.00
3/31 -- $ 19.71 $ 7.50 -- -- -- 2,012.21
6/30 -- 19.83 7.50 -- -- -- 2,024.54
9/30 -- 19.95 7.50 -- -- -- 2,036.09
12/31 -- 20.07 7.50 $1,000 $26.00* $1,000 1,023.56
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* The lesser of (a) 7% ($75.27) of the amount withdrawn (including the amount
of the withdrawal charge) or (b) the amount of the Participant's
accumulated interest ($26.00) attributable to that same amount.
The example assumes that each quarter contains the same number of days and that
each transaction occurs on a Business Day.
CASH VALUE--ACCOUNT BALANCE ILLUSTRATION
The following tables illustrate the account balance (which does not give effect
to any withdrawal charge) and the cash value (which gives effect to the
withdrawal charge) for contributions allocated to the GRAs.
SAI-20
<PAGE>
- --------------------------------------------------------------------------------
TABLE I
ACCOUNT BALANCES AND CASH VALUES
(ASSUMING $1,000 CONTRIBUTIONS MADE ANNUALLY ON THE ENROLLMENT DATE)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CASH VALUE ACCOUNT BALANCE
- --------------------------------------------------------------------------------
ATTAINED 3% 6% 3% 6%
AGE MINIMUM ILLUSTRATED MINIMUM ILLUSTRATED
YEAR END GUARANTEE RATE GUARANTEE RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $ 999.66 $ 999.66 $ 999.66 $ 1,029.33
2 2,000.00 2,000.00 2,029.32 2,120.42
3 3,000.00 3,047.59 3,089.86 3,276.98
4 4,000.00 4,187.72 4,182.22 4,502.93
5 5,000.00 5,396.26 5,307.36 5,802.44
6 6,013.60 6,677.32 6,466.24 7,179.91
7 7,123.70 8,035.23 7,659.89 8,640.04
8 8,267.10 9,474.63 8,889.35 10,187.77
9 9,444.80 11,000.38 10,155.70 11,828.37
10 10,657.83 12,617.68 11,460.03 13,567.40
11 11,907.25 14,332.03 12,803.50 15,410.78
12 13,194.16 16,149.23 14,187.27 17,364.76
13 14,519.67 18,075.46 15,612.55 19,435.98
14 15,884.95 20,117.27 17,080.59 21,631.47
15 17,291.19 22,281.58 18,592.68 23,958.69
16 18,739.61 24,575.75 20,150.12 26,425.54
17 20,231.49 27,007.58 21,754.29 29,040.40
18 21,768.12 29,585.31 23,406.58 31,812.16
19 23,350.85 32,317.70 25,108.44 34,750.22
20 24,981.07 35,214.04 26,861.36 37,864.56
21 26,660.19 38,284.17 28,666.87 41,165.77
22 28,389.68 41,538.50 30,526.54 44,665.05
23 30,171.06 44,988.08 32,442.00 48,374.28
24 32,005.88 48,644.65 34,414.92 52,306.07
25 33,895.74 52,520.60 36,447.04 56,473.77
26 35,842.30 56,629.12 38,540.11 60,891.52
27 37,847.26 60,984.14 40,695.98 65,574.34
28 39,912.37 65,600.47 42,916.52 70,538.14
29 42,039.43 70,493.77 45,203.68 75,799.76
30 44,230.30 75,680.68 47,559.46 81,377.07
31 46,486.89 81,178.79 49,985.91 87,289.03
32 48,811.19 87,006.80 52,485.15 93,555.70
33 51,205.21 93,184.49 55,059.37 100,198.37
34 53,671.06 99,732.83 57,710.81 107,239.61
35 56,210.88 106,674.08 60,441.80 114,703.31
36 58,826.89 114,031.80 63,254.72 122,614.84
37 61,521.38 121,830.99 66,152.03 131,001.06
38 64,296.71 130,098.12 69,136.25 139,890.45
39 67,155.30 138,861.29 72,210.00 149,313.21
40 70,099.65 148,150.24 75,375.97 159,301.34
41 73,132.33 157,996.54 78,636.91 169,888.75
42 76,255.99 168,433.61 81,995.68 181,111.41
43 79,473.35 179,496.90 85,455.22 193,007.42
44 82,787.24 191,224.00 89,018.54 205,617.20
45 86,200.55 203,654.71 92,688.76 218,983.56
46 89,716.25 216,831.28 96,469.09 233,151.91
47 93,337.43 230,798.43 100,362.83 248,170.35
48 97,067.24 245,603.61 104,373.38 264,089.91
49 100,908.94 261,297.11 108,504.24 280,964.63
50 104,865.90 277,932.21 112,759.03 298,851.84
- --------------------------------------------------------------------------------
</TABLE>
SAI-21
<PAGE>
- --------------------------------------------------------------------------------
TABLE II
ACCOUNT BALANCES AND CASH VALUES
(ASSUMING A SINGLE CONTRIBUTION OF $1,000 AND NO FURTHER CONTRIBUTION)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CASH VALUE ACCOUNT BALANCE
- --------------------------------------------------------------------------------
3% 6% 3% 6%
ATTAINED MINIMUM ILLUSTRATED MINIMUM ILLUSTRATED
AGE YEAR END GUARANTEE RATE GUARANTEE RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $ 999.66 $ 1,000.00 $ 999.66 $ 1,029.33
2 999.32 1,000.00 999.32 1,060.42
3 998.96 1,016.84 998.96 1,093.38
4 998.60 1,049.33 998.60 1,128.31
5 998.22 1,083.77 998.22 1,165.34
6 997.83 1,120.27 997.83 1,204.59
7 997.43 1,158.96 997.43 1,246.20
8 997.02 1,199.98 997.02 1,290.30
9 996.60 1,243.46 996.60 1,337.05
10 996.16 1,289.54 996.16 1,386.60
11 995.71 1,338.39 995.71 1,439.13
12 995.25 1,390.17 995.25 1,494.81
13 994.77 1,445.06 994.77 1,553.83
14 994.28 1,503.24 994.28 1,616.39
15 993.77 1,564.92 993.77 1,682.70
16 993.25 1,630.29 993.25 1,753.00
17 992.71 1,699.58 992.71 1,827.51
18 992.16 1,773.04 992.16 1,906.49
19 991.59 1,850.90 991.59 1,990.21
20 991.00 1,933.43 991.00 2,078.95
21 990.39 2,020.91 990.39 2,173.02
22 989.77 2,113.64 989.77 2,272.73
23 989.13 2,211.94 989.13 2,378.43
24 988.47 2,316.13 988.47 2,490.46
25 987.79 2,426.57 987.79 2,609.22
26 987.09 2,543.65 987.09 2,735.10
27 986.36 2,667.74 986.36 2,868.54
28 985.62 2,799.28 985.62 3,009.98
29 984.85 2,938.72 984.85 3,159.91
30 984.06 3,086.52 984.06 3,318.84
31 983.25 3,243.19 983.25 3,487.30
32 982.41 3,409.26 982.41 3,665.87
33 981.55 3,585.29 981.55 3,855.15
34 980.66 3,771.88 980.66 4,055.79
35 979.74 3,969.68 979.74 4,268.47
36 978.80 4,179.34 978.80 4,493.91
37 977.82 4,401.58 977.82 4,732.88
38 976.82 4,637.15 976.82 4,986.18
39 975.79 4,886.85 975.79 5,254.68
40 974.73 5,151.54 974.73 5,539.29
41 973.64 5,432.11 973.64 5,840.98
42 972.51 5,729.52 972.51 6,160.77
43 971.35 6,044.77 971.35 6,499.75
44 970.16 6,378.93 970.16 6,859.07
45 968.93 6,733.15 968.93 7,239.94
46 967.66 7,108.61 967.66 7,643.67
47 966.35 7,506.61 966.35 8,071.62
48 965.01 7,928.48 965.01 8,525.25
49 963.63 8,375.67 963.63 9,006.10
50 962.20 8,849.69 962.20 9,515.79
- --------------------------------------------------------------------------------
</TABLE>
SAI-22
<PAGE>
- --------------------------------------------------------------------------------
HOW WE DETERMINE UNIT VALUES
Unit values for the Funds are determined at the end of each Business Day.
The unit value of any Fund for any Business Day is equal to the unit value for
the preceding business day multiplied by the "net investment factor" for that
Fund on that Business Day.
A net investment factor for each Fund is determined every Business Day as
follows:
o First, we take the value of the shares held by the Fund in the
corresponding Portfolio of The Hudson River Trust or EQ Advisors Trust,
at the close of business that day (before giving effect to any amounts
allocated to or withdrawn from the Fund for that day). For this
purpose, we use the share value reported to us by the Portfolio.
o Then, we divide this amount by the value of the amounts in the Fund at
the close of business on the preceding Business Day (after giving
effect to any amounts allocated or withdrawn for that day).
o Finally, we subtract any daily charge for fees or expenses payable by
the Fund.
ILLUSTRATION OF CHANGES IN UNIT VALUES
Generally, if on a particular Business Day investment income and realized and
unrealized capital gains exceed realized and unrealized capital losses and any
expense charges, the unit value would be greater than the value for the
previous period.
For example, assume that at the close of trading on a Monday, the value of a
Fund's assets is $2,500,000, and the unit value is $10. If on the next Business
Day, Tuesday, the investment income and realized and unrealized capital gains
exceed realized and unrealized losses by $7,500, and the daily accrual for
expenses charged to the Trust is $50, the unit value for that day would be
calculated as follows:
<TABLE>
<S> <C>
1. Unit value for Monday ................................................... $ 10
2. Value of assets at close of business on Monday ......................... $ 2,500,000
3. Excess of investment income and realized and unrealized capital gains
over realized and unrealized losses ..................................... $ 7,500
4. Daily accrual for expenses (administration charges and certain expenses
borne directly by the Funds) charged to the Investment Fund ............. $ 50
5. Value of assets, less charge for expenses, at close of business day On
Tuesday, ((2) + (3) -- (4)) ............................................. $ 2,507,450
6. Net investment factor ((5) divided by (2)) .............................. 1.00298
7. Unit value for Tuesday ((1) x (6)) ...................................... $ 10.0298
</TABLE>
If, on the other hand, the realized and unrealized losses exceeded investment
income and realized and unrealized capital gains on that day by $7,500, the
unit value for Tuesday would have been $9.9698.
ALLIANCE MONEY MARKET FUND YIELD INFORMATION
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
account balance with one unit at the beginning of the period. To determine the
seven-day rate of return, the net change in the unit value is computed by
subtracting the unit value at the beginning of the period from a unit value,
exclusive of capital changes, at the end of the period.
The net change will be reduced by the average administrative charge factor
(explained below). This reduction is made to recognize the deduction of the
participant service charge, which is not reflected in
SAI-23
<PAGE>
- --------------------------------------------------------------------------------
the unit value. See "Charges and Expenses--Participant Service Charge" in the
prospectus. Unit values reflect all other accrued expenses of the Alliance
Money Market Fund.
The adjusted net change is divided by the unit value at the beginning of the
period to obtain the adjusted base period rate of return. This seven-day
adjusted base period is multiplied return by 365/7 to produce an annualized
seven-day current yield figure that we carry to the nearest one-hundredth of
one percent.
The actual dollar amount of the participant service charge that we deduct from
the Alliance Money Market Fund will vary for each participant depending upon
how the participant allocates the account balance among the investment options.
To determine the effect of the participant service charge on the yield, we
start with the total dollar amount of the charges deducted from the Fund on the
last day of the prior quarter. This amount is multiplied by 7/91.25 to produce
an average participant service charge factor which is used in all weekly yield
computations for the ensuing quarter. The average administrative charge is then
divided by the number of Alliance Money Market Fund Units as of the end of the
prior calendar quarter, and we deduct the resulting quotient from the net
change in Unit Value for the seven-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: compounding the unannualized adjusted base period return by adding one
to the adjusted base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result, i.e., effective yield =
(base period return + 1) 365/7 -- 1.
The Alliance Money Market Fund yields will fluctuate daily. Accordingly, yields
for any given period are not necessarily representative of future results. In
addition, the value of Units of the Alliance Money Market Fund will fluctuate
and not remain constant.
The Alliance Money Market Fund yields reflect charges that are not normally
reflected in the yields of other investments and therefore may be lower when
compared with yields of other investments. You should not compare Alliance
Money Market Fund yields to the return on fixed rate investments that guarantee
rates of interest for specified periods, such as the Guaranteed Rate Accounts
or bank deposits. You should not compare the yield to the yield of money market
funds made available to the general public. Those yields usually are calculated
on the basis of a constant $1 price per share, and those funds pay out earnings
in dividends that accrue on a daily basis.
The seven-day current yield for the Alliance Money Market Fund was 4.23% for
the period ended December 31, 1998. The effective yield for that period was
4.32%. Because these yields reflect the deduction of Separate Account No. 301
expenses, including the participant service charge, they are lower than the
corresponding yield figures for the Alliance Money Market Portfolio, which
reflect only the deduction of Trust-level expenses.
FINANCIAL STATEMENTS
Your should consider the financial statements of Equitable Life included herein
only as bearing upon the ability of Equitable Life to meet its obligations
under the certificates. The financial statements begin on the following page.
SAI-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 301
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Alliance Money Market
Fund, Alliance Intermediate Government Securities Fund, Alliance High Yield
Fund, Alliance Growth & Income Fund, Alliance Common Stock Fund, Alliance
Global Fund, Alliance Aggressive Stock Fund, Alliance Conservative Investors
Fund, Alliance Growth Investors Fund and Alliance Balanced Fund ("Hudson River
Trust funds") and the T. Rowe Price International Stock Fund, MFS Emerging
Growth Companies Fund, Lazard Small Cap Value Fund and BT Equity 500 Index Fund
("EQ Advisors Trust funds"), separate investment funds of The Equitable Life
Assurance Society of the United States ("Equitable Life") Separate Account No.
301 at December 31, 1998 and the results of each of their operations and
changes in each of their net assets for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Equitable Life's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned in The Hudson River Trust
and in The EQ Advisors Trust at December 31, 1998 with the transfer agent,
provide a reasonable basis for the opinion expressed above. The unit value
information presented in Note 5 for the year ended December 31, 1992 and for
each of the periods indicated prior thereto, were audited by other independent
accountants whose report dated February 16, 1993 expressed an unqualified
opinion on the financial statements containing such information.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FSA-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 301
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
MONEY GOVERNMENT HIGH GROWTH &
MARKET SECURITIES YIELD INCOME
FUND FUND FUND FUND
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of
the Trusts -- at market
value (Note 2)
Cost: $20,157,525 ......... $20,105,747
6,300,616 ............. $ 6,451,348
3,877,958 ............. $ 3,268,341
6,944,214 ............. $ 7,600,337
87,361,880 .............
6,326,169 .............
36,352 .............
9,540,384 .............
39,258 .............
2,190,231 .............
2,354,681 .............
38,391,084 .............
55,907 .............
536,387 .............
Receivable for Trust
shares sold ................. 3,051 86,415 90,562 --
Receivable for policy
related transactions ........ -- -- -- --
----------- ----------- ----------- -----------
Total Assets ................. 20,108,798 6,537,763 3,358,903 7,600,337
----------- ----------- ----------- -----------
LIABILITIES:
Payable for Trust shares
purchased ................... -- -- -- 763
Payable for policy related
transactions ................ 13,177 88,526 92,558 2,485
----------- ----------- ----------- -----------
Total Liabilities ............ 13,177 88,526 92,558 3,248
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS ............. $20,095,621 $ 6,449,237 $ 3,266,345 $ 7,597,089
=========== =========== =========== ===========
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE
COMMON ALLIANCE T. ROWE PRICE AGGRESSIVE MFS EMERGING CONSERVATIVE
STOCK GLOBAL INTERNATIONAL STOCK GROWTH COMPANIES INVESTORS
FUND FUND STOCK FUND FUND FUND FUND
--------------- ------------- --------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of
the Trusts -- at market
value (Note 2)
Cost: $20,157,525 .........
6,300,616 .............
3,877,958 .............
6,944,214 .............
87,361,880 ............. $ 115,705,713
6,326,169 ............. $ 6,835,613
36,352 ............. $ 37,677
9,540,384 ............. $ 8,718,744
39,258 ............. $ 43,781
2,190,231 ............. $ 2,254,660
2,354,681 .............
38,391,084 .............
55,907 .............
536,387 .............
Receivable for Trust
shares sold ................. -- 9 -- 4,102 -- 50
Receivable for policy
related transactions ........ 38,719 -- 787 -- 2,438 --
------------- ----------- -------- ----------- -------- -----------
Total Assets ................. 115,744,432 6,835,622 38,464 8,722,846 46,219 2,254,710
------------- ----------- -------- ----------- -------- -----------
LIABILITIES:
Payable for Trust shares
purchased ................... 84,378 -- 733 -- 2,617 --
Payable for policy related
transactions ................ -- 3,191 -- 8,409 -- 1,353
------------- ----------- -------- ----------- -------- -----------
Total Liabilities ............ 84,378 3,191 733 8,409 2,617 1,353
------------- ----------- -------- ----------- -------- -----------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS ............. $ 115,660,054 $ 6,832,431 $ 37,731 $ 8,714,437 $ 43,602 $ 2,253,357
============= =========== ======== =========== ======== ===========
<PAGE>
<CAPTION>
ALLIANCE BT
GROWTH ALLIANCE LAZARD EQUITY 500
INVESTORS BALANCED SMALL CAP INDEX
FUND FUND VALUE FUND FUND
------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of
the Trusts -- at market
value (Note 2)
Cost: $20,157,525 .........
6,300,616 .............
3,877,958 .............
6,944,214 .............
87,361,880 .............
6,326,169 .............
36,352 .............
9,540,384 .............
39,258 .............
2,190,231 .............
2,354,681 ............. $ 2,481,781
38,391,084 ............. $ 41,351,662
55,907 ............. $ 59,830
536,387 ............. $ 590,959
Receivable for Trust
shares sold ................. -- 2,227 -- --
Receivable for policy
related transactions ........ -- -- -- --
----------- ------------ -------- ---------
Total Assets ................. 2,481,781 41,353,889 59,830 590,959
----------- ------------ -------- ---------
LIABILITIES:
Payable for Trust shares
purchased ................... 431 -- -- --
Payable for policy related
transactions ................ 1,053 18,408 47 685
----------- ------------ -------- ---------
Total Liabilities ............ 1,484 18,408 47 685
----------- ------------ -------- ---------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS ............. $ 2,480,295 $ 41,335,481 $ 59,783 $ 590,274
=========== ============ ======== =========
</TABLE>
See Notes to Financial Statements.
FSA-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 301
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
MONEY GOVERNMENT HIGH GROWTH &
MARKET SECURITIES YIELD INCOME
FUND FUND FUND FUND
---------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSE:
Investment Income:
Dividends from The Trusts (Note 2) ......... $962,327 $ 294,495 $ 399,293 $ 22,465
-------- --------- ---------- ----------
Expenses (Note 3):
Administrative Fees ........................ 52,348 14,765 10,601 17,601
Recordkeeping fees ......................... 24,286 10,900 11,780 13,002
Professional fees .......................... 3,911 1,052 836 1,306
Printing and mailing expenses. ............. 2,886 842 661 2,017
Miscellaneous .............................. 52 14 11 18
-------- --------- ---------- ----------
Total expenses ............................ 83,483 27,573 23,889 33,944
Less: Reimbursement for excess expense
limitation ................................. -- 8,823 180 --
-------- --------- ---------- ----------
Net expenses .............................. 83,483 18,750 23,709 33,944
-------- --------- ---------- ----------
NET INVESTMENT INCOME (LOSS) ................. 878,844 275,745 375,584 (11,479)
-------- --------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) from share
transactions ............................... 86,162 (32,976) 48,061 315,783
Realized gain distribution from Trust ....... 629 -- 69,488 614,916
-------- --------- ---------- ----------
Net Realized Gain (Loss) .................. 86,791 (32,976) 117,549 930,699
-------- --------- ---------- ----------
Change in unrealized appreciation/
(depreciation) of investments .............. 9,067 164,547 (727,821) 295,676
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................. 95,858 131,571 (610,272) 1,226,375
-------- --------- ---------- ----------
NET INCREASE\(DECREASE) IN NET ASSETS FROM
OPERATIONS .................................. $974,702 $ 407,316 $ (234,688) $1,214,896
======== ========= ========== ==========
<CAPTION>
ALLIANCE ALLIANCE
COMMON ALLIANCE T. ROWE PRICE AGGRESSIVE
STOCK GLOBAL INTERNATIONAL STOCK
FUND FUND STOCK FUND* FUND
-------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSE:
Investment Income:
Dividends from The Trusts (Note 2) ......... $ 649,644 $ 76,254 $ 309 $ 39,716
----------- ---------- ------ ----------
Expenses (Note 3):
Administrative Fees ........................ 259,529 16,332 19 22,617
Recordkeeping fees ......................... 82,773 12,187 -- 14,175
Professional fees .......................... 19,112 1,228 -- 1,769
Printing and mailing expenses. ............. 31,890 1,754 -- 3,295
Miscellaneous .............................. 256 16 -- 24
----------- ---------- ------ ----------
Total expenses ............................ 393,560 31,517 19 41,880
Less: Reimbursement for excess expense
limitation ................................. -- -- -- --
----------- ---------- ------ ----------
Net expenses .............................. 393,560 31,517 19 41,880
----------- ---------- ------ ----------
NET INVESTMENT INCOME (LOSS) ................. 256,084 44,737 290 (2,164)
----------- ---------- ------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) from share
transactions ............................... 5,528,132 232,558 (508) (16,245)
Realized gain distribution from Trust ....... 13,965,728 434,022 -- 418,688
----------- ---------- ------ ----------
Net Realized Gain (Loss) .................. 19,493,860 666,580 (508) 402,443
----------- ---------- ------ ----------
Change in unrealized appreciation/
(depreciation) of investments .............. 5,953,990 494,628 1,325 (530,062)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................. 25,447,850 1,161,208 817 (127,619)
----------- ---------- ------ ----------
NET INCREASE\(DECREASE) IN NET ASSETS FROM
OPERATIONS .................................. $25,703,934 $1,205,945 $1,107 $ (129,783)
=========== ========== ====== ==========
</TABLE>
- -------
* Commencement of Operations on July 1, 1998
See Notes to Financial Statements
FSA-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 301
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MFS EMERGING ALLIANCE ALLIANCE BT
GROWTH CONSERVATIVE GROWTH ALLIANCE LAZARD EQUITY 500
COMPANIES INVESTORS INVESTORS BALANCED SMALL CAP INDEX
FUND* FUND FUND FUND VALUE FUND* FUND*
-------------- -------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Investment Income:
Dividends from The Trusts (Note 2) ......... $ -- $ 72,209 $ 45,251 $1,038,457 $ 166 $ 2,952
------ -------- -------- ---------- ------ -------
Expenses (Note 3):
Administrative Fees ........................ 27 4,449 5,543 99,182 49 544
Recordkeeping fees ......................... -- 8,394 8,821 37,151 -- --
Professional fees .......................... -- 302 411 7,393 -- --
Printing and mailing expenses. ............. -- 430 757 6,717 -- --
Miscellaneous .............................. -- 4 6 99 -- --
------ -------- -------- ---------- ------ -------
Total expenses ............................ 27 13,579 15,538 150,542 49 544
Less: Reimbursement for excess expense
limitation ................................. -- -- -- -- -- --
------ -------- -------- ---------- ------ -------
Net expenses .............................. 27 13,579 15,538 150,542 49 544
------ -------- -------- ---------- ------ -------
NET INVESTMENT INCOME (LOSS) ................. (27) 58,630 29,713 887,915 117 2,408
------ -------- -------- ---------- ------ -------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 2):
Realized gain (loss) from share
transactions ............................... (746) 14,090 102,691 960,887 (276) 4,416
Realized gain distribution from Trust ....... -- 116,462 195,686 3,440,767 -- --
------ -------- -------- ---------- ------ -------
Net Realized Gain (Loss) .................. (746) 130,552 298,377 4,401,654 (276) 4,416
------ -------- -------- ---------- ------ -------
Change in unrealized appreciation/
(depreciation) of investments .............. 4,523 25,407 50,086 1,008,639 3,923 54,572
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................. 3,777 155,959 348,463 5,410,293 3,647 58,988
------ -------- -------- ---------- ------ -------
NET INCREASE\(DECREASE) IN NET ASSETS FROM
OPERATIONS .................................. $3,750 $214,589 $378,176 $6,298,208 $3,764 $61,396
====== ======== ======== ========== ====== =======
</TABLE>
- -------
* Commencement of Operations on July 1, 1998
See Notes to Financial Statements.
FSA-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 301
STATEMENTS OF CHANGE IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ALLIANCE
INTERMEDIATE
ALLIANCE GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------------- ---------------------------
1998 1997 1998 1997
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income ......................... $ 878,844 $ 974,931 $ 275,745 $ 271,792
Realized gain (loss) on investments ........... 86,791 68,633 (32,976) (327,420)
Change in unrealized appreciation/
(depreciation) of investments ................ 9,067 (27,007) 164,547 401,428
----------- ------------ ---------- ----------
Net increase (decrease) in Net Assets from
Operations ................................... 974,702 1,016,557 407,316 345,800
----------- ------------ ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS
(NOTE 3 AND 4):
Contributions and transfers:
Contributions. ............................... 4,115,089 1,483,866 212,370 165,347
Transfers from other funds . ................. 16,930,606 12,126,642 1,878,677 1,346,973
Transfers from Guaranteed Rate
Account ..................................... 739,934 1,444,241 15,660 94,401
----------- ------------ ---------- ----------
Total Contributions ......................... 21,785,629 15,054,749 2,106,707 1,606,721
----------- ------------ ---------- ----------
Withdrawals and Transfers:
Withdrawals .................................. 5,560,917 5,013,401 470,906 657,245
Transfers to other funds ..................... 16,999,881 11,804,062 823,160 1,541,457
Transfer to Guaranteed Rate Account .......... -- 27,233 13,160 12,546
Participant service charge ................... 18,983 25,638 1,718 1,594
----------- ------------ ---------- ----------
Total withdrawals ........................... 22,579,781 16,870,334 1,308,944 2,212,842
----------- ------------ ---------- ----------
Net increase (decrease) in net assets
from Contract Owner transactions ............ (794,152) (1,815,585) 797,763 (606,121)
----------- ------------ ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .................. 180,550 (799,028) 1,205,079 (260,321)
NET ASSETS -- BEGINNING OF YEAR ATTRIBUTABLE
TO POLICYOWNERS ............................... 19,915,071 20,714,099 5,244,158 5,504,479
----------- ------------ ---------- ----------
NET ASSETS -- END OF YEAR (NOTE 1)
ATTRIBUTABLE TO POLICYOWNERS .................. $20,095,621 $ 19,915,071 $6,449,237 $5,244,158
=========== ============ ========== ==========
<CAPTION>
ALLIANCE ALLIANCE
HIGH YIELD FUND GROWTH & INCOME FUND
--------------------------- --------------------------
1998 1997 1998 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income ......................... $ 375,584 $ 312,581 $ (11,479) $ 15,986
Realized gain (loss) on investments ........... 117,549 166,947 930,699 695,355
Change in unrealized appreciation/
(depreciation) of investments ................ (727,821) 111,190 295,676 63,314
---------- ---------- ---------- ----------
Net increase (decrease) in Net Assets from
Operations ................................... (234,688) 590,718 1,214,896 774,655
---------- ---------- ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS
(NOTE 3 AND 4):
Contributions and transfers:
Contributions. ............................... 288,584 322,513 1,099,761 1,557,049
Transfers from other funds . ................. 1,367,863 972,728 1,017,283 1,670,343
Transfers from Guaranteed Rate
Account ..................................... 56,849 77,364 174,948 205,299
---------- ---------- ---------- ----------
Total Contributions ......................... 1,713,296 1,372,605 2,291,992 3,432,691
---------- ---------- ---------- ----------
Withdrawals and Transfers:
Withdrawals .................................. 390,688 71,448 805,103 293,988
Transfers to other funds ..................... 2,050,870 481,930 1,051,082 1,317,274
Transfer to Guaranteed Rate Account .......... 6,569 -- 10,289 --
Participant service charge ................... 620 805 (263) 367
---------- ---------- ---------- ----------
Total withdrawals ........................... 2,448,747 554,183 1,866,211 1,611,629
---------- ---------- ---------- ----------
Net increase (decrease) in net assets
from Contract Owner transactions ............ (735,451) 818,422 425,781 1,821,062
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .................. (970,139) 1,409,140 1,640,677 2,595,717
NET ASSETS -- BEGINNING OF YEAR ATTRIBUTABLE
TO POLICYOWNERS ............................... 4,236,484 2,827,344 5,956,412 3,360,695
---------- ---------- ---------- ----------
NET ASSETS -- END OF YEAR (NOTE 1)
ATTRIBUTABLE TO POLICYOWNERS .................. $3,266,345 $4,236,484 $7,597,089 $5,956,412
========== ========== ========== ==========
</TABLE>
- -------
See Notes to Financial Statements.
FSA-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 301
STATEMENTS OF CHANGE IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
COMMON STOCK FUND GLOBAL FUND
------------------------------- ----------------------------
1998 1997 1998 1997
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income ......................... $ 256,084 $ 138,157 $ 44,737 $ 88,670
Realized gain (loss) on investments ........... 19,493,860 10,360,887 666,580 1,097,794
Change in unrealized appreciation/
(depreciation) of investments ................ 5,953,990 10,127,141 494,628 (570,164)
------------ ------------ ---------- ----------
Net increase (decrease) in Net Assets from
Operations ................................... 25,703,934 20,626,185 1,205,945 616,300
------------ ------------ ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS
(NOTE 3 AND 4):
Contributions and transfers:
Contributions ................................ 4,601,204 2,493,485 358,695 488,048
Transfers from other funds ................... 12,691,834 9,320,877 479,694 2,571,195
Transfers from Guaranteed Rate
Account ..................................... 435,008 358,057 68,162 76,975
------------ ------------ ---------- ----------
Total Contributions ......................... 17,728,046 12,172,419 906,551 3,136,218
------------ ------------ ---------- ----------
Withdrawals and Transfers:
Withdrawals .................................. 6,288,426 4,684,497 498,283 552,263
Transfers to other funds ..................... 12,834,510 8,806,471 654,870 2,793,492
Transfers to Guaranteed Rate Account ......... 219,886 117,496 47,615 33,941
Participant service charge ................... (202) 30,773 3,600 1,129
------------ ------------ ---------- ----------
Total withdrawals ........................... 19,342,620 13,639,237 1,204,368 3,380,825
------------ ------------ ---------- ----------
Net increase (decrease) in net assets
from Contract Owner transactions ............ (1,614,574) (1,466,818) (297,817) (244,607)
------------ ------------ ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .................. 24,089,360 19,159,367 908,128 371,693
NET ASSETS -- BEGINNING OF YEAR ATTRIBUTABLE
TO POLICYOWNERS ............................... 91,570,694 72,411,327 5,924,303 5,552,610
------------ ------------ ---------- ----------
NET ASSETS -- END OF YEAR (NOTE 1)
ATTRIBUTABLE TO POLICYOWNERS .................. $115,660,054 $ 91,570,694 $6,832,431 $5,924,303
============ ============ ========== ==========
<CAPTION>
T. ROWE PRICE
INTERNATIONAL ALLIANCE
STOCK FUND* AGGRESIVE STOCK FUND
--------------- ---------------------------
1998 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income ......................... $ 290 $ (2,164) $ (29,230)
Realized gain (loss) on investments ........... (508) 402,443 1,264,545
Change in unrealized appreciation/
(depreciation) of investments ................ 1,325 (530,062) (227,485)
------- ---------- ----------
Net increase (decrease) in Net Assets from
Operations ................................... 1,107 (129,783) 1,007,830
------- ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS
(NOTE 3 AND 4):
Contributions and transfers:
Contributions ................................ 26,622 546,826 1,677,402
Transfers from other funds ................... 14,002 6,500,343 6,072,938
Transfers from Guaranteed Rate
Account ..................................... -- 116,019 159,364
------- ---------- ----------
Total Contributions ......................... 40,624 7,163,188 7,909,704
------- ---------- ----------
Withdrawals and Transfers:
Withdrawals .................................. -- 649,169 606,970
Transfers to other funds ..................... 4,000 6,458,343 6,947,161
Transfers to Guaranteed Rate Account ......... -- 11,645 --
Participant service charge ................... -- 4,033 2,160
------- ---------- ----------
Total withdrawals ........................... 4,000 7,123,190 7,556,291
------- ---------- ----------
Net increase (decrease) in net assets
from Contract Owner transactions ............ 36,624 39,998 353,413
------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .................. 37,731 (89,785) 1,361,243
NET ASSETS -- BEGINNING OF YEAR ATTRIBUTABLE
TO POLICYOWNERS ............................... -- 8,804,222 7,442,979
------- ---------- ----------
NET ASSETS -- END OF YEAR (NOTE 1)
ATTRIBUTABLE TO POLICYOWNERS .................. $37,731 $8,714,437 $8,804,222
======= ========== ==========
</TABLE>
- -------
* Commencement of Operations on July 1, 1998
See Notes to Financial Statements.
FSA-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 301
STATEMENTS OF CHANGE IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MFS EMERGING
GROWTH ALLIANCE
COMPANIES CONSERVATIVE ALLIANCE
FUND* INVESTORS FUND GROWTH INVESTORS FUND
-------------- --------------------------- -------------------------
1998 1998 1997 1998 1997
-------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income .................... $ (27) $ 58,630 $ 26,386 $ 29,713 $ 32,053
Realized gain (loss) on investments ...... (746) 130,552 40,409 298,377 141,316
Change in unrealized appreciation/
(depreciation) of investments ........... 4,523 25,407 30,727 50,086 102,273
------- ---------- --------- ---------- ----------
Net increase (decrease) in Net Assets
from Operations ......................... 3,750 214,589 97,522 378,176 275,642
------- ---------- --------- ---------- ----------
FROM CONTRACT OWNER TRANSACTIONS
(NOTE 3 AND 4):
Contributions and transfers:
Contributions ........................... 26,964 842,039 99,277 481,314 176,704
Transfers from other funds .............. 19,178 501,717 170,098 433,135 502,761
Transfers from Guaranteed Rate
Account ................................ (3) 10,985 1,300 53,878 24,896
--------- ---------- --------- ---------- ----------
Total Contributions .................... 46,139 1,354,741 270,675 968,327 704,361
-------- ---------- --------- ---------- ----------
Withdrawals and Transfers:
Withdrawals ............................. -- 44,170 8,438 391,158 48,477
Transfers to other funds ................ 6,287 190,487 315,494 439,828 369,292
Transfer to Guaranteed Rate Account ..... -- -- 32 24,217 --
Participant service charge .............. -- (292) 156 257 326
-------- ---------- --------- ---------- ----------
Total withdrawals ...................... 6,287 234,365 324,120 855,460 418,095
-------- ---------- --------- ---------- ----------
Net increase (decrease) in net assets
from Contract Owner transactions ....... 39,852 1,120,376 (53,445) 112,867 286,266
-------- ---------- --------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS ............. 43,602 1,334,965 44,077 491,043 561,908
NET ASSETS -- BEGINNING OF YEAR
ATTRIBUTABLE TO POLICYOWNERS ............. -- 918,392 874,315 1,989,252 1,427,344
-------- ---------- --------- ---------- ----------
NET ASSETS -- END OF YEAR (NOTE 1)
ATTRIBUTABLE TO POLICYOWNERS ............. $43,602 $2,253,357 $ 918,392 $2,480,295 $1,989,252
======== ========== ========= ========== ==========
<CAPTION>
BT
LAZARD EQUITY 500
ALLIANCE SMALL CAP INDEX
BALANCED FUND VALUE FUND* FUND*
------------------------------- ------------- -----------
1998 1997 1998 1998
--------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net Investment Income .................... $ 887,915 $ 1,056,157 $ 117 $ 2,408
Realized gain (loss) on investments ...... 4,401,654 2,967,242 (276) 4,416
Change in unrealized appreciation/
(depreciation) of investments ........... 1,008,639 979,323 3,923 54,572
------------ ------------ ------- --------
Net increase (decrease) in Net Assets
from Operations ......................... 6,298,208 5,002,722 3,764 61,396
------------ ------------ ------- --------
FROM CONTRACT OWNER TRANSACTIONS
(NOTE 3 AND 4):
Contributions and transfers:
Contributions ........................... 1,567,580 2,040,947 24,583 407,459
Transfers from other funds .............. 3,069,563 3,849,001 44,697 286,817
Transfers from Guaranteed Rate
Account ................................ 133,795 86,218 178 565
------------ ------------ ------- --------
Total Contributions .................... 4,770,938 5,976,166 69,458 694,841
------------ ------------ ------- --------
Withdrawals and Transfers:
Withdrawals ............................. 3,496,518 4,212,986 -- 355
Transfers to other funds ................ 3,543,679 4,226,912 13,437 165,543
Transfer to Guaranteed Rate Account ..... 54,523 2,614 -- --
Participant service charge .............. 10,266 13,533 2 65
------------ ------------ ------- --------
Total withdrawals ...................... 7,104,986 8,456,045 13,439 165,963
------------ ------------ ------- --------
Net increase (decrease) in net assets
from Contract Owner transactions ....... (2,334,048) (2,479,879) 56,019 528,878
------------ ------------ ------- --------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS ............. 3,964,160 2,522,843 59,783 590,274
NET ASSETS -- BEGINNING OF YEAR
ATTRIBUTABLE TO POLICYOWNERS ............. 37,371,321 34,848,478 -- --
------------ ------------ ------- --------
NET ASSETS -- END OF YEAR (NOTE 1)
ATTRIBUTABLE TO POLICYOWNERS ............. $ 41,335,481 $ 37,371,321 $59,783 $590,274
============ ============ ======= ========
</TABLE>
- -------
* Commencement of Operations on July 1, 1998
See Notes to Financial Statements.
FSA-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 301 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account is used to fund benefits under certain group annuity contracts and
certificates (Contracts) in connection with individual retirement annuities
and tax-sheltered annuity arrangements. The Account has fourteen investment
funds (Funds): Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund, Alliance High Yield Fund, Alliance Growth & Income Fund,
Alliance Common Stock Fund, Alliance Global Fund, T. Rowe Price
International Stock Fund, Alliance Aggressive Stock Fund, MFS Emerging
Growth Companies Fund, Alliance Conservative Investors Fund, Alliance
Growth Investors Fund, Alliance Balanced Fund, Lazard Small Cap Value Fund
and BT Equity 500 Index Fund. The assets in each Fund are invested in
shares of a corresponding portfolio (Portfolio) of a mutual fund, Class IA
shares of The Hudson River Trust (HRT) or Class IB shares of EQ Advisors
Trust (EQAT) (collectively known as the Trusts). Class IA and IB shares are
offered by the Trusts at net asset value. Both classes of shares are
subject to fees for investment management and advisory services and other
Trust expenses. Class IB shares are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
act. These fees are reflected in the net asset value of the shares. The
Trusts are open-ended, diversified, management investment companies that
invest separate accounts assets of insurance companies. Each Portfolio has
separate investment objectives.
EQ Financial Consultants ("EQFC") is a wholly owned subsidiary of Equitable
Life. Alliance Capital Management L.P. ("Alliance"), a publicly traded
limited partnership, is indirectly majority-owned subsidiary of Equitable.
EQFC earns fees from both Trusts under distribution agreements held with
the Trusts. EQFC also earns fees under the investment management agreement
with the EQ Advisors Trust. Alliance earns fees under an investment
advisory agreement with the HR Trust.
The assets of the Account are the property of Equitable Life. The net
assets of the Account are not chargeable with liabilities arising out of
any other business Equitable Life may conduct. The excess of assets over
reserves and other contract liabilities, if any, in the Account may be
transferred to Equitable Life's General Account.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trusts and are valued at the net
asset values per share of the respective Portfolios. The net asset value is
determined by the Trusts using the market or fair value of the underlying
assets of the Portfolio, less liabilities.
Investment transactions are recorded on the trade date. Dividends are
recorded by HR Trust as income at the end of each quarter and by EQ Trust
in the fourth quarter on the ex-dividend date. Realized gains and losses
include gains and losses on redemptions of Trust shares (determined on the
identified cost basis) and Trust distributions representing the net
realized gains on Trust investment transactions are distributed by the
Trusts at the end of each year. Dividends and capital gain
FSA-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
distributions are automatically reinvested on the ex-dividend date.
No Federal income tax based on net investment income or realized and
unrealized capital gains is currently applicable to Contracts participating
in the Account by reason of applicable provisions of the Internal Revenue
Code and no Federal income tax payable by Equitable Life is expected to
affect the unit value of Contracts participating in the Account.
Accordingly, no provision for income taxes is required. Equitable Life
reserves the right to charge the Account for taxes and to establish
reserves for taxes.
3. Asset Charges
The following charges are made directly against the assets of the Account
and are reflected daily in the computation of the unit values of the
Contracts:
o Administrative fees are charged at an effective annual rate of 0.25%
of the net assets of each Fund.
o Direct operating expenses are paid to cover expenses attributable to
the operations of each Fund.
Under the Contracts, Equitable Life reimburses the Alliance Money Market
Fund, the Alliance Common Stock Fund, the Alliance Intermediate Government
Securities Fund and the Alliance Balanced Fund for the excess of the
aggregate expense charges of each Fund (including investment advisory fees
and certain other Trust expenses attributable to assets of such Fund
invested in a Portfolio of the Trust and the asset-based charges of the
Fund, as described above) which during any calendar year exceed 1.5% of the
average daily net assets of the Alliance Common Stock Fund, the Alliance
Intermediate Government Securities Fund and the Alliance Balanced Fund and
1.0% of the Alliance Money Market Fund. In addition, Equitable life
voluntarily reimburses the Alliance High Yield Fund, the Alliance
Aggressive Stock Fund and the Alliance Global Fund for aggregate expenses
in excess of 1.5% of each Fund's average daily net assets. The above
expense reimbursement is disclosed in the statements of operation as
Reimbursement for excess expense limitation. This voluntary expense
limitation may be discontinued by Equitable Life at its discretion.
Also, if the annual amount of management fees applicable to the Alliance
Money Market Portfolio and the Alliance Intermediate Government Securities
Portfolio exceeds 0.35% of the average daily net asset value of either
Portfolio, Equitable Life will reimburse the related Fund for such excess.
This expense limitation is a contractual right for Participants who
enrolled prior to May 1, 1987 and cannot be changed without the consent of
those Participants. Equitable Life has voluntarily agreed to impose this
expense limitation for Participants who enrolled after May 1, 1987 and
reserves the right to discontinue this at any time.
A quarterly Participant Service Charge is made for each participant at the
end of each calendar quarter before retirement benefits begin.
Participant's unit balances are reduced and proceeds are credited to
Equitable Life in payment of the participant's service charge which will
not exceed $30 per year.
4. Contributions and Withdrawals:
Contributions allocated to the Account are not subject to sales expense.
Participants may transfer all or part of the cash value under the Contracts
from one Fund to another subject to certain limitations. Transfers to and
from the Guaranteed Interest Account of Equitable Life's General Account
and the Account may be made subject to certain limitations.
Full or partial withdrawals, including withdrawals of excess contributions,
may be made by participants.
FSA-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
4. Contributions and Withdrawals (Continued)
Units of the Account issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
ALLIANCE MONEY MARKET FUND
- --------------------------
Issued ........................................ 783,925 570,094
Redeemed ...................................... 812,088 637,829
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Issued ........................................ 44,628 36,260
Redeemed ...................................... 27,762 50,418
ALLIANCE HIGH YIELD FUND
- ------------------------
Issued ........................................ 53,382 48,832
Redeemed ...................................... 78,168 19,795
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Issued ........................................ 115,154 198,680
Redeemed ...................................... 95,134 105,360
ALLIANCE COMMON STOCK FUND
- --------------------------
Issued ........................................ 117,261 102,590
Redeemed ...................................... 129,787 115,815
ALLIANCE GLOBAL FUND
- --------------------
Issued ........................................ 28,913 110,921
Redeemed ...................................... 38,659 119,387
T. ROWE PRICE INTERNATIONAL STOCK FUND
- --------------------------------------
Issued ........................................ 3,731 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Issued ........................................ 158,864 188,408
Redeemed ...................................... 160,322 175,110
MFS EMERGING GROWTH COMPANIES FUND
- ----------------------------------
Issued ........................................ 3,719 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Issued ........................................ 94,737 21,439
Redeemed ...................................... 16,247 25,854
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Issued ........................................ 56,476 49,187
Redeemed ...................................... 49,546 28,095
ALLIANCE BALANCED FUND
- ----------------------
Issued ........................................ 62,524 88,387
Redeemed ...................................... 93,597 124,271
LAZARD SMALL CAP VALUE FUND
- ---------------------------
Issued ........................................ 6,644 --
BT EQUITY 500 INDEX FUND
- ------------------------
Issued ........................................ 51,505 --
</TABLE>
FSA-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
5. Accumulation Unit Values
Shown below is unit value information for the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALLIANCE MONEY MARKET FUND
- --------------------------
Unit value, beginning of year ..... $ 27.05 $ 25.77 $ 24.55 $ 23.32
======= ======= ======= =======
Unit value, end of year ........... $ 28.38 $ 27.05 $ 25.77 $ 24.55
======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 708 736 804 850
======= ======= ======= =======
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND
- ---------------------------
Unit value, beginning of year ..... $ 45.11 $ 42.20 $ 40.82 $ 36.13
======= ======= ======= =======
Unit value, end of year ........... $ 48.43 $ 45.11 $ 42.20 $ 40.82
======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 133 116 130 153
======= ======= ======= =======
ALLIANCE HIGH YIELD FUND
- ------------------------
Unit value, beginning of year ..... $ 31.16 $ 26.45 $ 21.67 $ 18.18
======= ======= ======= =======
Unit value, end of year ........... $ 29.39 $ 31.16 $ 26.45 $ 21.67
======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 111 136 107 87
======= ======= ======= =======
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET FUND
- --------------------------
Unit value, beginning of year ..... $ 22.48 $ 21.93 $ 21.29 $ 20.17 $ 18.73 $ 17.23
======= ======= ======= ======= ======= =======
Unit value, end of year ........... $ 23.32 $ 22.48 $ 21.93 $ 21.29 $ 20.17 $ 18.73
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 1,028 1,035 1,301 1,528 1,919 1,708
======= ======= ======= ======= ======= =======
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND
- ---------------------------
Unit value, beginning of year ..... $ 37.77 $ 34.34 $ 32.73 $ 28.79 $ 27.19 $ 23.63
======= ======= ======= ======= ======= =======
Unit value, end of year ........... $ 36.13 $ 37.77 $ 34.34 $ 32.73 $ 28.79 $ 27.19
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 166 188 184 177 242 223
======= ======= ======= ======= ======= =======
ALLIANCE HIGH YIELD FUND
- ------------------------
Unit value, beginning of year ..... $ 18.84 $ 15.40 $ 13.84 $ 11.11 $ 11.67 $ 11.60
======= ======= ======= ======= ======= =======
Unit value, end of year ........... $ 18.18 $ 18.84 $ 15.40 $ 13.84 $ 11.11 $ 11.67
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 80 78 53 27 16 18
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, MAY 2, 1994* TO
------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Unit value, beginning of year ........ $ 18.35 $ 14.55 $ 12.21 $ 9.92 $ 10.00
======= ======= ======= ======= =======
Unit value, end of year .............. $ 22.06 $ 18.35 $ 14.55 $ 12.21 $ 9.92
======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) ................. 344 324 231 134 105
======= ======= ======= ======= =======
</TABLE>
- ----------
* Date on which participant contributions were first allocated to the Fund.
FSA-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
5. Accumulation Unit Values (Continued)
Shown below is unit value information for the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
ALLIANCE COMMON STOCK FUND
- --------------------------
Unit value, beginning of year ...... $ 134.77 $ 104.68 $ 84.56 $ 64.13
======== ======== ======== =======
Unit value, end of year ............ $ 173.65 $ 134.77 $ 104.68 $ 84.56
======== ======== ======== =======
Number of units outstanding,
end of year (000's) ............... 666 678 692 673
======== ======== ======== =======
ALLIANCE GLOBAL FUND
- --------------------
Unit value, beginning of year ...... $ 28.80 $ 25.95 $ 22.76 $ 19.25
======== ======== ======== =======
Unit value, end of year ............ $ 34.89 $ 28.80 $ 25.95 $ 22.76
======== ======== ======== =======
Number of units outstanding,
end of year (000's) ............... 196 206 214 201
======== ======== ======== =======
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE COMMON STOCK FUND
- --------------------------
Unit value, beginning of year ...... $ 65.89 $ 52.97 $ 51.55 $ 35.87 $ 40.94 $ 33.04
======= ======= ======= ======= ======= =======
Unit value, end of year ............ $ 64.13 $ 65.89 $ 52.97 $ 51.55 $ 35.87 $ 40.94
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) ............... 694 715 736 790 930 963
======= ======= ======= ======= ======= =======
ALLIANCE GLOBAL FUND
- --------------------
Unit value, beginning of year ...... $ 18.40 $ 14.01 $ 14.20 $ 11.23 $ 11.97 $ 9.58
======= ======= ======= ======= ======= =======
Unit value, end of year ............ $ 19.25 $ 18.40 $ 14.01 $ 14.20 $ 11.23 $ 11.97
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) ............... 195 153 55 42 32 19
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JULY 1, 1998* TO
DECEMBER 31, 1998
-------------------
<S> <C>
T. ROWE PRICE INTERNATIONAL STOCK FUND
- --------------------------------------
Unit value, beginning of year ............................ $ 10.00
=======
Unit value, end of year .................................. $ 10.05
=======
Number of units outstanding, end of year (000's) ......... 4
=======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Unit value, beginning of year ..... $ 43.83 $ 39.73 $ 32.67 $ 24.95
======= ======= ======= =======
Unit value, end of year ........... $ 43.73 $ 43.83 $ 39.73 $ 32.67
======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 199 201 187 190
======= ======= ======= =======
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Unit value, beginning of year ..... $ 26.14 $ 22.54 $ 23.43 $ 13.34 $ 12.47 $ 8.70
======= ======= ======= ======= ======= =======
Unit value, end of year ........... $ 24.95 $ 26.14 $ 22.54 $ 23.43 $ 13.34 $ 12.47
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 141 125 156 125 48 27
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JULY 1, 1998* TO
DECEMBER 31, 1998
-------------------
<S> <C>
MFS EMERGING GROWTH COMPANIES FUND
- ----------------------------------
Unit value, beginning of year ............................ $ 10.00
=======
Unit value, end of year .................................. $ 11.76
=======
Number of units outstanding, end of year (000's) ......... 4
=======
</TABLE>
- ----------
* Date on which participant contributions were first allocated to the fund.
FSA-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
5. Accumulation Unit Values (Continued)
Shown below is unit value information for the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, MAY 2, 1994* TO
------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Unit value, beginning of year .......... $ 13.71 $ 12.25 $ 11.79 $ 9.92 $ 10.00
======= ======= ======= ======= =======
Unit value, end of year ................ $ 15.49 $ 13.71 $ 12.25 $ 11.79 $ 9.92
======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) ................... 145 67 71 75 50
======= ======= ======= ======= =======
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Unit value, beginning of year .......... $ 15.80 $ 13.64 $ 12.23 $ 9.79 $ 10.00
======= ======= ======= ======= =======
Unit value, end of year ................ $ 18.69 $ 15.80 $ 13.64 $ 12.23 $ 9.79
======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) ................... 133 126 105 93 37
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALLIANCE BALANCED FUND
- ----------------------
Unit value, beginning of year ..... $ 71.42 $ 62.36 $ 56.07 $ 47.03
======= ======= ======= =======
Unit value, end of year ........... $ 84.01 $ 71.42 $ 62.36 $ 56.07
======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 492 523 559 617
======= ======= ======= =======
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE BALANCED FUND
- ----------------------
Unit value, beginning of year ..... $ 51.38 $ 45.92 $ 47.50 $ 33.76 $ 33.91 $ 27.04
======= ======= ======= ======= ======= =======
Unit value, end of year ........... $ 47.03 $ 51.38 $ 45.92 $ 47.50 $ 33.76 $ 33.91
======= ======= ======= ======= ======= =======
Number of units outstanding,
end of year (000's) .............. 681 756 827 949 1,217 1,260
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
* Date on which participant contributions were first allocated to the Fund.
FSA-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 301
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
5. Accumulation Unit Values (Continued)
Shown below is unit value information for the period shown.
<TABLE>
<CAPTION>
JULY 1, 1998* TO
DECEMBER 31, 1998
-------------------
<S> <C>
LAZARD SMALL CAP VALUE FUND (A)
- -------------------------------
Unit value, beginning of year ............................ $ 10.00
=======
Unit value, end of year .................................. $ 8.94
=======
Number of units outstanding, end of year (000's) ......... 7
=======
</TABLE>
<TABLE>
<CAPTION>
JULY 1, 1998* TO
DECEMBER 31, 1998
-------------------
<S> <C>
BT EQUITY 500 INDEX FUND (A)
- ----------------------------
Unit value, beginning of year ............................ $ 10.00
=======
Unit value, end of year .................................. $ 11.31
=======
Number of units outstanding, end of year (000's) ......... 52
=======
</TABLE>
- ----------
* Date on which participant contributions were first allocated to the Fund.
FSA-14
<PAGE>
February 8, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of shareholder's equity and
comprehensive income and of cash flows present fairly, in all material
respects, the financial position of The Equitable Life Assurance Society of the
United States and its subsidiaries ("Equitable Life") at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Equitable Life's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable
Life changed its method of accounting for long-lived assets in 1996.
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value ........................ $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost ................................ 125.0 --
Mortgage loans on real estate ........................................ 2,809.9 2,611.4
Equity real estate ................................................... 1,676.9 2,495.1
Policy loans ......................................................... 2,086.7 2,422.9
Other equity investments ............................................. 713.3 951.5
Investment in and loans to affiliates ................................ 928.5 731.1
Other invested assets ................................................ 808.2 612.2
------------ -----------
Total investments ................................................. 28,142.2 29,455.1
Cash and cash equivalents ............................................. 1,245.5 300.5
Deferred policy acquisition costs ..................................... 3,563.8 3,236.6
Amounts due from discontinued operations .............................. 2.7 572.8
Other assets .......................................................... 3,051.9 2,687.4
Closed Block assets ................................................... 8,632.4 8,566.6
Separate Accounts assets .............................................. 43,302.3 36,538.7
------------ -----------
TOTAL ASSETS .......................................................... $ 87,940.8 $ 81,357.7
============ ===========
LIABILITIES
Policyholders' account balances ....................................... $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities ........... 4,694.2 4,553.8
Short-term and long-term debt ......................................... 1,181.7 1,716.7
Other liabilities ..................................................... 3,474.3 3,267.2
Closed Block liabilities .............................................. 9,077.0 9,073.7
Separate Accounts liabilities ......................................... 43,211.3 36,306.3
------------ -----------
Total liabilities ................................................. 82,528.2 76,497.2
------------ -----------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued and
outstanding .......................................................... 2.5 2.5
Capital in excess of par value ........................................ 3,110.2 3,105.8
Retained earnings ..................................................... 1,944.1 1,235.9
Accumulated other comprehensive income ................................ 355.8 516.3
------------ -----------
Total shareholder's equity ........................................ 5,412.6 4,860.5
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ............................ $ 87,940.8 $ 81,357.7
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee income .......... $ 1,056.2 $ 950.6 $ 874.0
Premiums .............................................................. 588.1 601.5 597.6
Net investment income ................................................. 2,228.1 2,282.8 2,203.6
Investment gains (losses), net ........................................ 100.2 (45.2) (9.8)
Commissions, fees and other income .................................... 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block .................................... 87.1 102.5 125.0
----------- --------- ---------
Total revenues ..................................................... 5,562.7 5,119.4 4,872.2
----------- --------- ---------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances .................. 1,153.0 1,266.2 1,270.2
Policyholders' benefits ............................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses .................................... 2,201.2 2,203.9 2,075.7
----------- --------- ---------
Total benefits and other deductions ................................ 4,378.9 4,448.7 4,663.6
----------- --------- ---------
Earnings from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change ......... 1,183.8 670.7 208.6
Federal income taxes .................................................. 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries .......... 125.2 54.8 81.7
----------- --------- ---------
Earnings from continuing operations before cumulative effect of
accounting change .................................................... 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes .................. 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal income
taxes ................................................................ -- -- (23.1)
----------- --------- ---------
Net Earnings .......................................................... $ 708.2 $ 437.2 $ 10.3
=========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND
COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year ............. $ 2.5 $ 2.5 $ 2.5
---------- --------- ---------
Capital in excess of par value, beginning of year ................. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value ......................... 4.4 -- --
---------- --------- ---------
Capital in excess of par value, end of year ....................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year .............................. 1,235.9 798.7 788.4
Net earnings ...................................................... 708.2 437.2 10.3
---------- --------- ---------
Retained earnings, end of year .................................... 1,944.1 1,235.9 798.7
---------- --------- ---------
Accumulated other comprehensive income, beginning of year ......... 516.3 177.0 361.4
Other comprehensive income ........................................ (160.5) 339.3 (184.4)
---------- --------- ---------
Accumulated other comprehensive income, end of year ............... 355.8 516.3 177.0
---------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR ........................... $ 5,412.6 $ 4,860.5 $ 4,084.0
========== ========= =========
COMPREHENSIVE INCOME
Net earnings ...................................................... $ 708.2 $ 437.2 $ 10.3
---------- --------- ---------
Change in unrealized gains (losses), net of reclassification
adjustment ....................................................... (149.5) 343.7 (206.6)
Minimum pension liability adjustment .............................. (11.0) (4.4) 22.2
---------- --------- ---------
Other comprehensive income ........................................ (160.5) 339.3 (184.4)
---------- --------- ---------
COMPREHENSIVE INCOME .............................................. $ 547.7 $ 776.5 $ (174.1)
========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings .......................................................... $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Interest credited to policyholders' account balances ................. 1,153.0 1,266.2 1,270.2
Universal life and investment-type product policy fee income ......... (1,056.2) (950.6) (874.0)
Investment (gains) losses ............................................ (100.2) 45.2 9.8
Change in Federal income tax payable ................................. 123.1 (74.4) (197.1)
Other, net ........................................................... (324.9) 169.4 330.2
----------- ----------- -----------
Net cash provided by operating activities ............................. 503.0 893.0 549.4
----------- ----------- -----------
Cash flows from investing activities:
Maturities and repayments ............................................ 2,289.0 2,702.9 2,275.1
Sales ................................................................ 16,972.1 10,385.9 8,964.3
Purchases ............................................................ (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments ........................ 102.4 (555.0) 450.3
Decrease in loans to discontinued operations ......................... 660.0 420.1 1,017.0
Sale of subsidiaries ................................................. -- 261.0 --
Other, net ........................................................... (341.8) (612.6) (281.0)
----------- ----------- -----------
Net cash provided (used) by investing activities ...................... 1,103.2 (603.1) (133.9)
----------- ----------- -----------
Cash flows from financing activities:
Policyholders' account balances:
Deposits .......................................................... 1,508.1 1,281.7 1,925.4
Withdrawals ....................................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings ..................... (243.5) 419.9 (.3)
Repayments of long-term debt ......................................... (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations ............................................ (87.2) (83.9) --
Other, net ........................................................... (89.5) (62.7) (66.5)
----------- ----------- -----------
Net cash used by financing activities ................................. (661.2) (528.2) (651.4)
----------- ----------- -----------
Change in cash and cash equivalents ................................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year .......................... 300.5 538.8 774.7
----------- ----------- -----------
Cash and Cash Equivalents, End of Year ................................ $ 1,245.5 $ 300.5 $ 538.8
=========== =========== ===========
Supplemental cash flow information ....................................
Interest Paid ........................................................ $ 130.7 $ 217.1 $ 109.9
=========== =========== ===========
Income Taxes Paid (Refunded) ......................................... $ 254.3 $ 170.0 $ (10.0)
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business is conducted
principally by Equitable Life and its wholly owned life insurance subsidiaries,
Equitable of Colorado ("EOC"), and, prior to December 31, 1996, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997, EVLICO
was merged into Equitable Life, which continues to conduct the Company's
insurance business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), in which Equitable Life has a 57.7%
ownership interest, and Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), an
investment banking and brokerage affiliate in which Equitable Life has a 32.5%
ownership interest. AXA ("AXA"), a French holding company for an international
group of insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 58.5% at December 31, 1998
(53.4% if all securities convertible into, and options on, common stock were to
be converted or exercised).
The Insurance segment offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and small
groups. It also administers traditional participating group annuity contracts
with conversion features, generally for corporate qualified pension plans, and
association plans which provide full service retirement programs for
individuals affiliated with professional and trade associations. This segment
includes Separate Accounts for individual insurance and annuity products.
The Investment Services segment includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real estate
investment management subsidiary which was sold. Alliance provides diversified
investment fund management services to a variety of institutional clients,
including pension funds, endowments, and foreign financial institutions, as
well as to individual investors, principally through a broad line of mutual
funds. This segment includes institutional Separate Accounts which provide
various investment options for large group pension clients, primarily deferred
benefit contribution plans, through pooled or single group accounts. DLJ's
businesses include securities underwriting, sales and trading, merchant
banking, financial advisory services, investment research, venture capital,
correspondent brokerage services, online interactive brokerage services and
asset management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided real
estate investment management services, property management services, mortgage
servicing and loan asset management, and agricultural investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
The accompanying consolidated financial statements include the accounts of
Equitable Life and its wholly owned life insurance subsidiary (collectively,
the "Insurance Group"); non-insurance subsidiaries, principally Alliance and
EREIM (see Note 5); and those partnerships and joint ventures in which
Equitable Life or its subsidiaries has control and a majority economic interest
(collectively, including its consolidated subsidiaries, the "Company"). The
Company's investment in DLJ is reported on the equity basis of accounting.
Closed Block assets, liabilities and results of operations are presented in the
F-6
<PAGE>
consolidated financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein exclude
the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been eliminated
in consolidation. The years "1998," "1997" and "1996" refer to the years ended
December 31, 1998, 1997 and 1996, respectively. Certain reclassifications have
been made in the amounts presented for prior periods to conform these periods
with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force on
that date. The assets allocated to the Closed Block, together with anticipated
revenues from policies included in the Closed Block, were reasonably expected
to be sufficient to support such business, including provision for payment of
claims, certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the Holding
Company. No reallocation, transfer, borrowing or lending of assets can be made
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or any affiliate of Equitable Life
without the approval of the New York Superintendent of Insurance (the
"Superintendent"). Closed Block assets and liabilities are carried on the same
basis as similar assets and liabilities held in the General Account. The excess
of Closed Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block remain in
force.
Discontinued Operations
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract ("GIC")
lines of business. An allowance was established for the premium deficiency
reserve for Wind-Up Annuities and estimated future losses of the GIC line of
business. Management reviews the adequacy of the allowance each quarter and
believes the allowance for future losses at December 31, 1998 is adequate to
provide for all future losses; however, the quarterly allowance review
continues to involve numerous estimates and subjective judgments regarding the
expected performance of Discontinued Operations Investment Assets. There can be
no assurance the losses provided for will not differ from the losses ultimately
realized. To the extent actual results or future projections of the
discontinued operations differ from management's current best estimates and
assumptions underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and holding
periods for equity real estate differ from management's previous assumptions,
periodic adjustments to the allowance are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for public companies to report information about
operating segments in annual and interim financial statements issued to
shareholders. It also specifies related disclosure requirements for products
and services, geographic areas and major customers. Generally, financial
information must be reported using the basis management uses to make operating
decisions and to evaluate business performance. The Company implemented SFAS
No. 131 effective December 31, 1998 and continues to identify two operating
segments to reflect its major businesses: Insurance and Investment Services.
While the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable segments.
Prior period comparative segment information has been restated.
F-7
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In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which requires
capitalization of external and certain internal costs incurred to obtain or
develop internal-use computer software during the application development
stage. The Company applied the provisions of SOP 98-1 prospectively effective
January 1, 1998. The adoption of SOP 98-1 did not have a material impact on the
Company's consolidated financial statements. Capitalized internal-use software
is amortized on a straight-line basis over the estimated useful life of the
software.
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of January
1, 1996. SFAS No. 121 requires long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying value of such assets may not be
recoverable. Effective with SFAS No. 121's adoption, impaired real estate is
written down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were computed using
the forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds. Adoption of the statement resulted in the
release of valuation allowances of $152.4 million and recognition of impairment
losses of $144.0 million on real estate held for production of income. Real
estate which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale continue to be
computed using the lower of depreciated cost or estimated fair value, net of
disposition costs. Initial adoption of the impairment requirements of SFAS No.
121 to other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal income tax
benefit of $12.4 million, due to the writedown to fair value of building
improvements relating to facilities vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which amends existing
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are
substantially similar to the primary operations of a mortgage banking
enterprise. This statement is effective for the first fiscal quarter beginning
after December 15, 1998. This statement is not expected to have a material
impact on the Company's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts, and for hedging activities. It requires all derivatives to be
recognized on the balance sheet at fair value. The accounting for changes in
the fair value of a derivative depends on its intended use. Derivatives not
used in hedging activities must be adjusted to fair value through earnings.
Changes in the fair value of derivatives used in hedging activities will,
depending on the nature of the hedge, either be offset in earnings against the
change in fair value of the hedged item attributable to the risk being hedged
or recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal quarter
following issuance of the statement. Retroactive application to financial
statements of prior periods is prohibited. The Company expects to adopt SFAS
No. 133 effective January 1, 2000. Adjustments resulting from initial adoption
of the new requirements will be reported in a manner similar to the cumulative
effect of a change in accounting principle and will be reflected in net income
or accumulated other comprehensive income based upon existing hedging
relationships, if any. Management currently is assessing the impact of
adoption. However, Alliance's adoption is not expected to have a significant
impact on the Company's consolidated balance sheet or statement of earnings.
Also, since most of DLJ's derivatives are carried at fair values, the Company's
consolidated earnings and financial position are not expected to be
significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance Risk".
This SOP, effective for fiscal years beginning after June 15, 1999, provides
guidance to both the insured and insurer on how to apply the deposit method of
accounting when it is required for insurance and reinsurance contracts that do
not transfer insurance risk. The SOP does not address or change the
requirements as to when deposit accounting should be applied. SOP 98-7 applies
to all entities and all insurance and reinsurance contracts that do not
transfer insurance risk except for long-duration life and health insurance
contracts. This SOP is not expected to have a material impact on the Company's
consolidated financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments". SOP 97-3 provides
guidance for assessments related to insurance activities and requirements for
disclosure of certain information. SOP 97-3 is effective for financial
statements issued for periods beginning after December 31, 1998. Restatement of
previously issued financial statements is not required. SOP 97-3 is not
expected to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the ability
and the intent to hold to maturity, are stated principally at amortized cost.
The amortized cost of fixed maturities is adjusted for impairments in value
deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which they
apply.
Mortgage loans on real estate are stated at unpaid principal balances, net
of unamortized discounts and valuation allowances. Valuation allowances are
based on the present value of expected future cash flows discounted at the
loan's original effective interest rate or the collateral value if the loan is
collateral dependent. However, if foreclosure is or becomes probable, the
measurement method used is collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired in
satisfaction of debt is valued at estimated fair value. Impaired real estate is
written down to fair value with the impairment loss being included in
investment gains (losses), net. Valuation allowances on real estate held for
sale are computed using the lower of depreciated cost or current estimated fair
value, net of disposition costs. Depreciation is discontinued on real estate
held for sale. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for production of income were computed using the forecasted
cash flows of the respective properties discounted at a rate equal to the
Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity basis
of accounting and are included either with equity real estate or other equity
investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity of three
months or less.
All securities are recorded in the consolidated financial statements on a
trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment Gains
(Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating group
annuity contracts which are passed through to the contractholders are reflected
as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related deferred
Federal income taxes, amounts attributable to discontinued operations,
participating group annuity contracts and deferred policy acquisition costs
("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholders' account
balances for mortality charges, policy administration charges and surrender
charges. Policy benefits and claims that are charged to expense include benefit
claims incurred in the period in excess of related policyholders' account
balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as income
when due. Benefits and expenses are matched with such income so as to result in
the recognition of profits over the life of the contracts. This match is
accomplished by means of the provision for liabilities for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period over
which benefits are provided, premiums are recorded as income when due with any
excess profit deferred and recognized in income in a constant relationship to
insurance in force or, for annuities, the amount of expected future benefit
payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with and are
primarily related to the production of new business, are deferred. DAC is
subject to recoverability testing at the time of policy issue and loss
recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is amortized
over the expected total life of the contract group (periods ranging from 25 to
35 years and 5 to 17 years, respectively) as a constant percentage of estimated
gross profits arising principally from investment results, mortality and
expense margins and surrender charges based on historical and anticipated
future experience, updated at the end of each accounting period. The effect on
the amortization of DAC of revisions to estimated gross profits is reflected in
earnings in the period such estimated gross profits are revised. The effect on
the DAC asset that would result from realization of unrealized gains (losses)
is recognized with an offset to accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life of the
contract group (40 years) as a constant percentage based on the present value
of the estimated gross margin amounts expected to be realized over the life of
the contracts using the expected investment yield. At December 31, 1998, the
expected investment yield, excluding policy loans, generally ranged from 7.29%
grading to 6.5% over a 20 year period. Estimated gross margin includes
anticipated premiums and investment results less claims and administrative
expenses, changes in the net level premium reserve and expected annual
policyholder dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such estimated
gross margins are revised. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset to
accumulated comprehensive income in consolidated shareholder's equity as of the
balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of policy
issue and are consistently applied during the life of the contracts. Deviations
from estimated experience are reflected in earnings in the period such
deviations occur. For these contracts, the amortization periods generally are
for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical policies and
20 years for disability income ("DI") products) in proportion to anticipated
premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represents an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis of
actuarial assumptions equal to guaranteed mortality and dividend fund interest
rates. The liability for annual dividends represents the accrual of annual
dividends earned. Terminal dividends are accrued in proportion to gross margins
over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on the basis
of actuarial assumptions as to mortality, persistency and interest established
at policy issue. Assumptions established at policy issue as to mortality and
persistency are based on the Insurance Group's experience which, together with
interest and expense assumptions, includes a margin for adverse deviation. When
the liabilities for future policy benefits plus the present value of expected
future gross premiums for a product are insufficient to provide for expected
future policy benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by a
charge to earnings. Benefit liabilities for traditional annuities during the
accumulation period are equal to accumulated contractholders' fund balances and
after annuitization are equal to the present value of expected future payments.
Interest rates used in establishing such liabilities range from 2.25% to 11.5%
for life insurance liabilities and from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996 a loss recognition study of
participating group annuity contracts and conversion annuities ("Pension Par")
was completed which included management's revised estimate of assumptions, such
as expected mortality and future investment returns. The study's results
prompted management to establish a premium deficiency reserve which decreased
earnings from continuing operations and net earnings by $47.5 million ($73.0
million pre-tax).
Individual health benefit liabilities for active lives are estimated using
the net level premium method and assumptions as to future morbidity,
withdrawals and interest. Benefit liabilities for disabled lives are estimated
using the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's revised
estimates of future experience with regard to morbidity, investment returns,
claims and administration expenses and other factors. The study indicated DAC
was not recoverable and the reserves were not sufficient. Earnings from
continuing operations and net earnings decreased by $208.0 million ($320.0
million pre-tax) as a result of strengthening DI reserves by $175.0 million and
writing off unamortized DAC of $145.0 million related to DI products issued
prior to July 1993. The determination of DI reserves requires making
assumptions and estimates relating to a variety of factors, including morbidity
and interest rates, claims experience and lapse rates based on then known facts
and circumstances. Such factors as claim incidence and termination rates can be
affected by changes in the economic, legal and regulatory environments and work
ethic. While management believes its Pension Par and DI reserves have been
calculated on a reasonable basis and are adequate, there can be no assurance
reserves will be sufficient to provide for future liabilities.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $938.6 million and $886.7 million at December 31, 1998
and 1997, respectively. Incurred benefits (benefits paid plus changes in claim
reserves) and benefits paid for individual DI and major medical policies
(excluding reserve strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year ......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years .......... 22.2 2.1 69.1
--------- -------- --------
Total Incurred Benefits ........................... $ 224.3 $ 192.3 $ 258.1
========= ======== ========
Benefits paid related to current year ............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years .............. 155.4 146.2 153.3
--------- -------- --------
Total Benefits Paid ............................... $ 172.4 $ 175.0 $ 185.9
========= ======== ========
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by Equitable
Life's board of directors. The aggregate amount of policyholders' dividends is
related to actual interest, mortality, morbidity and expense experience for the
year and judgment as to the appropriate level of statutory surplus to be
retained by Equitable Life.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 billion) of directly written
life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal income taxes
are charged or credited to operations based upon amounts estimated to be
payable or recoverable as a result of taxable operations for the current year.
Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax bases of
assets and liabilities using enacted income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that arise from
any other business of the Insurance Group. Separate Accounts assets are subject
to General Account claims only to the extent the value of such assets exceeds
Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts, representing net deposits
and accumulated net investment earnings less fees, held primarily for the
benefit of contractholders, and for which the Insurance Group does not bear the
investment risk, are shown as separate captions in the consolidated balance
sheets. The Insurance Group bears the investment risk on assets held in one
Separate Account; therefore, such assets are carried on the same basis as
similar assets held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted values
are not available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate Accounts
liabilities. For 1998, 1997 and 1996, investment results of such Separate
Accounts were $4,591.0 million, $3,411.1 million and $2,970.6 million,
respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are included in
revenues.
F-12
<PAGE>
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. In accordance with the Statement,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the option price. See Note 22 for
the pro forma disclosures for the Holding Company, DLJ and Alliance required by
SFAS No. 123, "Accounting for Stock-Based Compensation".
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- ------------ ------------ --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed Maturities:
Available for Sale:
Corporate .................................. $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed ............................ 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and U.S. government
and agency securities ..................... 1,464.1 107.6 .7 1,571.0
States and political subdivisions .......... 55.0 9.9 -- 64.9
Foreign governments ........................ 363.3 20.9 30.0 354.2
Redeemable preferred stock ................. 242.7 7.0 11.2 238.5
----------- -------- -------- -----------
Total Available for Sale ...................... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
=========== ======== ======== ===========
Held to Maturity: Corporate .................. $ 125.0 $ -- $ -- $ 125.0
=========== ======== ======== ===========
Equity Securities:
Common stock ................................. $ 58.3 $ 114.9 $ 22.5 $ 150.7
=========== ======== ======== ===========
DECEMBER 31, 1997
Fixed Maturities:
Available for Sale:
Corporate .................................. $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed ............................ 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and U.S. government
and agency securities ..................... 1,583.2 83.9 .6 1,666.5
States and political subdivisions .......... 52.8 6.8 .1 59.5
Foreign governments ........................ 442.4 44.8 2.0 485.2
Redeemable preferred stock ................. 128.0 6.7 1.0 133.7
----------- -------- -------- -----------
Total Available for Sale ...................... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
=========== ======== ======== ===========
Equity Securities:
Common stock ................................. $ 408.4 $ 48.7 $ 15.0 $ 442.1
=========== ======== ======== ===========
</TABLE>
For publicly traded fixed maturities and equity securities, estimated fair
value is determined using quoted market prices. For fixed maturities without a
readily ascertainable market value, the Company determines an estimated fair
value using a discounted cash flow approach, including provisions for credit
risk, generally based on the assumption such securities will be held to
maturity. Estimated fair values for equity securities, substantially all of
which do not have a readily ascertainable market value, have been determined by
the Company. Such estimated fair values do not necessarily represent the values
for which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31,
F-13
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1998 and 1997, securities without a readily ascertainable market value having
an amortized cost of $3,539.9 million and $3,759.2 million, respectively, had
estimated fair values of $3,748.5 million and $3,903.9 million, respectively.
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-----------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------- -------------
(IN MILLIONS)
<S> <C> <C>
Due in one year or less ............... $ 324.8 $ 323.4
Due in years two through five ......... 3,778.2 3,787.9
Due in years six through ten .......... 6,543.4 6,594.1
Due after ten years ................... 5,756.8 6,219.5
Mortgage-backed securities ............ 1,807.9 1,830.3
---------- ----------
Total ................................. $ 18,211.1 $ 18,755.2
========== ==========
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated fair
value of $125.0 million are due in one year or less.
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged buyout
transactions. The Insurance Group seeks to minimize the higher than normal
credit risks associated with such securities by monitoring concentrations in
any single issuer or a particular industry group. Certain of these corporate
high yield securities are classified as other than investment grade by the
various rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5 (below
investment grade) or 6 (in or near default). At December 31, 1998,
approximately 15.1% of the $18,336.1 million aggregate amortized cost of bonds
held by the Company was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to be
other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year .............................. $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release ..................................... -- -- (152.4)
Additions charged to income .............................. 86.2 334.6 125.0
Deductions for writedowns and asset dispositions ......... (240.1) (87.2) (160.8)
-------- -------- --------
Balances, End of Year .................................... $ 230.6 $ 384.5 $ 137.1
======== ======== ========
Balances, end of year comprise:
Mortgage loans on real estate ........................... $ 34.3 $ 55.8 $ 50.4
Equity real estate ...................................... 196.3 328.7 86.7
-------- -------- --------
Total .................................................... $ 230.6 $ 384.5 $ 137.1
======== ======== ========
</TABLE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated balance
sheet date was $60.8 million.
F-14
<PAGE>
At December 31, 1998 and 1997, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more past
due or in foreclosure (collectively, "problem mortgage loans on real estate")
had an amortized cost of $7.0 million (0.2% of total mortgage loans on real
estate) and $23.4 million (0.9% of total mortgage loans on real estate),
respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage loans on
real estate, based on amortized cost, amounted to $115.1 million and $183.4
million at December 31, 1998 and 1997, respectively. Gross interest income on
restructured mortgage loans on real estate that would have been recorded in
accordance with the original terms of such loans amounted to $10.3 million,
$17.2 million and $35.5 million in 1998, 1997 and 1996, respectively. Gross
interest income on these loans included in net investment income aggregated
$8.3 million, $12.7 million and $28.2 million in 1998, 1997 and 1996,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses ............ $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses ......... 8.6 3.6
-------- --------
Recorded investment in impaired mortgage loans ............... 134.0 200.3
Provision for losses ......................................... (29.0) (51.8)
-------- --------
Net Impaired Mortgage Loans .................................. $ 105.0 $ 148.5
======== ========
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected future
cash flows related to the loan equals or exceeds the recorded investment.
Interest income earned on loans where the collateral value is used to measure
impairment is recorded on a cash basis. Interest income on loans where the
present value method is used to measure impairment is accrued on the net
carrying value amount of the loan at the interest rate used to discount the
cash flows. Changes in the present value attributable to changes in the amount
or timing of expected cash flows are reported as investment gains or losses.
During 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million and
$552.1 million. Interest income recognized on these impaired mortgage loans
totaled $12.3 million, $15.2 million and $38.8 million ($.9 million, $2.3
million and $17.9 million recognized on a cash basis) for 1998, 1997 and 1996,
respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At December
31, 1998 and 1997, the carrying value of equity real estate held for sale
amounted to $836.2 million and $1,023.5 million, respectively. For 1998, 1997
and 1996, respectively, real estate of $7.1 million, $152.0 million and $58.7
million was acquired in satisfaction of debt. At December 31, 1998 and 1997,
the Company owned $552.3 million and $693.3 million, respectively, of real
estate acquired in satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated depreciation
on real estate was $374.8 million and $541.1 million at December 31, 1998 and
1997, respectively. Depreciation expense on real estate totaled $30.5 million,
$74.9 million and $91.8 million for 1998, 1997 and 1996, respectively.
F-15
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997, respectively)
and for limited partnership interests accounted for under the equity method, in
which the Company has an investment of $10.0 million or greater and an equity
interest of 10% or greater, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ -------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost ...................... $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value ......... 636.9 1,374.8
Cash and cash equivalents ............................................ 85.9 105.4
Other assets ......................................................... 279.8 584.9
--------- ----------
Total Assets ......................................................... $ 1,916.3 $ 3,766.0
========= ==========
Borrowed funds -- third party ........................................ $ 367.1 $ 493.4
Borrowed funds -- the Company ........................................ 30.1 31.2
Other liabilities .................................................... 197.2 284.0
--------- ----------
Total liabilities .................................................... 594.4 808.6
--------- ----------
Partners' capital .................................................... 1,321.9 2,957.4
--------- ----------
Total Liabilities and Partners' Capital .............................. $ 1,916.3 $ 3,766.0
========= ==========
Equity in partners' capital included above ........................... $ 312.9 $ 568.5
Equity in limited partnership interests not included above ........... 442.1 331.8
Other ................................................................ .7 4.3
--------- ----------
Carrying Value ....................................................... $ 755.7 $ 904.6
========= ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures .................... $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests ........... 128.9 506.3 386.1
Interest expense -- third party ........................... (33.3) (91.8) (111.0)
Interest expense -- the Company ........................... (2.6) (7.2) (30.0)
Other expenses ............................................ (197.0) (263.6) (282.5)
-------- -------- --------
Net Earnings .............................................. $ 142.1 $ 454.2 $ 311.5
======== ======== ========
Equity in net earnings included above ..................... $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership interests not
included above ........................................... 22.7 69.5 35.8
Other ..................................................... -- (.9) .9
-------- -------- --------
Total Equity in Net Earnings .............................. $ 82.3 $ 145.3 $ 110.6
======== ======== ========
</TABLE>
F-16
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities ...................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate ......... 235.4 260.8 303.0
Equity real estate .................... 356.1 390.4 442.4
Other equity investments .............. 83.8 156.9 122.0
Policy loans .......................... 144.9 177.0 160.3
Other investment income ............... 185.7 181.7 217.4
---------- ---------- ----------
Gross investment income .............. 2,494.9 2,626.2 2,552.5
Investment expenses .................. (266.8) (343.4) (348.9)
---------- ---------- ----------
Net Investment Income ................. $ 2,228.1 $ 2,282.8 $ 2,203.6
========== ========== ==========
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities .............................. $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate ................. (10.9) (11.2) (27.3)
Equity real estate ............................ 74.5 (391.3) (79.7)
Other equity investments ...................... 29.9 14.1 18.9
Sale of subsidiaries .......................... (2.6) 252.1 --
Issuance and sales of Alliance Units .......... 19.8 -- 20.6
Issuance and sale of DLJ common stock ......... 18.2 3.0 --
Other ......................................... (4.4) -- (2.8)
--------- -------- -------
Investment Gains (Losses), Net ................ $ 100.2 $ (45.2) $ (9.8)
========= ======== =======
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted to
$136.4 million for 1997. In the fourth quarter of 1997, the Company
reclassified $1,095.4 million depreciated cost of equity real estate from real
estate held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon these
transfers. Additionally, in fourth quarter 1997, $132.3 million of writedowns
on real estate held for production of income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of fixed
maturities classified as available for sale amounted to $15,961.0 million,
$9,789.7 million and $8,353.5 million. Gross gains of $149.3 million, $166.0
million and $154.2 million and gross losses of $95.1 million, $108.8 million
and $92.7 million, respectively, were realized on these sales. The change in
unrealized investment gains (losses) related to fixed maturities classified as
available for sale for 1998, 1997 and 1996 amounted to $(331.7) million, $513.4
million and $(258.0) million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to policyholders'
account balances amounted to $136.9 million, $137.5 million and $136.7 million,
respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial services
company based in Sydney, Australia. The total purchase price was $400.0 million
and consisted of $300.0 million in cash and a $100.0 million note which was
paid in 1998. The Company
F-17
<PAGE>
recognized an investment gain of $162.4 million, net of Federal income tax of
$87.4 million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE continues to provide substantially
the same services to Equitable Life's General Account and Separate Accounts,
for substantially the same fees, as provided prior to the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6 million
and $226.1 million and combined net earnings of $10.7 million and $30.7
million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. and
Cursitor Holdings Limited (collectively, "Cursitor") for approximately $159.0
million. The purchase price consisted of $94.3 million in cash, 1.8 million of
Alliance's publicly traded units ("Alliance Units"), 6% notes aggregating $21.5
million payable ratably over four years, and additional consideration to be
determined at a later date but currently estimated to not exceed $10.0 million.
The excess of the purchase price, including acquisition costs and minority
interest, over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to contracts
acquired and goodwill of approximately $122.8 million and $38.3 million,
respectively. The Company recognized an investment gain of $20.6 million as a
result of the issuance of Alliance Units in this transaction. On June 30, 1997,
Alliance reduced the recorded value of goodwill and contracts associated with
Alliance's acquisition of Cursitor by $120.9 million. This charge reflected
Alliance's view that Cursitor's continuing decline in assets under management
and its reduced profitability, resulting from relative investment
underperformance, no longer supported the carrying value of its investment. As
a result, the Company's earnings from continuing operations before cumulative
effect of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of $51.4
million. The remaining balance of intangible assets is being amortized over its
estimated useful life of 20 years. At December 31, 1998, the Company's
ownership of Alliance Units was approximately 56.7%.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and the
changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year ..................................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses) ................ (242.4) 543.3 (297.6)
Changes in unrealized investment losses (gains) attributable to:
Participating group annuity contracts ......................... (5.7) 53.2 --
DAC ........................................................... 13.2 (89.0) 42.3
Deferred Federal income taxes ................................. 85.4 (163.8) 48.7
-------- -------- --------
Balance, End of Year ........................................... $ 384.1 $ 533.6 $ 189.9
======== ======== ========
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities ............................................ $ 539.9 $ 871.2 $ 357.8
Other equity investments .................................... 92.4 33.7 31.6
Other, principally Closed Block ............................. 111.1 80.9 53.1
-------- -------- --------
Total ...................................................... 743.4 985.8 442.5
Amounts of unrealized investment gains attributable to:
Participating group annuity contracts ....................... (24.7) (19.0) (72.2)
DAC ......................................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes ............................... (206.8) (292.2) (128.4)
-------- -------- --------
Total .......................................................... $ 384.1 $ 533.6 $ 189.9
======== ======== ========
</TABLE>
F-18
<PAGE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the years
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Unrealized gains on investments ....................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability ............................. (28.3) (17.3) (12.9)
-------- -------- --------
Total Accumulated Other Comprehensive Income .......... $ 355.8 $ 516.3 $ 177.0
======== ======== ========
</TABLE>
The components of other comprehensive income for the years 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment securities:
Net unrealized gains (losses) arising during the period ......... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses included in net
earnings ...................................................... (56.3) (20.7) (47.8)
-------- -------- --------
Net unrealized gains (losses) on investment securities ........... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities, DAC and deferred
Federal income taxes ............................................ 92.9 (199.6) 91.0
-------- -------- --------
Change in unrealized gains (losses), net of reclassification and
adjustments ..................................................... (149.5) 343.7 (206.6)
Change in minimum pension liability .............................. (11.0) (4.4) 22.2
-------- -------- --------
Total Other Comprehensive Income ................................. $ (160.5) $ 339.3 $ (184.4)
======== ======== ========
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4) .......................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate ...................................... 1,633.4 1,341.6
Policy loans ....................................................... 1,641.2 1,700.2
Cash and other invested assets ..................................... 86.5 282.0
DAC ................................................................ 676.5 775.2
Other assets ....................................................... 221.6 236.6
---------- ----------
Total Assets ....................................................... $ 8,632.4 $ 8,566.6
========== ==========
Liabilities
Future policy benefits and policyholders' account balances ......... $ 9,013.1 $ 8,993.2
Other liabilities .................................................. 63.9 80.5
---------- ----------
Total Liabilities .................................................. $ 9,077.0 $ 9,073.7
========== ==========
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue .................................. $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment expenses of $15.5, $27.0
and $27.3) ................................................. 569.7 574.9 546.6
Investment losses, net ...................................... .5 (42.4) (5.5)
-------- -------- --------
Total revenues ............................................. 1,231.9 1,219.6 1,265.9
-------- -------- --------
Benefits and Other Deductions
Policyholders' benefits and dividends ....................... 1,082.0 1,066.7 1,106.3
Other operating costs and expenses .......................... 62.8 50.4 34.6
-------- -------- --------
Total benefits and other deductions ........................ 1,144.8 1,117.1 1,140.9
-------- -------- --------
Contribution from the Closed Block .......................... $ 87.1 $ 102.5 $ 125.0
======== ======== ========
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and mortgage
loans on real estate for which the payment terms have been restructured had an
amortized cost of $26.0 million and $70.5 million, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- -----------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses ............ $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses ......... 7.6 .6
------- --------
Recorded investment in impaired mortgages .................... 63.1 109.7
Provision for losses ......................................... (10.1) (17.4)
------- --------
Net Impaired Mortgage Loans .................................. $ 53.0 $ 92.3
======= ========
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded investment
in impaired mortgage loans was $85.5 million, $110.2 million and $153.8
million, respectively. Interest income recognized on these impaired mortgage
loans totaled $4.7 million, $9.4 million and $10.9 million ($1.5 million, $4.1
million and $4.7 million recognized on a cash basis) for 1998, 1997 and 1996,
respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on equity
real estate at December 31, 1998 and 1997, respectively. As of January 1, 1996,
the adoption of SFAS No. 121 resulted in the recognition of impairment losses
of $5.6 million on real estate held for production of income. Writedowns of
fixed maturities amounted to $3.5 million and $12.8 million for 1997 and 1996,
respectively. Writedowns of equity real estate subsequent to the adoption of
SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity real
estate held for sale. Additions to valuation allowances of $15.4 million were
recorded upon these transfers. Additionally, in fourth quarter 1997, $28.8
million of writedowns on real estate held for production of income were
recorded.
Many expenses related to Closed Block operations are charged to operations
outside of the Closed Block; accordingly, the contribution from the Closed
Block does not represent the actual profitability of the Closed Block
operations. Operating costs and expenses outside of the Closed Block are,
therefore, disproportionate to the business outside of the Closed Block.
F-20
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ -----------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate ................ $ 553.9 $ 635.2
Equity real estate ........................... 611.0 874.5
Other equity investments ..................... 115.1 209.3
Other invested assets ........................ 24.9 152.4
--------- ---------
Total investments ........................... 1,304.9 1,871.4
Cash and cash equivalents .................... 34.7 106.8
Other assets ................................. 219.0 243.8
--------- ---------
Total Assets ................................. $ 1,558.6 $ 2,222.0
========= =========
Liabilities
Policyholders' liabilities ................... $ 1,021.7 $ 1,048.3
Allowance for future losses .................. 305.1 259.2
Amounts due to continuing operations ......... 2.7 572.8
Other liabilities ............................ 229.1 341.7
--------- ---------
Total Liabilities ............................ $ 1,558.6 $ 2,222.0
========= =========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses of $63.3, $97.3
and $127.5) ........................................................... $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net ......................................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income ................................. (4.3) .2 .2
-------- -------- --------
Total revenues ......................................................... 191.8 15.1 226.7
Benefits and other deductions .......................................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance for future losses ......... 50.3 (154.4) (23.7)
-------- -------- --------
Pre-tax loss from operations ........................................... -- -- --
Pre-tax earnings from releasing (loss from strengthening) of the
allowance for future losses ........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit ................................... (1.5) 46.9 45.2
-------- -------- --------
Earnings (Loss) from Discontinued Operations ........................... $ 2.7 $ (87.2) $ (83.8)
======== ======== ========
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses and adjusts the allowance, if
appropriate. Additionally, as part of the Company's annual planning process
which takes place in the fourth quarter of each year, investment and benefit
cash flow projections are prepared. These updated assumptions and estimates
resulted in a release of allowance in 1998 and strengthening of allowance in
1997 and 1996.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production of
income to real estate held for sale. Additions to valuation allowances of $79.8
million were recognized upon these transfers. Additionally, in fourth quarter
1997, $92.5 million of writedowns on real estate held for production of income
were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from continuing
operations in 1998, 1997 and 1996, respectively.
F-21
<PAGE>
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on equity
real estate at December 31, 1998 and 1997, respectively. As of January 1, 1996,
the adoption of SFAS No. 121 resulted in a release of existing valuation
allowances of $71.9 million on equity real estate and recognition of impairment
losses of $69.8 million on real estate held for production of income.
Writedowns of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $95.7 million and $12.3 million for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and mortgage
loans on real estate for which the payment terms have been restructured had
amortized costs of $3.5 million and $109.4 million, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses ............ $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses ......... 8.5 .2
-------- --------
Recorded investment in impaired mortgages .................... 15.2 102.0
Provision for losses ......................................... (2.1) (27.3)
-------- --------
Net Impaired Mortgage Loans .................................. $ 13.1 $ 74.7
======== ========
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average recorded
investment in impaired mortgage loans was $73.3 million, $89.2 million and
$134.8 million, respectively. Interest income recognized on these impaired
mortgage loans totaled $4.7 million, $6.6 million and $10.1 million ($3.4
million, $5.3 million and $7.5 million recognized on a cash basis) for 1998,
1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying values
of $50.0 million and $156.2 million, respectively, of real estate acquired in
satisfaction of debt.
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Short-term debt ............................................ $ 179.3 $ 422.2
--------- ---------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005 .............. 399.4 399.4
7.70% surplus notes scheduled to mature 2015 .............. 199.7 199.7
Other ..................................................... .3 .3
--------- ---------
Total Equitable Life .................................... 599.4 599.4
--------- ---------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% -- 12.00%, due through 2017 ......... 392.2 676.6
--------- ---------
Alliance:
Other ..................................................... 10.8 18.5
--------- ---------
Total long-term debt ....................................... 1,002.4 1,294.5
--------- ---------
Total Short-term and Long-term Debt ........................ $ 1,181.7 $ 1,716.7
========= =========
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to fund
short-term working capital needs and to facilitate the securities settlement
process. The credit facility consists of two types of borrowing options with
varying interest rates and expires in September 2000. The interest rates are
based on external indices dependent on the type of borrowing and at December
31, 1998 range from 5.23% to 7.75%. There were no borrowings outstanding under
this bank credit facility at December 31, 1998.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes used
to support Equitable Life's liquidity needs and is supported by Equitable
Life's existing $350.0 million bank credit facility. At December 31, 1998,
there were no borrowings outstanding under this program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which replaced a
$250.0 million revolving credit facility. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon a
defined prime rate, a rate related to the London Interbank Offered Rate
("LIBOR") or the Federal Funds Rate. A facility fee is payable on the total
facility. During September 1998, Alliance increased the size of its commercial
paper program from $250.0 million to $425.0 million. Borrowings from these two
sources may not exceed $425.0 million in the aggregate. The revolving credit
facility provides backup liquidity for commercial paper issued under Alliance's
commercial paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to, among
other things, meet certain financial ratios. As of December 31, 1998, Alliance
had commercial paper outstanding totaling $179.5 million at an effective
interest rate of 5.5% and there were no borrowings outstanding under Alliance's
revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other matters. The
Company is in compliance with all debt covenants.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998 and 1997,
respectively, as collateral for certain short-term and long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based on
required principal payments at maturity for 1999 and the succeeding four years
are $322.8 million, $6.9 million, $1.7 million, $1.8 million and $2.0 million,
respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated statements
of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current ............................ $ 283.3 $ 186.5 $ 97.9
Deferred ........................... 69.8 (95.0) (88.2)
-------- -------- -------
Total ............................... $ 353.1 $ 91.5 $ 9.7
======== ======== =======
</TABLE>
F-23
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal income tax
rate of 35%. The sources of the difference and the tax effects of each are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense ........... $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest ................. (33.2) (38.0) (28.6)
Adjustment of tax audit reserves .............. 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries ......... (39.3) (45.1) (32.3)
Other ......................................... (4.7) 21.6 (9.3)
-------- -------- -------
Federal Income Tax Expense .................... $ 353.1 $ 91.5 $ 9.7
======== ======== =======
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 December 31, 1997
--------------------------- --------------------------
ASSETS LIABILITIES Assets Liabilities
----------- ------------- ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Compensation and related benefits ......... $ 235.3 $ -- $ 257.9 $ --
Other ..................................... 27.8 -- 30.7 --
DAC, reserves and reinsurance ............. -- 231.4 -- 222.8
Investments ............................... -- 364.4 -- 405.7
-------- ------ -------- ------
Total ..................................... $ 263.1 $ 595.8 $ 288.6 $ 628.5
======== ======= ======== =======
</TABLE>
The deferred Federal income taxes impacting operations reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. The sources of these temporary differences and the tax effects of
each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance ......................... $ (7.7) $ 46.2 $ (156.2)
Investments ........................................... 46.8 (113.8) 78.6
Compensation and related benefits ..................... 28.6 3.7 22.3
Other ................................................. 2.1 (31.1) (32.9)
--------- -------- --------
Deferred Federal Income Tax Expense (Benefit) ......... $ 69.8 $ (95.0) $ (88.2)
========= ======== ========
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the years
1992 through 1996. Management believes these audits will have no material
adverse effect on the Company's results of operations.
F-24
<PAGE>
11) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer of
liability. The effect of reinsurance (excluding group life and health) is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums .................................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed ................................................ 203.6 198.3 177.5
Reinsurance ceded .................................................. (54.3) (45.4) (41.3)
-------- -------- --------
Premiums ........................................................... $ 588.1 $ 601.5 $ 597.6
======== ======== ========
Universal Life and Investment-type Product Policy Fee Income
Ceded ............................................................. $ 75.7 $ 61.0 $ 48.2
======== ======== ========
Policyholders' Benefits Ceded ...................................... $ 85.9 $ 70.6 $ 54.1
======== ======== ========
Interest Credited to Policyholders' Account Balances Ceded ......... $ 39.5 $ 36.4 $ 32.3
======== ======== ========
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term, universal
and variable life products. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. Effective January 1,
1994, all in force business above $5.0 million was reinsured. The Insurance
Group also reinsures the entire risk on certain substandard underwriting risks
as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to a
third party insurance company. Premiums ceded totaled $1.3 million, $1.6
million and $2.4 million for 1998, 1997 and 1996, respectively. Ceded death and
disability benefits totaled $15.6 million, $4.3 million and $21.2 million for
1998, 1997 and 1996, respectively. Insurance liabilities ceded totaled $560.3
million and $593.8 million at December 31, 1998 and 1997, respectively.
12) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified part-time
employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance formula
or years of service and final average earnings, if greater, under certain
grandfathering rules in the plans. Alliance's benefits are based on years of
credited service, average final base salary and primary social security
benefits. The Company's funding policy is to make the minimum contribution
required by the Employee Retirement Income Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost ........................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations ......... 129.2 128.2 120.8
Actual return on assets ................................ (175.6) (307.6) (181.4)
Net amortization and deferrals ......................... 6.1 166.6 43.4
-------- -------- --------
Net Periodic Pension Cost (Credit) ..................... $ (7.1) $ 19.7 $ 16.6
======== ======== ========
</TABLE>
F-25
<PAGE>
The plan's projected benefit obligation under the qualified and non-
qualified plans was comprised of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
(IN MILLIONS)
<S> <C> <C>
Benefit obligation, beginning of year ......... $ 1,801.3 $ 1,765.5
Service cost .................................. 33.2 32.5
Interest cost ................................. 129.2 128.2
Actuarial (gains) losses ...................... 108.4 (15.5)
Benefits paid ................................. (138.7) (109.4)
---------- ----------
Benefit Obligation, End of Year ............... $ 1,933.4 $ 1,801.3
========== ==========
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
(IN MILLIONS)
<S> <C> <C>
Plan assets at fair value, beginning of year .......................... $ 1,867.4 $ 1,626.0
Actual return on plan assets .......................................... 338.9 307.5
Contributions ......................................................... -- 30.0
Benefits paid and fees ................................................ (123.2) (96.1)
---------- ----------
Plan assets at fair value, end of year ................................ 2,083.1 1,867.4
Projected benefit obligations ......................................... 1,933.4 1,801.3
---------- ----------
Projected benefit obligations less than plan assets ................... 149.7 66.1
Unrecognized prior service cost ....................................... (7.5) (9.9)
Unrecognized net loss from past experience different from that assumed 38.7 95.0
Unrecognized net asset at transition .................................. 1.5 3.1
---------- ----------
Prepaid Pension Cost .................................................. $ 182.4 $ 154.3
========== ==========
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of projected benefit obligations
were 7.0% and 3.83%, respectively, at December 31, 1998 and 7.25% and 4.07%,
respectively, at December 31, 1997. As of January 1, 1998 and 1997, the
expected long-term rate of return on assets for the retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity an additional
minimum pension liability of $28.3 million and $17.3 million, net of Federal
income taxes, at December 31, 1998 and 1997, respectively, primarily
representing the excess of the accumulated benefit obligation of the qualified
pension plan over the accrued liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group trusts
managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $31.8 million, $33.2
million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees, managers
and agents retiring from the Company (i) on or after attaining age 55 who have
at least 10 years of service or (ii) on or after attaining age 65 or (iii)
whose jobs have been abolished and who have attained age 50 with 20 years of
service. The life insurance benefits are related to age and salary at
retirement. The costs of postretirement benefits are recognized in accordance
with the provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1998, 1997 and
1996, the Company made estimated postretirement benefits payments of $28.4
million, $18.7 million and $18.9 million, respectively.
F-26
<PAGE>
The following table sets forth the postretirement benefits plan's status,
reconciled to amounts recognized in the Company's consolidated financial
statements:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost ............................................................ $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement benefits obligation ......... 33.6 34.7 34.6
Net amortization and deferrals .......................................... .5 1.9 2.4
------ ------ ------
Net Periodic Postretirement Benefits Costs .............................. $ 38.7 $ 41.1 $ 42.3
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning of year ........ $ 490.8 $ 388.5
Service cost ............................................................. 4.6 4.5
Interest cost ............................................................ 33.6 34.7
Contributions and benefits paid .......................................... (28.4) 72.1
Actuarial (gains) losses ................................................. (10.2) (9.0)
-------- --------
Accumulated postretirement benefits obligation, end of year .............. 490.4 490.8
Unrecognized prior service cost .......................................... 31.8 40.3
Unrecognized net loss from past experience different from that assumed
and from changes in assumptions ......................................... (121.2) (140.6)
-------- --------
Accrued Postretirement Benefits Cost ..................................... $ 401.0 $ 390.5
======== ========
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those offered to
active employees and medical benefits will be limited to 200% of 1993 costs for
all participants.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefits obligation was 8.0% in 1998, gradually declining to
2.5% in the year 2009, and in 1997 was 8.75%, gradually declining to 2.75% in
the year 2009. The discount rate used in determining the accumulated
postretirement benefits obligation was 7.0% and 7.25% at December 31, 1998 and
1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998 would be
increased 4.83%. The effect of this change on the sum of the service cost and
interest cost would be an increase of 4.57%. If the health care cost trend rate
assumptions were decreased by 1% the accumulated postretirement benefits
obligation as of December 31, 1998 would be decreased by 5.6%. The effect of
this change on the sum of the service cost and interest cost would be a
decrease of 5.4%.
13) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an accrual
basis. Gains and losses related to interest rate swap transactions are
amortized as yield adjustments over the remaining life of the underlying hedged
security. Income and expense resulting from interest rate swap activities are
reflected in net investment income. The notional amount of matched interest
rate swaps outstanding at December 31, 1998 and 1997, respectively, was $880.9
million and $1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of terminating
swaps in a loss position was $8.0 million. Equitable Life has implemented an
interest rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding notional
amounts at December 31, 1998 of contracts purchased and sold were $8,450.0
million
F-27
<PAGE>
and $875.0 million, respectively. The net premium paid by Equitable Life on
these contracts was $54.8 million and is being amortized ratably over the
contract periods ranging from 1 to 5 years. Income and expense resulting from
this program are reflected as an adjustment to interest credited to
policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by their
nature trading activities which are primarily for the purpose of customer
accommodations. DLJ enters into certain contractual agreements referred to as
derivatives or off-balance-sheet financial instruments involving futures,
forwards and options. DLJ's derivative activities consist of writing
over-the-counter ("OTC") options to accommodate its customer needs, trading in
forward contracts in U.S. government and agency issued or guaranteed securities
and in futures contracts on equity-based indices, interest rate instruments and
currencies and issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and commodity
derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases where
quoted market prices are not available, fair values are estimated using present
value or other valuation techniques. The fair value estimates are made at a
specific point in time, based on available market information and judgments
about the financial instrument, including estimates of the timing and amount of
expected future cash flows and the credit standing of counterparties. Such
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the disclosed value
be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts. Fair
market value of off-balance-sheet financial instruments of the Insurance Group
was not material at December 31, 1998 and 1997.
Fair values for mortgage loans on real estate are estimated by discounting
future contractual cash flows using interest rates at which loans with similar
characteristics and credit quality would be made. Fair values for foreclosed
mortgage loans and problem mortgage loans are limited to the estimated fair
value of the underlying collateral if lower.
Fair values of policy loans are estimated by discounting the face value of
the loans from the time of the next interest rate review to the present, at a
rate equal to the excess of the current estimated market rates over the current
interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account balances, and
guaranteed interest contracts are estimated using projected cash flows
discounted at rates reflecting expected current offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in policyholders'
account balances, are estimated by discounting the account value back from the
time of the next crediting rate review to the present, at a rate equal to the
excess of current estimated market rates offered on new policies over the
current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt are
determined by discounting contractual cash flows at a rate which takes into
account the level of current market interest rates and collateral risk. The
estimated fair values for recourse mortgage debt are determined by discounting
contractual cash flows at a rate based upon current interest rates of other
companies with credit ratings similar to the Company. The Company's carrying
value of short-term borrowings approximates their estimated fair value.
F-28
<PAGE>
The following table discloses carrying value and estimated fair value for
financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1998 1997
--------------------------- --------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
------------- ------------ ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate ............................. $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests ....................... 562.6 562.6 509.4 509.4
Policy loans .............................................. 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances - investment contracts 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt ............................................ 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate ............................. 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments .................................. 56.4 56.4 86.3 86.3
Policy loans .............................................. 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability .......................................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial Instruments:
Mortgage loans on real estate ............................. 553.9 599.9 655.5 779.9
Fixed maturities .......................................... 24.9 24.9 38.7 38.7
Other equity investments .................................. 115.1 115.1 209.3 209.3
Guaranteed interest contracts ............................. 37.0 34.0 37.0 34.0
Long-term debt ............................................ 147.1 139.8 296.4 297.6
</TABLE>
14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements include
commitments by the Company, under certain conditions: to make capital
contributions of up to $142.9 million to affiliated real estate joint ventures;
and to provide equity financing to certain limited partnerships of $287.3
million at December 31, 1998, under existing loan or loan commitment
agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance companies and
beneficiaries. To satisfy its obligations under these agreements, Equitable
Life owns single premium annuities issued by previously wholly owned life
insurance subsidiaries. Equitable Life has directed payment under these
annuities to be made directly to the beneficiaries under the structured
settlement agreements. A contingent liability exists with respect to these
agreements should the previously wholly owned subsidiaries be unable to meet
their obligations. Management believes the satisfaction of those obligations by
Equitable Life is remote.
The Insurance Group had $24.7 million of letters of credit outstanding at
December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical insurance
policies issued by Equitable Life in five states. Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases breached
the terms of certain forms of the policies and was misrepresented. In certain
cases plaintiffs also claimed that Equitable Life misrepresented to
policyholders that premium increases had been approved by insurance
departments, and that it determined annual rate increases in a manner that
discriminated against the policyholders.
F-29
<PAGE>
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a nationwide class
consisting of all persons holding, and paying premiums on, the policies at any
time since January 1, 1988 and the dismissal with prejudice of the pending
actions and the resolution of all similar claims on a nationwide basis. Under
the terms of the settlement, which involves approximately 127,000 former and
current policyholders, Equitable Life would pay $14.2 million in exchange for
release of all claims and will provide future relief to certain current
policyholders by restricting future premium increases, estimated to have a
present value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly the
actual value of the future relief may vary. In October 1998, the court entered
a judgment approving the settlement agreement and, in November, a member of the
national class filed a notice of appeal of the judgment. In January 1999, the
Court of Appeals granted Equitable Life's motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported class
actions against Equitable Life and its subsidiary insurance companies Equitable
Variable Life Insurance Company ("EVLICO," which was merged into Equitable Life
effective January 1, 1997) and The Equitable of Colorado, Inc. ("EOC"). These
actions involve, among other things, sales of life and annuity products for
varying periods from 1980 to the present, and allege, among other things, sales
practice misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the propriety of
a product as a replacement of an existing policy; and failure to disclose a
product as life insurance. Some actions are in state courts and others are in
U.S. District Courts in varying jurisdictions, and are in varying stages of
discovery and motions for class certification.
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition against
cancellation of policies for non-payment of premium or other remedies, as well
as attorneys' fees and expenses. Similar actions have been filed against other
life and health insurers and have resulted in the award of substantial
judgments, including material amounts of punitive damages, or in substantial
settlements. Although the outcome of litigation cannot be predicted with
certainty, particularly in the early stages of an action, The Equitable's
management believes that the ultimate resolution of these cases should not have
a material adverse effect on the financial position of The Equitable. The
Equitable's management cannot make an estimate of loss, if any, or predict
whether or not any such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action in
September 1997, in the United States District Court for the Northern District
of Alabama, Southern Division, involving alleged discrimination on the basis of
race against African-American applicants and potential applicants in hiring
individuals as sales agents. Plaintiffs seek a declaratory judgment and
affirmative and negative injunctive relief, including the payment of back-pay,
pension and other compensation. Although the outcome of litigation cannot be
predicted with certainty, The Equitable's management believes that the ultimate
resolution of this matter should not have a material adverse effect on the
financial position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will have a
material adverse effect on The Equitable's results of operations in any
particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary duty in
connection with the Fund's investments in Mexican and Argentine securities. The
original complaint was dismissed in 1996; on appeal, the dismissal was
affirmed. In October 1996, plaintiffs filed a motion for leave to file an
amended complaint, alleging the Fund failed to hedge against currency risk
despite
F-30
<PAGE>
representations that it would do so, the Fund did not properly disclose that it
planned to invest in mortgage-backed derivative securities and two Fund
advertisements misrepresented the risks of investing in the Fund. In October
1998, the U.S. Court of Appeals for the Second Circuit issued an order granting
plaintiffs' motion to file an amended complaint alleging that the Fund
misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint containing the other
allegations. Alliance believes that the allegations in the amended complaint,
which was filed in February 1999, are without merit and intends to defend
itself vigorously against these claims. While the ultimate outcome of this
matter cannot be determined at this time, Alliance's management does not expect
that it will have a material adverse effect on Alliance's results of operations
or financial condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and warrants
to purchase common shares, of Rickel Home Centers, Inc. ("Rickel"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code. The complaint seeks unspecified compensatory and punitive
damages from DLJSC, as an underwriter and as an owner of 7.3% of the common
stock, for alleged violation of Federal securities laws and common law fraud
for alleged misstatements and omissions contained in the prospectus and
registration statement used in the offering of the units. DLJSC is defending
itself vigorously against all the allegations contained in the complaint.
Although there can be no assurance, DLJ's management does not believe that the
ultimate outcome of this litigation will have a material adverse effect on
DLJ's consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of subordinated
redeemable discount debentures of National Gypsum Corporation ("NGC"). The
debentures were canceled in connection with a Chapter 11 plan of reorganization
for NGC consummated in July 1993. The litigation seeks compensatory and
punitive damages for DLJSC's activities as financial advisor to NGC in the
course of NGC's Chapter 11 proceedings. Trial is expected in early May 1999.
DLJSC intends to defend itself vigorously against all the allegations contained
in the complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon the
information currently available to it, DLJ's management cannot predict whether
or not such litigation will have a material adverse effect on DLJ's results of
operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a number
of other financial institutions and several individual defendants violated
civil provisions of RICO by inducing plaintiffs to invest over $40 million in
The Securities Groups, a number of tax shelter limited partnerships, during the
years 1978 through 1982. The plaintiffs seek recovery of the loss of their
entire investment and an approximately equivalent amount of tax-related
damages. Judgment for damages under RICO are subject to trebling. Discovery is
complete. Trial has been scheduled for May 17, 1999. DLJSC believes that it has
meritorious defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon the
information currently available to it, DLJ's management cannot predict whether
or not such litigation will have a material adverse effect on DLJ's results of
operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed a
voluntary petition for reorganization pursuant to Chapter 11 of the Bankruptcy
Code in January 1997. Three actions seek rescission, compensatory and punitive
damages for DLJSC's role in underwriting notes of Mid-American. The other
action, filed by the Plan Administrator for the bankruptcy estate of
Mid-American, alleges that DLJSC is liable as an underwriter for alleged
misrepresentations and omissions in the prospectus for the notes, and liable as
financial advisor to Mid-American for allegedly failing to advise Mid-American
about its financial condition. DLJSC
F-31
<PAGE>
believes that it has meritorious defenses to the complaints and will continue
to contest the suits vigorously. Although there can be no assurance, DLJ's
management does not believe that the ultimate outcome of this litigation will
have a material adverse effect on DLJ's consolidated financial condition. Based
upon information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings have been
brought on behalf of various alleged classes of claimants and certain of these
claimants seek damages of unspecified amounts. While the ultimate outcome of
such matters cannot be predicted with certainty, in the opinion of management
no such matter is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
16) LEASES
The Company has entered into operating leases for office space and certain
other assets, principally data processing equipment and office furniture and
equipment. Future minimum payments under noncancelable leases for 1999 and the
succeeding four years are $98.7 million, $92.7 million, $73.4 million, $59.9
million, $55.8 million and $550.1 million thereafter. Minimum future sublease
rental income on these noncancelable leases for 1999 and the succeeding four
years is $7.6 million, $5.6 million, $4.6 million, $2.3 million, $2.3 million
and $25.4 million thereafter.
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999 and the
succeeding four years is $189.2 million, $177.0 million, $165.5 million, $145.4
million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs ................................. $ 772.0 $ 721.5 $ 704.8
Commissions ........................................ 478.1 409.6 329.5
Short-term debt interest expense ................... 26.1 31.7 8.0
Long-term debt interest expense .................... 84.6 121.2 137.3
Amortization of policy acquisition costs ........... 292.7 287.3 405.2
Capitalization of policy acquisition costs ......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income ............... 100.0 101.8 113.7
Cursitor intangible assets writedown ............... -- 120.9 --
Other .............................................. 1,056.8 917.9 769.1
--------- --------- ---------
Total .............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
========= ========= =========
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions of
$42.4 million and $24.4 million, respectively. The amounts paid during 1998,
associated with cost reduction programs, totaled $22.6 million. At December 31,
1998, the liabilities associated with cost reduction programs amounted to $39.4
million. The 1997 cost reduction program included costs related to employee
termination and exit costs. The 1996 cost reduction program included
restructuring costs related to the consolidation of insurance operations'
service centers. Amortization of DAC in 1996 included a $145.0 million writeoff
of DAC related to DI contracts.
F-32
<PAGE>
18) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends to
the Holding Company. Under the New York Insurance Law, the Superintendent has
broad discretion to determine whether the financial condition of a stock life
insurance company would support the payment of dividends to its shareholders.
For 1998, 1997 and 1996, statutory net income (loss) totaled $384.4 million,
$(351.7) million and $(351.1) million, respectively. Statutory surplus, capital
stock and Asset Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1
million at December 31, 1998 and 1997, respectively. No dividends have been
paid by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities deposited
with such government or state agencies.
The differences between statutory surplus and capital stock determined in
accordance with Statutory Accounting Principles ("SAP") and total shareholders'
equity on a GAAP basis are primarily attributable to: (a) inclusion in SAP of
an AVR intended to stabilize surplus from fluctuations in the value of the
investment portfolio; (b) future policy benefits and policyholders' account
balances under SAP differ from GAAP due to differences between actuarial
assumptions and reserving methodologies; (c) certain policy acquisition costs
are expensed under SAP but deferred under GAAP and amortized over future
periods to achieve a matching of revenues and expenses; (d) Federal income
taxes are generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided for
timing differences between recognition of revenues and expenses for financial
reporting and income tax purposes; (e) valuation of assets under SAP and GAAP
differ due to different investment valuation and depreciation methodologies, as
well as the deferral of interest-related realized capital gains and losses on
fixed income investments; and (f) differences in the accrual methodologies for
post-employment and retirement benefit plans.
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services. The
Company's management evaluates the performance of each of these segments
independently and allocates resources based on current and future requirements
of each segment. Management evaluates the performance of each segment based
upon operating results adjusted to exclude the effect of unusual or
non-recurring events and transactions and certain revenue and expense
categories not related to the base operations of the particular business net of
minority interest. Information for all periods is presented on a comparable
basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued operations of
$.5 million, $4.2 million and $13.3 million for 1998, 1997 and 1996,
respectively, are eliminated in consolidation.
F-33
<PAGE>
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations before
Federal income taxes and cumulative effect of accounting change as reported on
the consolidated statements of earnings and the segments' assets to total
assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
INVESTMENT
INSURANCE SERVICES ELIMINATION TOTAL
--------- -------- ----------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
1998
Segment revenues ....................................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains ....................................... 64.8 35.4 -- 100.2
---------- ---------- ------- ----------
Total Revenues ......................................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
========== ========== ======= ==========
Pre-tax operating earnings ............................. $ 688.6 $ 284.3 $ -- $ 972.9
---------- ---------- ------- ----------
Investment gains, net of DAC and other charges ......... 41.7 27.7 -- 69.4
Pre-tax minority interest .............................. -- 141.5 -- 141.5
---------- ---------- ------- ----------
Earnings from Continuing Operations .................... $ 730.3 $ 453.5 $ -- $ 1,183.8
========== ========== ======= ==========
Total Assets ........................................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
========== ========== ======= ==========
1997
Segment revenues ....................................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses) .............................. (318.8) 255.1 -- (63.7)
---------- ---------- ------- ----------
Total Revenues ......................................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
========== ========== ======= ==========
Pre-tax operating earnings ............................. $ 507.0 $ 258.3 $ -- $ 765.3
Investment gains (losses), net of DAC and other
charges ............................................... (292.5) 252.7 -- (39.8)
Non-recurring costs and expenses ....................... (41.7) (121.6) -- (163.3)
Pre-tax minority interest .............................. -- 108.5 -- 108.5
---------- ---------- ------- ----------
Earnings from Continuing Operations .................... $ 172.8 $ 497.9 $ -- $ 670.7
========== ========== ======= ==========
Total Assets ........................................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
========== ========== ======= ==========
1996
Segment revenues ....................................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses) .............................. (30.3) 20.5 -- (9.8)
---------- ---------- ------- ----------
Total Revenues ......................................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
========== ========== ======= ==========
Pre-tax operating earnings ............................. $ 337.1 $ 224.6 $ -- $ 561.7
Investment gains (losses), net of DAC and other
charges ............................................... (37.2) 16.9 -- (20.3)
Reserve strengthening and DAC writeoff ................. (393.0) -- -- (393.0)
Non-recurring costs and expenses ....................... (22.3) (1.1) -- (23.4)
Pre-tax minority interest .............................. -- 83.6 -- 83.6
---------- ---------- ------- ----------
Earnings (Loss) from Continuing Operations ............. $ (115.4) $ 324.0 $ -- $ 208.6
=========== ========== ======= ==========
</TABLE>
F-34
<PAGE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ------------- -------------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1998
Total Revenues ............................... $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
========= ========= ========= =========
Earnings from Continuing Operations before
Cumulative Effect of Accounting Change ...... $ 212.8 $ 197.0 $ 136.8 $ 158.9
========= ========= ========= =========
Net Earnings ................................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
========= ========= ========= =========
1997
Total Revenues ............................... $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
========= ========= ========= =========
Earnings from Continuing Operations before
Cumulative Effect of Accounting Change ...... $ 117.4 $ 222.5 $ 145.1 $ 39.4
========= ========= ========= =========
Net Earnings (Loss) .......................... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
========= ========= ========= ==========
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on and
writeoffs of real estate of $225.2 million, and reserve strengthening on
discontinued operations of $84.3 million offset by a reversal of prior years
tax reserves of $97.5 million.
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. The Company's ownership interest will be further reduced
upon the issuance of common stock after the vesting of forfeitable restricted
stock units acquired by and/or the exercise of options granted to certain DLJ
employees. DLJ restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis and
are included in commissions, fees and other income in the consolidated
statements of earnings. The Company's carrying value of DLJ is included in
investment in and loans to affiliates in the consolidated balance sheets.
F-35
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the Company's
carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value ........................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements ....................... 20,063.3 22,628.8
Broker-dealer related receivables .................................. 34,264.5 28,159.3
Other assets ....................................................... 4,759.3 3,182.0
----------- -----------
Total Assets ....................................................... $ 72,282.2 $ 70,505.8
=========== ===========
Liabilities:
Securities sold under repurchase agreements ........................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables ..................................... 26,161.5 26,127.2
Short-term and long-term debt ...................................... 3,997.6 3,249.5
Other liabilities .................................................. 3,219.8 2,860.9
----------- -----------
Total liabilities .................................................. 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred securities of
subsidiary trust holding solely debentures of DLJ ................. 200.0 200.0
Total shareholders' equity ......................................... 2,927.7 2,061.5
----------- -----------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity .............................................. $ 72,282.2 $ 70,505.8
=========== ===========
DLJ's equity as reported ........................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985 and other
adjustments ....................................................... 23.7 23.5
The Holding Company's equity ownership in DLJ ...................... (1,002.4) (740.2)
Minority interest in DLJ ........................................... (1,118.2) (729.3)
----------- -----------
The Company's Carrying Value of DLJ ................................ $ 830.8 $ 615.5
=========== ===========
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income ..................................... $ 3,184.7 $ 2,430.7
Net investment income ................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net ............................. 33.2 557.7
---------- ----------
Total revenues ........................................................ 5,407.0 4,640.5
Total expenses including income taxes ................................. 5,036.2 4,232.2
---------- ----------
Net earnings .......................................................... 370.8 408.3
Dividends on preferred stock .......................................... 21.3 12.2
---------- ----------
Earnings Applicable to Common Shares .................................. $ 349.5 $ 396.1
========== ==========
DLJ's earnings applicable to common shares as reported ................ $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985 ......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings ........................ (136.8) (156.8)
Minority interest in DLJ .............................................. (99.5) (109.1)
---------- ----------
The Company's Equity in DLJ's Earnings ................................ $ 112.4 $ 128.9
========== ==========
</TABLE>
F-36
<PAGE>
22) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option plans for
certain employees. The Company has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed in APB No.
25. Had compensation expense for the Holding Company, DLJ and Alliance Stock
Option Incentive Plan options been determined based on SFAS No. 123's fair
value based method, the Company's pro forma net earnings for 1998, 1997 and
1996 would have been:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Net Earnings:
As reported ......... $ 708.2 $ 437.2 $ 10.3
Pro forma ........... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the dates of
grant using the Black-Scholes option pricing model. The option pricing
assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ
-------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield .................. 0.32% 0.48% 0.80% 0.69% 0.86% 1.54%
Expected volatility ............. 28% 20% 20% 40% 33% 25%
Risk-free interest rate ......... 5.48% 5.99% 5.92% 5.53% 5.96% 6.07%
Expected life in years .......... 5 5 5 5 5 5
Weighted average fair
value per option at
grant-date ..................... $ 22.64 $ 12.25 $ 6.94 $ 16.27 $ 10.81 $ 4.03
<CAPTION>
ALLIANCE
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Dividend yield .................. 6.50% 8.00% 8.00%
Expected volatility ............. 29% 26% 23%
Risk-free interest rate ......... 4.40% 5.70% 5.80%
Expected life in years .......... 7.2 7.2 7.4
Weighted average fair
value per option at
grant-date ..................... $3.86 $2.18 $1.35
</TABLE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE OF PRICE OF PRICE OF
SHARES OPTIONS SHARES OPTIONS UNITS OPTIONS
(IN MILLIONS) OUTSTANDING (IN MILLIONS) OUTSTANDING (IN MILLIONS) OUTSTANDING
--------------- ------------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1996 ........... 6.7 $ 20.27 18.4 $ 13.50 9.6 $ 8.86
Granted ................................ .7 $ 24.94 4.2 $ 16.27 1.4 $ 12.56
Exercised .............................. (.1) $ 19.91 -- -- (.8) $ 6.82
Expired ................................ -- -- --
Forfeited .............................. (.6) $ 20.21 (.4) $ 13.50 (.2) $ 9.66
----- ----- -----
Balance as of December 31, 1996 ......... 6.7 $ 20.79 22.2 $ 14.03 10.0 $ 9.54
Granted ................................ 3.2 $ 41.85 6.4 $ 30.54 2.2 $ 18.28
Exercised .............................. (1.6) $ 20.26 (.2) $ 16.01 (1.2) $ 8.06
Forfeited .............................. (.4) $ 23.43 (.2) $ 13.79 (.4) $ 10.64
----- ----- -----
Balance as of December 31, 1997 ......... 7.9 $ 29.05 28.2 $ 17.78 10.6 $ 11.41
Granted ................................ 4.3 $ 66.26 1.5 $ 38.59 2.8 $ 26.28
Exercised .............................. (1.1) $ 21.18 (1.4) $ 14.91 (.9) $ 8.91
Forfeited .............................. (.4) $ 47.01 (.1) $ 17.31 (.2) $ 13.14
----- ----- -----
Balance as of December 31, 1998 ......... 10.7 $ 44.00 28.2 $ 19.04 12.3 $ 14.94
===== ===== =====
</TABLE>
F-37
<PAGE>
Information about options outstanding and exercisable at December 31, 1998
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (IN MILLIONS) LIFE (YEARS) PRICE (IN MILLIONS) PRICE
- ------------------------ --------------- -------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
HOLDING
COMPANY
-------
$18.125-$27.75 ......... 3.7 5.19 $ 20.97 3.0 $ 20.33
$28.50 -$45.25 ......... 3.0 8.68 $ 41.79 --
$50.63 -$66.75 ......... 2.1 9.21 $ 52.73 --
$81.94 -$82.56 ......... 1.9 9.62 $ 82.56 --
---- ----
$18.125-$82.56 ......... 10.7 7.75 $ 44.00 3.0 $ 20.33
==== ==== ======= ==== =======
DLJ
---
$13.50-$25.99 .......... 22.3 7.1 $ 14.59 21.4 $ 15.05
$26.00-$38.99 .......... 5.0 8.8 $ 33.94 --
$39.00-$52.875 ......... .9 9.4 $ 44.65 --
---- ----
$13.50-$52.875 ......... 28.2 7.5 $ 19.04 21.4 $ 15.05
==== ==== ======= ==== =======
ALLIANCE
--------
$ 3.03-$ 9.69 .......... 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81-$10.69 .......... 2.0 5.3 $ 10.05 1.6 $ 10.07
$11.13-$13.75 .......... 2.4 7.5 $ 11.92 1.0 $ 11.77
$18.47-$18.78 .......... 2.0 9.0 $ 18.48 .4 $ 18.48
$22.50-$26.31 .......... 2.8 9.9 $ 26.28 -- --
---- ----
$ 3.03-$26.31 .......... 12.3 7.2 $ 14.94 5.4 $ 9.88
==== ==== ======= ==== =======
</TABLE>
F-38
