<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 333-51031
American Dental Association Members Retirement Program
Prospectus -- May 1, 1998
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The American Dental Association Members Retirement Program offers you ten
investment options from which to choose. This prospectus describes three of the
seven Separate Accounts under the group annuity contract issued by THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES: THE EQUITY INDEX FUND,
THE LIFECYCLE FUND--CONSERVATIVE AND THE LIFECYCLE FUND--MODERATE. This
prospectus also describes the Lifecycle Fund Group Trusts in which the two
Lifecycle Funds invest. The Lifecycle Fund Group Trusts are collective
investment funds maintained by State Street Bank and Trust Company ("State
Street").
THE PROGRAM
The American Dental Association Members Retirement Program offers ADA members
and other eligible persons the choice of several plans to accumulate retirement
savings for themselves and their employees.
THE INVESTMENT OPTIONS
The Program allows you to choose from ten Investment Options. The Investment
Options are:
Seven Separate Accounts or "Funds": Three Guaranteed Options:
o Growth Equity Fund o 3 year Guaranteed Rate Account
o Aggressive Equity Fund o 5 year Guaranteed Rate Account
o ADA Foreign Fund o Money Market Guarantee Account
o Equity Index Fund
o Real Estate Fund
o Lifecycle Fund--Conservative
o Lifecycle Fund--Moderate
The Aggressive Equity Fund, ADA Foreign Fund and the Equity Index Fund each
invest in shares of a corresponding mutual fund, the MFS Emerging Growth Fund,
the Templeton Foreign Fund and The SSgA S&P 500 Index Fund (formerly known as
"The Seven Seas S&P 500 Index Fund"), respectively. We refer to these as the
"underlying mutual funds." The Lifecycle Funds--Conservative and Moderate
("Lifecycle Funds") each invest in units of a corresponding group trust
maintained by State Street. We refer to these as the "Lifecycle Fund Group
Trusts." The Lifecycle Fund Group Trusts in turn invest in units of collective
investment funds of State Street. We refer to these as the "Underlying Funds."
The Underlying Funds are the S&P 500 Flagship Fund, Russell 2000 Fund, Daily
EAFE Fund, Daily Government/Corporate Bond Fund, and Short Term Investment
Fund.
The prospectuses for the underlying mutual funds and our separate prospectus
for all of the Investment Options, except the Equity Index and Lifecycle Funds,
describe in detail the investment objectives, policies and risks of these Funds
and should be read carefully and retained for future reference. Copies of these
prospectuses may be obtained by writing or calling as indicated below. THIS
PROSPECTUS DESCRIBES IN DETAIL ONLY THE EQUITY INDEX FUND, LIFECYCLE FUNDS,
LIFECYCLE FUND GROUP TRUSTS AND UNDERLYING FUNDS.
(Cover page continued.)
The Equitable Life Assurance Society of the United States
P.O. Box 2486 G.P.O.
New York, NY 10116
Calls for current participants: Calls for all others:
1-800-223-5790 1-800-523-1125
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This prospectus provides important information you should be aware of before
investing. Additional information is included in the Statement of Additional
Information (the "SAI") dated May 1, 1998, which has been filed with the
Securities and Exchange Commission. Parts of the SAI have been incorporated by
reference into this prospectus. A table of contents for the SAI appears at page
48 of this prospectus. To obtain a copy of the SAI free of charge, complete the
SAI request form on page 48 and mail it to us, or call or write at the above
address.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE.
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NONE OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS HAS BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
UNITS OF THE LIFECYCLE FUND GROUP TRUSTS AND UNDERLYING FUNDS MAINTAINED BY
STATE STREET ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, GUARANTEED, OR
ENDORSED BY, THE U.S. GOVERNMENT, ANY BANK, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, ENTITY OR PERSON,
AND INVOLVE INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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TABLE OF CONTENTS
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SUMMARY .............................................................................. 5
CONDENSED FINANCIAL INFORMATION ...................................................... 9
SELECTED FINANCIAL DATA .............................................................. 11
INVESTMENT OPTIONS ................................................................... 16
THE EQUITY INDEX FUND ................................................................ 16
LIFECYCLE FUNDS -- CONSERVATIVE AND MODERATE ......................................... 17
THE LIFECYCLE FUND GROUP TRUSTS ...................................................... 18
Lifecycle Fund Group Trust -- Conservative .......................................... 18
Lifecycle Fund Group Trust -- Moderate .............................................. 18
THE UNDERLYING FUNDS ................................................................. 19
S&P 500 Flagship Fund ............................................................... 19
Russell 2000 Fund ................................................................... 19
Daily EAFE Fund ..................................................................... 20
Daily Government/Corporate Bond Fund ................................................ 20
Short Term Investment Fund .......................................................... 21
Voting Rights: The Lifecycle Funds ................................................. 21
Risks and Investment Techniques: Lifecycle Fund Group Trusts and Underlying Funds .. 21
HOW WE CALCULATE THE VALUE OF AMOUNTS ALLOCATED TO THE
EQUITY INDEX AND LIFECYCLE FUNDS ..................................................... 25
EQUITABLE LIFE AND STATE STREET ...................................................... 27
Equitable Life ...................................................................... 27
The Separate Accounts .............................................................. 27
State Street ........................................................................ 28
The Lifecycle Fund Group Trusts and Underlying Funds ............................... 28
INVESTMENT PERFORMANCE ............................................................... 29
Measuring the Investment Performance of the Funds ................................... 29
Unmanaged Market Indices ............................................................ 29
How Performance Data Are Presented .................................................. 30
Annual Percentage Change in Fund Unit Values ........................................ 30
Average Annual Percentage Change in Fund Unit Values--Years Ending December 31, 1997 30
THE PROGRAM .......................................................................... 31
Employers Who May Participate in the Program ........................................ 31
Choices for the Employer ........................................................... 31
Summary of the Plans and Trusts .................................................... 31
</TABLE>
3
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<TABLE>
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Information on Joining the Program ...................................................... 32
Choosing the Right Plan ................................................................ 32
Getting Started In The Program After Choosing A Plan ................................... 32
Communicating With Us After You Enroll ................................................. 33
Your Responsibilities As the Employer .................................................. 33
When Transactions Are Effective ........................................................ 33
Minimum Investments .................................................................... 34
Making Contributions to the Program .................................................... 34
Our Account Investment Management (AIM) System ......................................... 34
Allocating Contributions Among the Investment Options .................................. 35
Transfers Among the Investment Options ................................................. 35
Distributions From the Investment Options .............................................. 35
When Distributions Are Available to Participants ....................................... 36
Participant Loans ...................................................................... 36
Benefit Payment Options ................................................................ 37
Spousal Consent Rules .................................................................. 37
Spousal Consent Requirements ........................................................... 37
Benefits Payable After the Death of a Participant ...................................... 38
Year 2000 Progress ..................................................................... 39
DEDUCTIONS AND CHARGES ................................................................... 40
CHARGES BASED ON AMOUNTS INVESTED IN THE PROGRAM ......................................... 40
Program Expense Charge .................................................................. 40
Administration Fee ..................................................................... 41
Other Expenses Borne Directly by the Funds ............................................. 41
PLAN AND TRANSACTION EXPENSES ........................................................... 42
ADA Retirement Plan, Prototype Self-Directed Plan and Individually-Designed Plan Fees... 42
Individual Annuity Charges ............................................................. 42
General Information On Fees and Charges ................................................ 42
DEDUCTIONS AND CHARGES RELATED TO THE LIFECYCLE FUND GROUP
TRUSTS AND UNDERLYING FUNDS .............................................................. 43
FEDERAL INCOME TAX CONSIDERATIONS ........................................................ 44
Tax Changes ............................................................................ 44
Adopting the Program ................................................................... 44
Income Taxation of Distributions to Qualified Plan Participants ........................ 44
Other Tax Consequences ................................................................. 45
MISCELLANEOUS ............................................................................ 46
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION ................................. 48
</TABLE>
4
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SUMMARY
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THE PROGRAM
The American Dental Association Members Retirement Program consists of several
types of retirement plans and two retirement plan Trusts, the Master Trust and
the Pooled Trust. Each of the Trusts invests exclusively in the group annuity
contracts described in this prospectus. The purpose of the Program is to
provide members of the American Dental Association (the "ADA") and their
employees with a program to invest, accumulate, and then distribute funds for
retirement. The Program is sponsored by the ADA, and the Trustees under the
Master and Pooled Trusts are the members of the Council on Insurance of the ADA
(the "Trustees"). The Program had 23,836 participants and $1.3 billion in
assets at December 31, 1997.
EQUITABLE LIFE
The Equitable Life Assurance Society of the United States ("Equitable Life") is
a diversified financial services organization serving a variety of insurance,
investment management and investment banking customers. We are one of the
largest life insurance companies in the United States, and have been in
business since 1859. In this prospectus, the terms "we," "our," and "us" mean
Equitable Life.
STATE STREET
State Street is a Massachusetts trust company that, among other things,
provides a variety of investment-related services to pension and mutual funds.
Through its institutional investment arm, State Street Global Advisors
("SSgA"), State Street offers a selection of investment products with
management styles ranging from indexed to fully active. As of December 31,
1997, State Street ranked as the largest U.S. manager of international index
assets and the second largest U.S. manager of tax-exempt assets with $398.5
billion under management.
THE INVESTMENT OPTIONS
Ten Investment Options are available under the Program. Seven of the Investment
Options are Separate Accounts, or Funds, consisting of six Equity Funds and the
Real Estate Fund. The Funds operate like mutual funds in many ways. However,
because of exclusionary provisions, they are not subject to regulation under
the Investment Company Act of 1940 (the "1940 Act"). The three additional
Investment Options are guaranteed options funded through our general account.
They include two Guaranteed Rate Accounts and the Money Market Guarantee
Account.
ONLY THREE OF THESE INVESTMENT OPTIONS ARE DESCRIBED IN DETAIL IN THIS
PROSPECTUS: THE EQUITY INDEX FUND AND THE TWO LIFECYCLE FUNDS (COLLECTIVELY
REFERRED TO AS "THE FUNDS"). FOR ADDITIONAL INFORMATION ON THE OTHER AVAILABLE
INVESTMENT OPTIONS, PLEASE REFER TO OUR SEPARATE PROSPECTUS FOR THOSE OPTIONS.
THE EQUITY INDEX FUND (Separate Account No. 195)
Invests in shares of the SSgA S&P 500 Index Fund, which in turn seeks to
achieve a total return which parallels that of the Standard & Poor's 500
Composite Stock Price Index, by investing in the stocks in the Index.
THE LIFECYCLE FUND--CONSERVATIVE (Separate Account No. 197)
Invests in units of the Lifecycle Fund Group Trust--Conservative, maintained by
State Street, which in turn invests in units of the five Underlying Funds
maintained by State Street to provide current collective income and a low to
moderate growth of capital.
5
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THE LIFECYCLE FUND--MODERATE (Separate Account No. 198)
Invests in units of the Lifecycle Fund Group Trust--Moderate, maintained by
State Street, which in turn invests in units of five Underlying Funds
maintained by State Street to provide growth of capital and a reasonable level
of current income.
There is no assurance that the Funds will achieve their respective objectives.
No person is authorized by Equitable Life or by State Street to give any
information or make any representations other than those contained in this
prospectus or in other printed or written material issued by these companies,
and you should not rely on any other information or representation.
YOUR CHOICE OF RETIREMENT PLANS
As an employer, you can use the Program to adopt our profit-sharing plan
(including 401(k) and SIMPLE 401(k) features, and beginning with plan years
after December 31, 1998, safe harbor 401(k)), defined contribution pension
master plan or our self-directed prototype plan. You can also have your own
individually-designed plan and use our Pooled Trust as a funding vehicle. See
The Program for additional information on your choices.
FUND EXPENSES
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TRANSACTION EXPENSES
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Transaction expenses are charges you pay when you buy or sell units of the
Funds.
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<S> <C>
SALES LOAD NONE
DEFERRED SALES CHARGE NONE
SURRENDER FEES NONE
TRANSFER OR EXCHANGE FEE NONE
</TABLE>
If you annuitize your account, charges for premium taxes and other fees may
apply.
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ANNUAL FUND OPERATING EXPENSES
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Operating expenses for the Funds are paid out of each Fund's assets. Equitable
Life deducts three types of operating expenses from the assets of each Fund: a
Program expense charge to compensate Equitable Life and the ADA for the costs
incurred in connection with the Program, an administration fee which covers the
costs related to providing administration services in connection with offering
the Funds, and other expenses--such as legal, auditing, and accounting--borne
directly by the Funds. No management fees are paid to us by the Equity Index
Fund and the Lifecycle Funds, although, as discussed below, a management fee is
paid to State Street for managing the assets of the Lifecycle Fund Group Trusts
underlying the Lifecycle Funds. Charges for premium taxes may also be
applicable. For a more detailed discussion of fees and charges, see Deductions
and Charges. For a discussion of the calculation of Fund unit values, see How
We Calculate the Value of Amounts Allocated to the Funds.
EQUITY INDEX FUND. No transaction charges are incurred by the Equity Index Fund
when it purchases or redeems shares of the SSgA S&P 500 Index Fund, but the
underlying mutual fund incurs its own operating expenses. No deduction is made
from the assets of the SSgA S&P 500 Index Fund to compensate State Street for
managing the assets of that Fund. Deductions are made from the assets of the
SSgA S&P 500 Index Fund to pay for expenses borne directly by the Fund, such as
12b-1 fees, the costs of printing prospectuses and the costs for providing
various services to the Fund, such as legal, accounting, and auditing. For a
more detailed description of charges and expenses incurred by the SSgA S&P 500
Index Fund, see the prospectus for that Fund.
6
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The fees and charges which are deducted from the assets of the Equity Index
Fund and the SSgA S&P 500 Index Fund are illustrated in the table presented
below. This table does not reflect other charges which are specific to the
various plans participating in the Program, such as enrollment, record
maintenance and reporting fees. The expenses shown in the table are based on
average Program assets in the Equity Index Fund during the year ended December
31, 1997, restated to reflect current applicable fees.
<TABLE>
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INVESTMENT PROGRAM
MANAGEMENT EXPENSE ADMINISTRATION OTHER
FEE CHARGE FEE EXPENSES 12B-1 FEE TOTAL
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<S> <C> <C> <C> <C> <C> <C>
Equity Index Fund None 0.64% 0.15% 0.26 %(2) None 1.05%
SSgA S&P 500 Index
Fund(1) 0.00%(3) None None 0.10% 0.06% 0.16%(3)
TOTAL 0.00%(3) 0.64% 0.15% 0.36 %(2) 0.06% 1.21%(3)
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</TABLE>
(1) Source: SSgA S&P 500 Index Fund Prospectus dated December 29, 1997.
(2) Includes organizational expenses that were initially paid by us and we
are being reimbursed over a five year period. Organizational expenses
were $33,917 and are being amortized over the period which ends December
31, 1998.
(3) State Street voluntarily agrees to waive up to the full amount of its
management fee of .10% of average daily net assets to the extent that
total expenses exceed .15% of average daily net assets on an annual
basis. The total operating expenses of the SSgA S&P 500 Index Fund absent
the waiver would be .26% of average daily net assets on an annual basis.
The gross annual management expense before the fee waiver would be .10%
of average daily net assets. This agreement will remain in effect for the
current fiscal year. (See Note 1.) If the waiver agreement is terminated,
the full amount of State Street's management fee may be assessed and the
total Fund expenses may increase.
LIFECYCLE FUNDS. No transaction charges are incurred by the Lifecycle Funds
when units of a corresponding Lifecycle Fund Group Trust are purchased or
redeemed, but annual operating expenses are incurred by each Lifecycle Fund
Group Trust. A deduction is made from the assets of each Lifecycle Fund Group
Trust to compensate State Street for managing the assets of the Group Trust.
State Street does not receive a fee for managing the assets of the Underlying
Funds in which a Lifecycle Fund Group Trust invests. State Street may receive
fees for managing the assets of other collective investment funds in which the
Funds may invest on a temporary basis, and for managing the mutual funds in
which assets of the Underlying Funds may be invested. State Street has agreed
to reduce its management fee charged each of the Lifecycle Fund Group Trusts to
offset any management fees State Street receives attributable to the Group
Trusts' investment in such other collective investment funds and mutual funds.
Other expenses are deducted from the assets of each Lifecycle Fund Group
Trust and Underlying Fund to pay for services, such as legal and auditing,
provided directly to each Lifecycle Fund Group Trust. State Street also
receives an administration fee deducted from the assets of each Lifecycle Fund
Group Trust, to compensate it for providing various recordkeeping and
accounting services to the Group Trust. In addition, other expenses are
deducted from the assets of the Underlying Funds for custodial services
provided to those Funds.
The fees and charges which are deducted from the assets of the Lifecycle Funds,
the Lifecycle Fund Group Trusts and the Underlying Funds are illustrated in the
table below. This table does not reflect other charges which are specific to
the various plans participating in the Program, such as enrollment, record
maintenance and reporting fees. See Plan and Transaction Expenses.
7
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INVESTMENT PROGRAM
MANAGEMENT EXPENSE ADMINISTRATION OTHER
FEE CHARGE FEE EXPENSES TOTAL
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<S> <C> <C> <C> <C> <C>
Lifecycle Fund -
Conservative None 0.64% 0.15% 0.97%(1) 1.76%
Lifecycle Fund
Group Trust -
Conservative 0.17% None 0.20%(2) 0.29%(1&3) 0.66%
Underlying Funds(4):
S&P 500 Flagship Fund None None None --%(4&5) --%(5)
Russell 2000 Fund None None None 0.06%(4) 0.06%
Daily EAFE Fund None None None 0.11%(4) 0.11%
Daily Government/Corporate
Bond Fund None None None 0.01%(4) 0.01%
Short Term Investment Fund None None None --%(4&5) --%(5)
TOTAL 0.17% 0.64% 0.35% 1.28%(6) 2.44%(6)
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</TABLE>
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INVESTMENT PROGRAM
MANAGEMENT EXPENSE ADMINISTRATION OTHER
FEE CHARGE FEE EXPENSES TOTAL
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<S> <C> <C> <C> <C> <C>
Lifecycle Fund -
Moderate None 0.64% 0.15% 0.26%(1) 1.05%
Lifecycle Fund
Group Trust -
Moderate 0.17% None 0.01%(2) 0.02%(1&3) 0.20%
Underlying Funds(4):
S&P 500 Flagship Fund None None None --%(4&5) --%(5)
Russell 2000 Fund None None None 0.06%(4) 0.06%
Daily EAFE Fund None None None 0.11%(4) 0.11%
Daily Government/Corporate
Bond Fund None None None 0.01%(4) 0.01%
Short Term Investment Fund None None None --%(4&5) --%(5)
TOTAL 0.17% 0.64% 0.16% 0.30%(6) 1.27%(6)
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</TABLE>
(1) These include a charge at the annual rate of .03% of the value of the
respective assets in the Lifecycle Funds--Conservative and Moderate to
compensate Equitable Life for additional legal, accounting and other
potential expenses resulting from the inclusion of the Lifecycle Fund
Group Trusts and Underlying Funds maintained by State Street among the
Investment Options described in this prospectus and the SAI. Other
expenses also include costs incurred by Equitable Life and State Street
in connection with the organization of the Lifecycle Funds.
Organizational expenses were initially paid by Equitable Life and State
Street and are being reimbursed from the Lifecycle Funds over a five year
period. Organizational expenses were $150,087 and will be amortized pro
rata, based on the assets of each Fund, over the period ending June 30,
2000. On December 8, 1995, the Program's balance in the Balanced Fund
(approximately $70 million) was transferred to the Lifecycle
Fund--Moderate. The much larger balance in that Fund results in a much
lower ratio of Other Expenses to Net Assets compared to the corresponding
ratio for the Lifecycle Fund--Conservative.
(2) Based on the Lifecycle Fund Group Trusts--Conservative and Moderate
current fixed fee of $11,100 per year, per fund and average net assets
for 1997.
(3) Based on the Lifecycle Fund Group Trusts--Conservative and Moderate
average net assets for 1997.
(4) Other expenses of the Underlying Funds are based on expenses incurred by
each Fund during 1997.
(5) Less than 0.01%.
(6) These Totals are based upon a weighted average of the Other Expenses for
each Underlying Fund. In calculating the weighted average, expenses for
each Underlying Fund were multiplied by their respective target
percentages within their respective Group Trust. See Investment
Options--The Equity Funds--Lifecycle Funds--Conservative and Moderate for
a description of the targeted percentage weightings of the Lifecycle Fund
Group Trusts--Conservative and Moderate.
8
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EXAMPLES
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You would pay the following expenses on a $1,000 investment over the time
period indicated for each Fund listed below, assuming a 5% annual rate of
return. The Examples include all annual fund operating expenses listed in the
tables above plus an estimate of average plan and transaction charges over the
time periods indicated for a $1,000 initial investment, assuming the account is
not annuitized. The estimate is computed by aggregating all record maintenance
and report fees, and enrollment fees, divided by the average assets for the
same period. See ADA Members Retirement Plan, Prototype Self-Directed Plan and
Individually-designed Plan Fees. Although the Program has no minimum
contribution, the minimum amount that can be converted to an annuity is $5,000.
There are no surrender charges, so the amounts would be the same, whether or
not you withdraw all or a portion of your Account Balance.
<TABLE>
<CAPTION>
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1 YEAR 3 YEAR 5 YEAR 10 YEAR
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<S> <C> <C> <C> <C>
Equity Index Fund(1) $ 12.62 $ 39.29 $ 67.98 $ 149.51
Lifecycle Fund -
Conservative 25.03 76.93 131.40 279.59
Lifecycle Fund -
Moderate 13.29 41.34 71.47 156.91
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</TABLE>
The purpose of these tables and examples is to assist you in understanding the
various costs and expenses that will be incurred, either directly or
indirectly, when amounts are invested in the Funds. FUTURE EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. IN ADDITION, THE 5% RATE OF RETURN IN THE
EXAMPLE IS NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
(1) The returns shown reflect the waiver of the .10% investment management fee
by State Street.
CONDENSED FINANCIAL INFORMATION
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EQUITY INDEX FUND: SEPARATE ACCOUNT NO. 195
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Condensed financial information for the SSgA S&P 500 Index Fund is contained in
the prospectus for that Fund, copies of which may be obtained by calling an
Account Executive. Those financial statements, however, do not reflect the
Program expense charge, and the daily accrual of direct expenses deducted from
amounts held in Separate Account No. 195, the Equity Index Fund. Unit values
for the Equity Index Fund are shown below and do reflect the deduction of
Program expense charges and daily accrual of direct expenses. The Equity Index
Fund was established at $10.00 on February 1, 1994, the date this Fund began
operations.
<TABLE>
<CAPTION>
EQUITY INDEX
FUND
-------------
<S> <C>
Unit value as of:
December 31, 1997 .................... $ 20.95
December 31, 1996 .................... $ 15.91
December 31, 1995 .................... $ 13.12
December 31, 1994 .................... $ 9.71
Number of Units outstanding
at December 31, 1997 (000's) ......... 3,713
</TABLE>
9
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LIFECYCLE FUND--CONSERVATIVE: SEPARATE ACCOUNT NO. 197
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Unit Values for the Lifecycle Fund--Conservative are shown below and reflect
the deduction of Program expense charges and daily accrual of direct expenses.
The Lifecycle Fund--Conservative began operations on May 1, 1995. The value for
a Lifecycle Fund--Conservative Unit was established at $10.00 on that date.
<TABLE>
<CAPTION>
LIFECYCLE FUND--
CONSERVATIVE
-----------------
<S> <C>
Unit value as of:
December 31, 1997 .................... $ 12.13
December 31, 1996 .................... $ 11.04
December 31, 1995 .................... $ 10.59
Number of Units outstanding
at December 31, 1997 (000's) ......... 596
</TABLE>
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LIFECYCLE FUND--MODERATE: SEPARATE ACCOUNT NO. 198
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Unit Values for the Lifecycle Fund--Moderate are shown below and reflect the
deduction of Program expense charges and daily accrual of direct expenses. The
Lifecycle Fund--Moderate began operations on May 1, 1995. The value for a
Lifecycle Fund--Moderate Unit was established at $10.00 on that date.
<TABLE>
<CAPTION>
LIFECYCLE FUND--
MODERATE
-----------------
<S> <C>
Unit value as of:
December 31, 1997 .................... $ 14.14
December 31, 1996 .................... $ 12.18
December 31, 1995 .................... $ 11.01
Number of Units outstanding
at December 31, 1997 (000's) ......... 7,657
</TABLE>
FULL FINANCIAL STATEMENTS. The financial statements of Separate Account No.
195, 197 and 198 and the Consolidated Financial Statements of Equitable Life
are contained in the SAI.
10
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SELECTED FINANCIAL DATA
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LIFECYCLE FUND GROUP TRUSTS
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The selected financial data below provides information with respect to
investment income, expenses, and investment performance for each Lifecycle Fund
Group Trust attributable to each unit outstanding for the period indicated. The
selected financial data has been audited by Price Waterhouse LLP, independent
accountants, as stated in their reports included in the SAI. The selected
financial data should be read in conjunction with the full financial statements
of the Lifecycle Fund Group Trusts, which appear in the SAI.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------- DECEMBER 31,
1997 1996 1995*
------------ ------------ -------------
<S> <C> <C> <C>
LIFECYCLE FUND GROUP TRUST-CONSERVATIVE
Net investment income (loss)** ............................ $ 0.06 $ 0.05 $ (0.08)
Net realized and unrealized gain (loss) ................... 1.28 0.65 0.81
------- ------- -------
Net increase (decrease) ................................... 1.34 0.70 0.73
Net asset value
Beginning of period ....................................... 11.43 10.73 10.00
------- ------- -------
End of period ............................................. $ 12.77 $ 11.43 $ 10.73
======= ======= =======
Total return*** ........................................... 11.72% 6.52% 7.30%
======== ======= =======
Ratio of expenses to average net assets (a)(c) ............ 0.66% 0.81% 2.13%
Ratio of net investment income (loss) to average net assets
(a)(b) ................................................... 0.46% 0.31% (1.04)%
Portfolio turnover ........................................ 44% 54% 131%
Net assets, end of period (000s) .......................... $ 7,249 $ 4,534 $ 2,983
======== ======= =======
LIFECYCLE FUND GROUP TRUST-MODERATE
Net investment income (loss)** ............................ $ 0.05 $ 0.04 $ (0.01)
Net realized and unrealized gain (loss) ................... 2.11 1.27 1.14
-------- ------- -------
Net increase (decrease) ................................... 2.16 1.31 1.13
Net asset value
Beginning of period ....................................... 12.44 11.13 10.00
End of period ............................................. $ 14.60 $ 12.44 $ 11.13
======== ======= =======
Total return*** ........................................... 17.36% 11.77% 11.30%
======== ======= =======
Ratio of expenses to average net assets (a)(c) ............ 0.20% 0.20% 0.52%
Ratio of net investment income (loss) to average net assets
(a)(b) ................................................... 0.37% 0.35% (0.07)%
Portfolio turnover ........................................ 22% 18% 30%
Net assets, end of period (000s) .......................... $108,435 $88,273 $76,246
======== ======= =======
</TABLE>
- ----------------
* Investment operations commenced on May 5, 1995.
** Net investment income has been calculated based upon an average of units
outstanding.
*** Total return calculation (not annualized) for the period ended December
31, 1995 is based on the value of a single unit of participation
outstanding throughout the period. It represents the percentage change in
the net asset value per unit between the beginning and end of the period.
The calculation includes only those expenses charged directly to the
Fund, and does not include expenses charged to the fund in which the Fund
invests.
(a) Annualized for the period ended December 31, 1995.
(b) Ratio excludes income retained by the funds in which the Fund
invests (see Note 2).
(c) The calculation includes only those expenses charged to the Fund,
and does not include expenses charged to the Underlying funds.
11
<PAGE>
- -------------------------------------------------------------------------------
UNDERLYING FUNDS
- -------------------------------------------------------------------------------
The selected financial data below provides information with respect to
investment income, expenses, and investment performance for each Underlying
Fund attributable to each Underlying Fund unit outstanding for the periods
indicated. The selected financial data has been audited by Price Waterhouse
LLP, independent accountants, as stated in their reports included in the SAI.
The selected financial data should be read in conjunction with the full
financial statements of the Underlying Funds, which appear in the SAI.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 FLAGSHIP FUND
Net investment income** ......... $ 2.64 $ 2.48 $ 2.24 $ 1.90 $ 1.81 $ 1.54
Net realized and unrealized
gain (loss) .................... 37.22 19.86 24.26 (0.93) 4.55 3.04
Distribution of securities
lending fee income (a) ......... 0.00 0.00 0.00 0.00 (0.01) (0.01)
-------- -------- ------- ------- ------- -------
Net increase (decrease) ......... 39.86 22.34 26.50 0.97 6.35 4.57
NET ASSET VALUE
Beginning of year ............... 119.40 97.06 70.56 69.59 63.24 58.67
-------- -------- ------- ------- ------- -------
End of year ..................... $ 159.26 $ 119.40 $ 97.06 $ 70.56 $ 69.59 $ 63.24
======== ======== ======= ======= ======= =======
Total return*** ................. 33.38% 23.02% 37.56% 1.39% 10.06% 7.81%
======== ======== ======= ======= ======= =======
Ratio of expenses to average
net assets* .................... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-------- -------- ------- ------- ------- -------
Ratio of net investment
income to average net
assets ......................... 1.86% 2.33% 2.66% 2.88% 2.68% 2.58%
-------- -------- ------- ------- ------- -------
Portfolio turnover .............. 18% 27% 10% 12% 22% 19%
-------- -------- ------- ------- ------- -------
Average broker commission
per share (b) .................. $ 0.03 $ 0.04 N/A N/A N/A N/A
-------- -------- ------- ------- ------- -------
Net assets, end of year
(000,000s) ..................... $ 36,664 $ 20,916 $15,135 $ 8,258 $ 5,753 $ 4,233
======== ======== ======= ======= ======= =======
</TABLE>
- ----------------
* Less than .01%
** Net investment income has been calculated based on an average of units
outstanding.
*** Total return calculation is based on the value of a single unit of
participation outstanding throughout the entire year. It represents the
percentage change in the net asset value per unit between the beginning
and end of each year and assumes reinvestment of dividends. The
calculation includes only those expenses charged directly to the Fund.
This result may be reduced by any administrative or other fees which are
incurred in the management or maintenance of individual participant
accounts.
(a) Zero amounts per unit represent those which are less than $.005.
(b) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
--------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993 1992(A)
-------------- --------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
RUSSELL 2000 FUND
Net investment income (b) ................ $ 0.36 $ 0.32 $ 0.03 $ 0.21 $ 0.17 $ 0.04
Distribution of securities lending fee
income (c) .............................. (0.02) (0.01) (0.01) (0.01) 0.00 0.00
---------- ------------ -------- ------- -------- -------
Net realized and unrealized gain
(loss) .................................. 4.19 2.45 3.61 (0.46) 1.83 1.07
Net increase (decrease) .................. 4.53 2.76 3.63 (0.26) 2.00 1.11
NET ASSET VALUE
Beginning of period ...................... 19.24 16.48 12.85 13.11 11.11 10.00
---------- ------------ -------- ------- -------- -------
End of period ............................ $ 23.77 $ 19.24 $ 16.48 $ 12.85 $ 13.11 $ 11.11
========== ============ ======== ======= ======== =======
Total return (d) ......................... 23.66% 16.81% 28.33% (1.98)% 18.00% 11.10%
========== ============ ======== ======= ======== ========
Ratio of expenses to average net
assets (e)(f) ........................... 0.06% 0.06% 0.10% 0.07% 0.09% 0.39%
---------- ------------ -------- ------- -------- --------
Ratio of net investment income to
average net assets (e)(f) ............... 1.63% 1.80% 1.80% 1.61% 1.37% 1.88%
---------- ------------ -------- ------- -------- --------
Portfolio turnover ....................... 105% 131% 103% 48% 35% 1%
---------- ------------ -------- ------- -------- --------
Average broker commission per
share (g) ............................... $ 0.02 $ 0.02 N/A N/A N/A N/A
---------- ------------ -------- ------- -------- --------
Net assets, end of period (000s) ......... $1,174,146 $ 951,405 $536,849 $372,107 $451,119 $148,285
========== ============ ======== ======== ======== ========
</TABLE>
- ----------
(a) The Russell 2000 Fund commenced operations on October 31, 1992.
(b) Net investment income has been calculated based on an average of
units outstanding. Also, see Note 1 to the financial statements of
the Russell 2000 Funds in the SAI which accompanies this prospectus.
(c) Zero amounts represent those which are less than $.005 per unit.
(d) Total return calculation (not annualized) for the period ended
December 31, 1992 is based on the value of a single unit of
participation outstanding throughout the period. It represents the
percentage change in the net asset value per unit between the
beginning and the end of the period and assumes reinvestment of
distributions. The calculation includes only those expenses charged
directly to the Russell 2000 Fund. This result may be reduced by any
administrative or other fees which are incurred in the management or
maintenance of individual participant accounts.
(e) 1992 data annualized.
(f) 1996 ratio reflects net investment income and expenses attributable
to the Russell 2000 Fund from its ownership in other collective
investment funds.
(g) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
--------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993**
------------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
DAILY EAFE FUND
Net investment income (loss)* ........................ $ 0.29 $ 0.29 $ 0.25 $ 0.19 $ (0.01)
Distribution of securities lending fee income (a)..... (0.01) (0.01) (0.01) 0.00 0.00
Net realized and unrealized gain (loss) .............. (0.10) 0.44 0.99 0.59 (0.13)
---------- ---------- ------- -------- -------
Net increase (decrease) .............................. 0.18 0.72 1.23 0.78 (0.14)
NET ASSET VALUE
Beginning of period .................................. 12.59 11.87 10.64 9.86 10.00
---------- ---------- ------- -------- -------
End of period ........................................ $ 12.77 $ 12.59 $ 11.87 $ 10.64 $ 9.86
========== ========== ======= ======== =======
Total return*** ...................................... 1.51% 6.15% 11.64% 7.91% (1.40)%
========== ========== ======= ======== =======
Ratio of expenses to average net assets (b) .......... 0.11% 0.19% 0.20% 0.19% 0.57%
---------- ---------- ------- -------- -------
Ratio of net investment income to average net
assets (b) .......................................... 2.23% 2.38% 2.22% 1.88% (0.14)%
---------- ---------- ------- -------- -------
Portfolio turnover ................................... 9% 5% 9% 47% 28%
---------- ---------- ------- -------- -------
Average broker commission per share (c) .............. $ 0.0179 $ 0.0149 N/A N/A N/A
---------- ---------- ------- -------- --------
Net assets, end of year (000s) ....................... $ 333,013 $ 99,048 $75,760 $139,678 $229,612
========== ========== ======= ======== ========
</TABLE>
- ----------------
* Net investment income (loss) per unit has been calcuated based upon an
average of monthly units outstanding.
** The Daily EAFE Fund commenced operations on September 30, 1993.
*** Total return is based on the value of a single unit of participation
outstanding throughout the entire period. It represents the percentage
change in the net asset value per unit between the beginning and end of
each period and assumes reinvestment of any distributions. The
calculation includes only those expenses charged directly to the Daily
EAFE Fund. This result may be reduced by any administrative or other fees
which are incurred in the management or maintenance of individual
participant accounts.
(a) Zero amounts represent those which are less than $.005 per unit.
(b) 1993 data annualized.
(c) Represents total commission paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994 1993*
-------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
DAILY GOVERNMENT/CORPORATE BOND
FUND
Net investment income** .................. $ 0.83 $ 0.78 $ 0.70 $ 0.73 $ 0.11
Net realized and unrealized gain
(loss) .................................. 0.32 (0.42) 1.17 (1.05) (0.17)
--------- ----------- --------- --------- -------
Net increase (decrease) .................. 1.15 0.36 1.87 (0.32) (0.06)
NET ASSET VALUE
Beginning of period ...................... 11.85 11.49 9.62 9.94 10.00
--------- ----------- --------- --------- -------
End of period ............................ $ 13.00 $ 11.85 $ 11.49 $ 9.62 $ 9.94
========= =========== ========= ========= =======
Total return (a)*** ...................... 9.70% 3.13% 19.44% (3.22)% (3.27)%
========= ============ ========= ========= =======
Ratio of expenses to average net
assets (a) .............................. 0.01% 0.01% 0.01% 0.01% 0.02%
Ratio of net investment income to
average net assets (a) .................. 6.73% 6.82% 6.53% 6.81% 5.94%
Portfolio turnover ....................... 294% 299% 611% 144% 23%
Net assets, end of period (000s) ......... $4,273,490 $ 3,060,002 $1,991,393 $1,540,440 $322,680
========== ============ ========== ========== ========
</TABLE>
- ----------
(a) 1993 data annualized.
* Investment operations commenced on October 25, 1993.
** Net investment income has been calculated based on an average of units
outstanding.
*** Total return calculation is based on the value of a single unit of
participation outstanding throughout the period. It represents the
percentage change in the net asset value per unit between the beginning
and end of the period. The calculation includes only those expenses
charged directly to the Fund. This result may be reduced by any
administrative or other fees which are incurred in the management or
maintenance of individual participant accounts.
SHORT-TERM INVESTMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- --------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income ......... $ 0.0563 $ 0.0548 $ 0.0604 $ 0.0424 $ 0.0336 $ 0.0402
========== ========== ========== ========= ========== ==========
Distributions from net
investment income ............ $ 0.0563 $ 0.0548 $ 0.0604 $ 0.0424 $ 0.0336 $ 0.0402
========== ========== ========== ========= ========== ==========
Total return** ................ 5.77% 5.62% 6.21% 4.32% 3.41% 4.09%
Ratio of expenses to
average net assets* .......... --% --% --% --% --% --%
Ratio of net investment
income to average net
assets ....................... 5.63% 5.56% 6.04% 4.24% 3.36% 4.02%
Net assets, end of year
(000s) ....................... $18,563,057 $13,762,940 $12,393,148 $9,239,219 $12,657,842 $10,016,685
=========== =========== =========== ========== =========== ===========
</TABLE>
- ----------
* Less than .01%.
** Total return calculation assumes dividend reinvestment and includes only
those expenses charged directly to the Fund. This result may be reduced
by any administrative or other fees which are incurred in the management
or maintenance of individual participant accounts.
15
<PAGE>
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
Ten INVESTMENT OPTIONS are available under the Program. Three of these are
discussed below: the Equity Index Fund and the two Lifecycle
Funds--Conservative and Moderate. Also discussed are the Lifecycle Fund Group
Trusts in which the Lifecycle Funds invest and the Underlying Funds in which
the Lifecycle Fund Group Trusts invest.
Each of the Funds discussed below has a different investment objective that it
seeks to achieve by following specific investment policies. The investment
objective of these Funds can only be changed by the Trustees. THERE IS NO
ASSURANCE THAT THE INVESTMENT OBJECTIVES OF ANY OF THESE FUNDS WILL BE MET. See
Risks and Investment Techniques.
THE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
OBJECTIVE. The Equity Index Fund seeks to achieve a total return which
parallels that of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") by investing in a mutual fund designated by the Trustees, the
SSgA S&P 500 Index Fund (formerly known as "The Seven Seas S&P 500 Index
Fund"). There is no assurance that this objective will be met.
INVESTMENT POLICIES. The Equity Index Fund will invest 100 percent of its
assets in shares of the SSgA S&P 500 Index Fund.
THE SSGA S&P 500 INDEX FUND. The SSgA S&P 500 Index Fund's investment objective
is to emulate the total return of the S&P 500 Index. The SSgA S&P 500 Index
Fund seeks to achieve its objective by investing in all 500 stocks in the S&P
500 Index in proportion to their weightings in the S&P 500 Index. To the extent
that all 500 stocks cannot be purchased, the SSgA S&P 500 Index Fund will
purchase a representative sample of the stocks listed in the S&P 500 Index in
proportion to their weightings.
The SSgA Fund was organized as a Massachusetts business trust and is registered
under the 1940 Act as an open-end diversified management investment company. As
a series mutual fund, The SSgA Fund issues shares in different investment
portfolios, one of which is the SSgA S&P 500 Index Fund. The investment adviser
of the SSgA S&P 500 Index Fund is State Street.
"S&P 500" IS A TRADEMARK OF STANDARD & POOR'S CORPORATION THAT HAS BEEN
LICENSED FOR USE BY THE SSGA S&P 500 INDEX FUND. THE SSGA S&P 500 INDEX FUND IS
NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S CORPORATION, AND
STANDARD & POOR'S CORPORATION MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE SSGA S&P 500 INDEX FUND.
The S&P 500 Index is composed of 500 common stocks which are chosen by Standard
and Poor's Corporation to best capture the price performance of a large
cross-section of the United States publicly traded stock market. The S&P 500
Index is structured to approximate the general distribution of industries in
the United States economy. The inclusion of a stock in the S&P 500 Index in no
way implies that Standard & Poor's Corporation believes the stock to be an
attractive investment, nor is Standard & Poor's a sponsor of or in any way
affiliated with the SSgA S&P 500 Index Fund or the Equity Index Fund. The 500
securities, most of which trade on the New York Stock Exchange, represent
approximately 75 percent of the market value of all common stocks. Each stock
in the S&P 500 Index is weighted by market capitalization. That is, each
security is weighted by its total market value relative to the total market
values of all the securities in the S&P 500 Index. Component stocks included in
the S&P 500 Index are chosen with the aim of achieving a distribution at the
index level representative of the various components of the United States gross
national product and therefore do not represent the 500 largest companies.
Aggregate market value and trading activity are also considered in the
selection process. A limited percentage of the S&P 500 Index may include
Canadian securities. No other foreign securities are eligible for inclusion.
16
<PAGE>
For further information about the SSgA S&P 500 Index Fund, see the SSgA S&P 500
Index Fund's prospectus and the related Statement of Additional Information.
Free additional copies of the SSgA S&P 500 Index Fund prospectus and copies of
the related Statement of Additional Information may be obtained by calling an
Equitable Life Account Executive. Participants and employers should carefully
read the prospectus of the SSgA S&P 500 Index Fund before they allocate
contributions or transfer amounts to the Equity Index Fund.
VOTING RIGHTS. The SSgA S&P 500 Index Fund does not hold annual meetings of
shareholders. If a meeting of shareholders is held, they may vote on such
matters as election of trustees and any other matters requiring a vote by
shareholders under the 1940 Act. Equitable Life will vote the shares of the
SSgA S&P 500 Index Fund allocated to the Equity Index Fund in accordance with
instructions received from employers, participants or trustees, as appropriate,
in the Equity Index Fund. Each employer, participant or trustee, as
appropriate, will be allowed to instruct Equitable Life on how to vote shares
of the SSgA S&P 500 Index Fund in proportion to their interest in the Equity
Index Fund as of the record date for the shareholder meeting. Equitable Life
will abstain from voting shares for which no instructions are received.
Employers, participants or trustees will receive periodic reports about the
SSgA S&P 500 Index Fund and proxy materials together with a voting instruction
form, in connection with shareholder meetings. The costs of soliciting voting
instructions from participants will be borne by the SSgA S&P 500 Index Fund.
LIFECYCLE FUNDS--CONSERVATIVE AND MODERATE
- --------------------------------------------------------------------------------
Each Lifecycle Fund is a separate account of Equitable Life. Contributions may
be made to the Lifecycle Fund --Conservative and/or the Lifecycle
Fund--Moderate. Each of the Lifecycle Funds invests in a Lifecycle Fund Group
Trust--Conservative or Moderate having identical investment objectives and
policies as the Lifecycle Fund to which it relates. In turn each of the
Lifecycle Fund Group Trusts invests in a mix of Underlying Funds. The following
table diagrams this investment structure:
--------------- ---------------
LIFECYCLE FUND- LIFECYCLE FUND-
CONSERVATIVE MODERATE
(SA 197) (SA 196)
--------------- ---------------
| |
| |
| |
| |
| |
|--------| |-------|
| |
| |
-------------- --------------
LIFECYCLE FUND LIFECYCLE FUND
GROUP TRUST- GROUP TRUST-
CONSERVATIVE UNDERLYING FUNDS MODERATE
-------------- --------------
| |
-------------------------------------------------------------
| | | | |
| | | | |
| | | | |
-------- ------- ----- --------- ----------
SAP 500 RUSSELL DAILY DAILY SHORT TERM
FLAGSHIP 2000 EAFE GOV'T INVESTMENT
FUND FUND FUND CORPORATE FUND
-------- ------- ----- BOND FUND ----------
---------
17
<PAGE>
THE LIFECYCLE FUND GROUP TRUSTS
- --------------------------------------------------------------------------------
The Lifecycle Fund Group Trusts are collective investment funds maintained by
State Street. Each Lifecycle Fund Group Trust is organized as a common law
trust under Massachusetts law, and because of exclusionary provisions, is not
subject to regulation under the 1940 Act.
There are two Lifecycle Fund Group Trusts: the Lifecycle Fund Group
Trust--Conservative and the Lifecycle Fund Group Trust--Moderate. State Street
serves as the trustee and investment manager to each of these Group Trusts.
Each of the Lifecycle Fund Group Trusts attempts to achieve its investment
objective by investing in a mix of underlying collective investment funds (the
"Underlying Funds") maintained by State Street and offered exclusively to tax
exempt retirement plans.
- -------------------------------------------------------------------------------
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
- -------------------------------------------------------------------------------
OBJECTIVE. The Lifecycle Fund Group Trust--Conservative seeks to provide
current income and a low to moderate growth of capital. There is no assurance
that this objective will be met.
INVESTMENT POLICIES. The Lifecycle Fund Group Trust--Conservative seeks to
achieve its objective by investing 100% of its assets in units of a mix of
Underlying Funds in accordance with certain target percentage weightings. The
table below shows the mix of Underlying Funds targeted by the Lifecycle Fund
Group Trust--Conservative.
<TABLE>
<CAPTION>
<S> <C>
S&P 500 Flagship Fund 15%
Russell 2000 Fund 5%
Daily EAFE Fund 10%
Daily Government/Corporate Bond Fund 50%
Short Term Investment Fund 20%
</TABLE>
The target percentages shown above are reviewed annually by the ADA Trustees
and may be revised as recommended, subject to State Street's approval. State
Street, as investment manager of the Lifecycle Fund Group Trust--Conservative,
from time to time makes adjustments in the mix of Underlying Funds as needed to
maintain, to the extent practicable, the target percentages in each of the
Underlying Funds.
- -------------------------------------------------------------------------------
LIFECYCLE FUND GROUP TRUST--MODERATE
- -------------------------------------------------------------------------------
OBJECTIVE. The Lifecycle Fund Group Trust--Moderate seeks to provide growth of
capital and a reasonable level of current income. There is no assurance that
this objective will be met.
INVESTMENT POLICIES. The Lifecycle Fund Group Trust--Moderate intends to
achieve its investment objective by investing 100% of its assets in units of a
mix of Underlying Funds in accordance with certain target percentage
weightings. The table below shows the mix of Underlying Funds targeted by the
Lifecycle Fund Group Trust--Moderate.
<TABLE>
<CAPTION>
<S> <C>
S&P 500 Flagship Fund 35%
Russell 2000 Fund 10%
Daily EAFE Fund 15%
Daily Government/Corporate Bond Fund 30%
Short Term Investment Fund 10%
</TABLE>
The target percentages shown above are reviewed annually by the ADA Trustees
and may be revised as recommended, subject to State Street's approval. State
Street, as investment manager of the Lifecycle Fund Group Trust--Moderate, from
time to time makes adjustments in the mix of Underlying Funds as needed to
maintain, to the extent practicable, the target percentages in each of the
Underlying Funds.
18
<PAGE>
THE UNDERLYING FUNDS
- --------------------------------------------------------------------------------
Like the Lifecycle Fund Group Trusts, the Underlying Funds are collective
investment funds maintained by State Street and offered exclusively to tax
exempt retirement plans. Unlike the Lifecycle Fund Group Trusts, however, which
are available only under the ADA Program, the Underlying Funds may receive
contributions from other tax exempt retirement plans.
The Underlying Funds are organized as common law trusts under Massachusetts
law, and because of exclusionary provisions, are not subject to regulation
under the 1940 Act. State Street serves as trustee and investment manager to
each of the Underlying Funds.
- -------------------------------------------------------------------------------
S&P 500 FLAGSHIP FUND
- -------------------------------------------------------------------------------
OBJECTIVE. The investment objective of the S&P 500 Flagship Fund ("Flagship
Fund") is to replicate, as closely as possible, the total return of the S&P 500
Index. "S&P 500" is a trademark of Standard & Poor's Corporation that has been
licensed for use by the Flagship Fund. The Flagship Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's Corporation, and Standard &
Poor's Corporation makes no representation regarding the advisability of
investing in this Fund. For further information on the S&P 500 Index, see the
discussion of the Equity Index Fund under Investment Options.
INVESTMENT POLICIES. The Flagship Fund intends to achieve its objective by
investing in all 500 stocks in the S&P 500 Index. In order to provide 100%
equity exposure, the Flagship Fund may hold up to 25% of its value in S&P 500
futures contracts in lieu of cash equivalents. U.S. Treasury Bills and other
short-term cash equivalents owned by the Flagship Fund will be held as
collateral for the futures contracts. For additional discussion related to the
investment policies of the Flagship Fund, see discussion below under Risks and
Investment Techniques and the Statement of Additional Information.
- -------------------------------------------------------------------------------
RUSSELL 2000 FUND
- -------------------------------------------------------------------------------
OBJECTIVE. The investment objective of the Russell 2000 Fund is to replicate,
as closely as possible, the return of the Russell 2000 Index maintained by
Frank Russell Company ("Frank Russell"). The Russell 2000 Fund will invest its
assets directly in shares of companies included in the Russell 2000 Index.
The Russell 2000 Index is a broadly diversified small capitalization index
consisting of approximately 2,000 common stocks. It is a subset of the larger
Russell 3000 Index. The Russell 3000 Index consists of the largest 3,000
publicly traded stocks of U.S. domiciled corporations and includes large,
medium and small capitalization stocks. As such, the Russell 3000 Index
represents approximately 98 percent of the total market capitalization of all
U.S. stocks that trade on the New York and American Stock Exchanges and in the
NASDAQ over-the-counter market. The Russell 2000 Index consists of the
approximately 2,000 smallest stocks within the Russell 3000 Index and is,
therefore, a broadly diversified index of small capitalization stocks.
INVESTMENT POLICIES. The Russell 2000 Fund fully replicates the Russell 2000
Index with the possible exception of the smallest securities in the index; due
to the relative illiquidity of those securities.
The composition of the Russell 2000 Index is updated monthly to reflect changes
in the stock market capitalization of companies in the Index. Once a year,
companies that no longer qualify for the Index because of fluctuations of
market capitalization are replaced. The rate of change in the securities
included in the Russell 2000 Index is significant, often higher than 20 percent
a year of the total market capitalization of the Index.
19
<PAGE>
The Russell 2000 Fund is neither sponsored by nor affiliated with Frank
Russell. Frank Russell's only relationship to the Russell 2000 Fund is the
licensing of the use of the Russell 2000 Stock Index. Frank Russell is the
owner of the trademarks and copyrights relating to the Russell indices.
For additional discussion related to the investment policies of the Russell
2000 Fund, see discussion below under Risks and Investment Techniques and the
Statement of Additional Information.
- -------------------------------------------------------------------------------
DAILY EAFE FUND
- -------------------------------------------------------------------------------
OBJECTIVE. The investment objective of the Daily EAFE Fund is to closely match
the performance of the Morgan Stanley Capital International EAFE Index ("EAFE
Index") while providing daily liquidity.
INVESTMENT POLICIES. The Daily EAFE Fund seeks to achieve its objective by
investing directly in each of the foreign markets which comprise the EAFE
Index. The EAFE Index is a broadly diversified international index consisting
of more than 1,100 companies traded on the markets of Europe, Australia, New
Zealand and the Far East. The investments may include equity securities,
equity-based derivatives, futures contracts, index swaps and foreign exchange
contracts. The Daily EAFE Fund also may acquire interest-bearing cash
equivalents, notes and other short-term instruments, including foreign currency
time deposits or call accounts.
As of December 31, 1997, Japan (25.2%) and the United Kingdom (21.6%) dominated
the market capitalization of the EAFE Index, with companies located in Germany,
France, Switzerland and Hong Kong also being well represented on the Index. The
Index covers a wide spectrum of industries, with the banking and finance
industry constituting 25.1%, consumer goods 22.9%, services 21.2%, capital
equipment 10.3%, materials 6.6% of the market capitalization of the Index (as
of December 31, 1997). Morgan Stanley Capital International, the creator of the
EAFE Index, is neither a sponsor of nor affiliated with the Daily EAFE Fund.
The Daily EAFE Fund seeks to fully replicate the MSCI EAFE Index, but may not
be able to hold all of the more than 1,000 stocks that comprise the EAFE Index
from time to time because of the costs involved. From time to time the Daily
EAFE Fund will hold a representative sample of the issues that comprise the
EAFE Index. Stocks will be selected for inclusion in the Daily EAFE Fund based
on country, market capitalization, industry weightings, and fundamental
characteristics such as return variability, earnings valuation, and yield. In
order to parallel the performance of the EAFE Index, the Daily EAFE Fund will
invest in each country in approximately the same percentage as the country's
weight in the EAFE Index.
For additional discussion related to the investment policies of the Daily EAFE
Fund, see discussion below under Risks and Investment Techniques and the
Statement of Additional Information.
- -------------------------------------------------------------------------------
DAILY GOVERNMENT/CORPORATE BOND FUND
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OBJECTIVE. The investment objective of the Daily Government/Corporate Bond Fund
("GC Bond Fund") is to match or exceed the return of the Lehman Brothers
Government/Corporate Bond Index.
INVESTMENT POLICIES. The GC Bond Fund seeks to achieve its investment objective
by making direct investment in marketable instruments and securities. In
addition, the GC Bond Fund may make direct investments in (1) U.S. Government
securities, including U.S. Treasury securities and other obligations issued or
guaranteed as to interest and principal by the U.S. Government and its agencies
and instrumentalities, (2) corporate securities, (3) asset backed securities,
(4) mortgage backed securities including, but not limited to, collateralized
mortgage obligations and real estate mortgage investment
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conduits, (5) repurchase and reverse repurchase agreements, (6) financial
futures and option contracts, (7) interest rate exchange agreements and other
swap agreements, (8) supranational and sovereign debt obligations including
those of sub-divisions and agencies, and (9) other securities and instruments
deemed by State Street, as trustee of the GC Bond Fund, to have characteristics
consistent with the investment objective of this Fund. The securities in the GC
Bond Fund will have a minimum credit rating when purchased of Baa3 by Moody's
or BBB- by Standard & Poor's.
For additional discussion related to the investment policies of the GC Bond
Fund, see discussion below under Risks and Investment Techniques and the
Statement of Additional Information.
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SHORT TERM INVESTMENT FUND
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OBJECTIVE. The investment objective of the Short Term Investment Fund ("STIF
Fund") is to maintain a diversified portfolio of short-term securities.
INVESTMENT POLICIES. The STIF Fund intends to achieve its objective by
investing in money market securities rated at least A-1 by Standard and Poor's
and P-1 by Moody's at the time of issuance. If the issuer has long-term debt
outstanding, such debt should be rated at least "A" by Standard & Poor's or "A"
by Moody's. The STIF Fund may purchase Yankee and Euro certificates of deposit,
Euro time deposits, U.S. Treasury bills, notes and bonds, federal agency
securities, corporate bonds, repurchase agreements and banker's acceptances.
Most of the investments may have a range of maturity from overnight to 90 days.
Twenty percent of the STIF Fund, however, may be invested in assets having a
maturity in excess of 90 days but not more than thirteen months.
For additional discussion regarding the investment policies of the STIF Fund,
see discussion below under Risks and Investment Techniques and the Statement of
Additional Information.
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VOTING RIGHTS: THE LIFECYCLE FUNDS
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Participants do not have any voting rights with respect to their investments in
a Lifecycle Fund. Similarly, participants do not have any voting rights with
respect to matters such as the selection of State Street as trustee or
investment manager or investment adviser of a Lifecycle Fund Group Trust or
Underlying Fund, or with respect to any changes in investment policy of any of
these entities.
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RISKS AND INVESTMENT TECHNIQUES: LIFECYCLE FUND
GROUP TRUSTS AND UNDERLYING FUNDS
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You should be aware that any investment in securities carries with it a risk of
loss. The different investment objectives and policies of the Equity Index Fund
and each of the Lifecycle Funds affect the return on these Funds. Additionally,
there are market and financial risks inherent in any securities investment. By
market risks, we mean factors which do not necessarily relate to a particular
issuer but which affect the way markets, and securities within those markets,
perform. We sometimes describe market risk in terms of volatility, that is, the
range and frequency of market value changes. Market risks include such things
as changes in interest rates, general economic conditions and investor
perceptions regarding the value of debt and equity securities. By financial
risks we mean factors associated with a particular issuer which may affect the
price of its securities, such as its competitive posture, its earnings and its
ability to meet its debt obligations. The risk factors and investment
techniques associated with the Underlying Funds in which the Lifecycle Fund
Group Trusts invest are discussed below. The risks and investment techniques
associated with investments by the Equity Index Fund in the Seven Seas S&P 500
Index Fund are discussed in the prospectus and Statement of Additional
Information for that Fund.
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IN GENERAL. You should note that the Flagship Fund, the 2000 Fund and the Daily
EAFE Fund are all index funds. An index fund is one that is not managed
according to traditional methods of "active" investment management, which
involve the buying and selling of securities based upon economic, financial and
market analysis and investment judgment. Instead, such funds utilize a
"passive" investment approach, attempting to duplicate the investment
performance of their benchmark indices through automated statistical analytic
procedures. For example, the Flagship Fund attempts to match the return of the
S&P 500 Index by using automated statistical methods to make stock selections.
Similar methods are employed in selecting stocks for the 2000 Fund and the
Daily EAFE Fund. Still, such Funds, to the extent they invest in the various
types of securities discussed below, are subject to the risks associated with
each of these investments.
Also, you should note that each of the Underlying Funds, for the purpose of
investing uncommitted cash balances or to maintain liquidity to meet
redemptions of Fund units, may invest temporarily and without limitation in
certain short-term fixed income securities and other collective investment
funds or registered mutual funds maintained or advised by State Street. The
short-term fixed income securities in which an Underlying Fund may invest
include obligations issued or guaranteed as to principal and interest by the
U.S. Government, its agencies and instrumentalities and repurchase agreements
collateralized by these obligations, commercial paper, bank certificates of
deposit, banker's acceptances, and time deposits.
EQUITY SECURITIES. Certain of the Underlying Funds will invest in equity
securities. Participants should be aware that equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and that fluctuations can be pronounced.
The securities of the smaller companies in which some of the Underlying Funds
may invest may be subject to more abrupt or erratic market movements than
larger, more established companies, both because the securities typically are
traded in lower volume and because the issuers typically are subject, to a
greater degree, to changes in earnings and profits.
FIXED-INCOME SECURITIES. Certain of the Underlying Funds will invest in
fixed-income securities. Although these are interest-bearing securities which
promise a stable stream of income, participants should be aware that the prices
of such securities are affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. The values of
fixed-income securities also may be affected by changes in the credit rating or
financial condition of the issuing entities. Once the rating of a portfolio
security has been changed, State Street will consider all relevant
circumstances in determining whether a particular Underlying Fund should
continue to hold that security. Certain securities such as those rated Baa by
Moody's and BBB by Standard & Poor's, may be subject to greater market
fluctuations than lower yielding, higher rated fixed-income securities.
Securities which are rated Baa by Moody's are considered medium grade
obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Securities rated BBB
by Standard & Poor's are regarded as having adequate capacity to pay interest
and repay principal, and while such debt securities ordinarily exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for securities in this category than in higher rated categories.
FOREIGN SECURITIES. The Daily EAFE Fund will invest in foreign securities. Such
investments, however, entail special risks. Foreign securities markets
generally are not as developed or efficient as those in the United States.
Securities of some foreign issuers are less liquid and more volatile than
securities of comparable U.S. issuers. Similarly, volume and liquidity in most
foreign securities markets are less than in the United States and, at times,
volatility of price can be greater than in the United States. In addition,
22
<PAGE>
there may be less publicly available information about a non-U.S. issuer, and
non-U.S. issuers generally are not subject to uniform accounting and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. issuers.
Because evidences of ownership of foreign securities usually are held outside
the United States, each of the Underlying Funds investing in foreign securities
will be subject to additional risks. Such risks include possible adverse
political and economic developments, possible seizure or nationalization of
foreign deposits, and possible adoption of governmental restrictions which
might adversely affect the payment of principal and interest on the foreign
securities or might restrict the payment of principal and interest to investors
located outside the country of the issuers, whether from currency blockage or
otherwise. Custodial expenses for a portfolio of non-U.S. securities generally
are higher than for a portfolio of U.S. securities.
Since foreign securities purchased by the Underlying Funds often are completed
in currencies of foreign countries, the value of these securities as measured
in U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. Some currency exchange costs may be
incurred when an Underlying Fund changes investments from one country to
another.
Furthermore, some of these securities may be subject to brokerage or stamp
taxes levied by foreign governments, which have the effect of increasing the
cost of such investment. Income received by sources within foreign countries
may be reduced by any withholding and other taxes imposed by such countries.
FUTURES CONTRACTS. Certain of the Underlying Funds may invest in futures
contracts. A purchase of a futures contract is the acquisition of a contractual
right and obligation to acquire the underlying security at a specified price on
a specified date. Although futures contracts by their terms may call for the
actual delivery or acquisition of the underlying security, in most cases the
contractual obligation is terminated before the settlement date of the contract
without delivery of the security. The Underlying Fund will incur brokerage fees
when it purchases and sells futures contracts.
The Underlying Funds will not purchase futures contracts for speculation.
Futures contracts are used to increase the liquidity of each Underlying Fund
and for hedging purposes.
Transactions in futures contracts entail certain risks and transaction costs to
which an Underlying Fund would not otherwise be subject, and the Underlying
Fund's ability to purchase futures contracts may be limited by market
conditions or regulatory limits. Because the value of a futures contract
depends primarily on changes in the value of the underlying securities, the
value of the futures contracts purchased by the Underlying Fund generally
reflects changes in the values of the underlying stocks or bonds. The risks
inherent in the use of futures contracts include: (1) imperfect correlation
between the price of the futures contracts and movements in the prices in the
underlying securities; and (2) the possible absence of a liquid secondary
market for any particular instrument at any time.
An Underlying Fund also may engage in foreign futures transactions. Unlike
trading on domestic futures exchanges, trading on foreign futures exchanges is
not regulated by the Commodity Futures Trading Commission and may be subject to
greater risks than trading on domestic exchanges. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits that an Underlying Fund might realize from trading could
be eliminated by adverse changes in the exchange rate, or such Underlying Fund
could incur losses as a result of those changes. Transactions on foreign
exchanges may include both futures which are traded on domestic exchanges and
those which are not.
SECURITIES OF MEDIUM AND SMALLER SIZED COMPANIES. Certain of the Underlying
Funds may invest in the securities of medium and smaller sized companies with
market capitalization of $500 million to $1.5
23
<PAGE>
billion. Such companies may be dependent on the performance of only one or two
products and, therefore, may be vulnerable to competition from larger companies
with greater resources and to economic conditions affecting their market
sector. Consequently, consistent earnings may not be as likely in such
companies as they would be for larger companies. In addition, medium and
smaller sized companies may be more dependent on access to equity markets to
raise capital than larger companies with greater ability to support debt.
Medium and smaller sized companies may be new, without long business or
management histories, and perceived by the market as unproven. Their securities
may be held primarily by insiders or institutional investors, which may have an
impact on marketability. The price of these stocks may rise and fall more
frequently and to a greater extent than the overall market.
LENDING OF SECURITIES. Certain of the Underlying Funds may from time to time
lend securities from their portfolios to brokers, dealers and financial
institutions and receive collateral consisting of cash, securities issued or
guaranteed by the U.S. Government, or irrevocable letters of credit issued by
major banks. Cash collateral will be invested in various collective investment
funds maintained by State Street. The net income from such investments will
increase the return to the Underlying Funds. All securities lending
transactions in which the Underlying Funds engage will comply with the
prohibited transaction provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA") and related regulations.
INVESTMENTS BY THE STIF FUND. Each of the Lifecycle Fund Group Trusts will, and
certain of the Underlying Funds may, invest in the STIF Fund. This Fund intends
to invest, among other things, in various U.S. Government Obligations, U.S.
dollar-denominated instruments issued by foreign banks and foreign branches of
U.S. banks, "when-issued" securities, and to enter into repurchase agreements
with various banks and broker-dealers. The STIF Fund's activities with respect
to each of these investments are discussed below.
The STIF Fund may invest in a variety of U.S. Government obligations, including
bills and notes issued by the U.S. Treasury and securities issued by agencies
of the U.S. Government.
The STIF Fund also may invest in U.S. dollar-denominated instruments issued by
foreign banks and foreign branches of U.S. banks, a type of investment that may
involve special risks. Such banks may not be required to maintain the same
financial reserves or capital that are required of U.S. banks. Restrictions on
loans to single borrowers, prohibitions on certain self-dealing transactions,
and other regulations designed to protect the safety and solvency of U.S. banks
may not be applicable to foreign banks and foreign branches of U.S. banks. In
addition, investments of this type may involve the unique risks associated with
investments in foreign securities described above.
The STIF Fund may commit to purchasing securities on a "when-issued" basis,
such that payment for and delivery of a security will occur after the date that
this Fund commits to purchase the security. The payment obligation and the
interest rate that will be received on the security are each fixed at the time
of the purchase commitment. Prior to payment and delivery, however, the STIF
Fund will not receive interest on the security, and will be subject to the risk
of loss if the value of the when-issued security is less than the purchase
price at time of delivery.
Finally, the STIF Fund may enter into repurchase agreements with various banks
and broker-dealers. In a repurchase agreement transaction, the STIF Fund
acquires securities (usually U.S. Government obligations) for cash and obtains
a simultaneous commitment from the seller to repurchase the securities at an
agreed-upon price and date. The resale price is in excess of the acquisition
price and reflects an agreed-upon rate of interest unrelated to the coupon rate
on the purchased security. In these transactions, the securities purchased by
the STIF Fund will have a total value at least equal to the amount of the
24
<PAGE>
repurchase price and will be held by State Street or a third-party custodian
until repurchased. State Street will continually monitor the value of the
underlying securities to verify that their value, including accrued interest,
always equals or exceeds the repurchase price.
HOW WE CALCULATE THE VALUE OF
AMOUNTS ALLOCATED TO THE
EQUITY INDEX AND LIFECYCLE FUNDS
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CONTRIBUTIONS AND TRANSFERS: PURCHASE OF FUND UNITS. The portion of each
contribution or transfer allocated to the Equity Index Fund or the Lifecycle
Funds will be used to purchase Units. Your interest in each Fund is represented
by the value of the Units credited to your Account for that Fund. The number of
Units purchased by a contribution or transfer to a Fund is calculated by
dividing the amount allocated by the Unit Value calculated as of the close of
business on the day we receive your contribution or transfer instruction. The
number of Units credited to your Account will not vary because of any
subsequent fluctuation in the Unit Value, but the value of a Unit fluctuates
with the investment experience of the Fund. In other words, the Unit Value will
reflect the investment income and realized and unrealized capital gains and
losses of that Fund as well as the deductions and charges we make to the Fund.
HOW WE DETERMINE THE UNIT VALUE. We determine the Unit Value for the Equity
Index Fund and each of the Lifecycle Funds at the end of each business day. The
Unit Value for each of these Funds is calculated by first determining a gross
unit value, which reflects only investment performance, and then adjusting it
for Fund expenses to obtain the Fund Unit Value. We determine the gross unit
value by multiplying the gross unit value for the preceding business day by the
net investment factor for that subsequent business day. We calculate the net
investment factor as follows:
o First, we take the value of the Fund's assets at the close of business on
the preceding business day.
o Next, we add the investment income and capital gains, realized and
unrealized, that are credited to the assets of the Fund during the
business day for which we are calculating the net investment factor.
o Then we subtract the capital losses, realized and unrealized, charged to
the Fund during that business day.
o Finally, we divide this amount by the value of the Fund's assets at the
close of the preceding business day.
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The Fund Unit Value is calculated on every business day by multiplying the Fund
Unit Value for the last business day of the previous month by the net change
factor for that business day. The net change factor for each business day is
equal to (a) minus (b) where:
(a) is the gross unit value for that business day divided by the gross unit
value for the last business day of the previous month and;
(b) is the charge to the Fund for that month for the daily accrual of fees and
other expenses times the number of days since the end of the preceding month.
The Equity Index Fund's investments in the SSgA S&P 500 Index Fund will be
valued at the underlying mutual fund's net asset value per share. The
investments made by each of the Lifecycle Funds in units of the corresponding
Lifecycle Fund Group Trust will be valued at the net asset value of the units
of such Lifecycle Fund Group Trust.
The units of each of the Lifecycle Fund Group Trusts will be valued each
business day as of the close of the regular trading session of the New York
Stock Exchange (currently 4 p.m. Eastern time). A business day is any business
day on which the New York Stock Exchange is open for business. The net asset
value of each unit is computed by dividing the current value of the assets of
each Lifecycle Fund Group Trust, less its liabilities, by the number of units
outstanding and rounding to the nearest cent.
Investments made by each Lifecycle Fund Group Trust in the Underlying Funds
will be valued at the Underlying Fund's net asset value per unit. The units of
each Underlying Fund are valued each business day in a manner that is similar
to the method used for valuing units of the Lifecycle Fund Group Trusts daily.
Assets of the Flagship Fund, 2000 Fund, Daily EAFE Fund and the GC Bond Fund
are valued on the basis of readily available market values or, if no such
values are available, on the basis of fair values as determined in good faith
by State Street. Assets of the STIF Fund are valued at amortized cost. Under
this method of valuation, securities purchased by the STIF Fund, such as bonds,
notes, commercial paper, certificates of deposit, or other evidences of
indebtedness, are recorded at original cost and valued daily by adjusting for
premium amortization or discount accretion.
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EQUITABLE LIFE AND STATE STREET
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EQUITABLE LIFE
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Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest
life insurance companies in the United States. Equitable Life has been selling
annuities since the turn of the century. Our Home Office is located at 1290
Avenue of the Americas, New York, New York 10104. We are authorized to sell
life insurance and annuities in all fifty states, the District of Columbia,
Puerto Rico and the Virgin Islands. We maintain local offices throughout the
United States. We are one of the nation's leading pension fund managers.
Equitable Life is a wholly-owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). The largest stockholder of the Holding
Company is AXA-UAP ("AXA"). As of December 31, 1997, AXA beneficially owned
58.7% of the outstanding shares of common stock of the Holding Company. Under
its investment arrangements with Equitable Life and the Holding Company, AXA is
able to exercise significant influence over the operations and capital
structure of the Holding Company and its subsidiaries, including Equitable
Life. AXA, a French company, is the holding company for an international group
of insurance and related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed assets of
approximately $274.1 billion as of December 31, 1997, including third party
assets of approximately $216.9 billion. These assets are primarily managed for
retirement and annuity programs for businesses, tax-exempt organizations and
individuals. This broad customer base includes nearly half the Fortune 100,
more than 42,000 small businesses, state and local retirement funds in more
than half the 50 states, approximately 250,000 employees of educational and
non-profit institutions, as well as nearly 500,000 individuals. Millions of
Americans are covered by Equitable Life's annuity, life, health and pension
contracts.
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THE SEPARATE ACCOUNTS
- -------------------------------------------------------------------------------
Each of the seven Funds is a separate account of Equitable Life; we own all of
the assets of the separate accounts. A separate account is a separate
investment account which we use to support our group annuity contracts, and for
other purposes permitted by applicable law. We keep the assets of each separate
account segregated from our general account and from any other separate
accounts we may have. Although the assets of the Funds are our property, our
obligation to you under the group annuity contract equals the value of your
accumulation in each Fund.
Income, gains and losses, whether or not realized, from assets invested in the
Funds are, in accordance with the group annuity contract, credited to or
charged against each Fund without regard to our other income, gains or losses.
This means that assets supporting account balances in the Separate Accounts are
not subject to claims of Equitable's creditors. The portion of each Fund's
assets we hold on your behalf may not be used to satisfy obligations that may
arise out of any other business we conduct. We may, however, transfer amounts
owed to us, such as fees and expenses, to our general account at any time. We
may make these transfers even if the Fund in question does not have sufficient
liquidity to make all withdrawals requested by participants.
The separate account which we call the Equity Index Fund was established on
February 1, 1994. The separate accounts which we call the Lifecycle Funds were
established on May 1, 1995. The Funds are governed by the laws and regulations
of the state of New York, where we are domiciled, and may also be governed by
laws of other states in which we do business. The Equity Index Fund and
Lifecycle Funds are used exclusively for the ADA Program. Because of
exclusionary provisions, the Separate Accounts are not subject to regulations
under the 1940 Act.
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We do not manage the Equity Index Fund or the Lifecycle Funds. We act in
accordance with the investment policies established by the Trustees.
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STATE STREET
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State Street is a trust company established under the laws of the Commonwealth
of Massachusetts. It is a wholly-owned subsidiary of State Street Corporation,
a publicly held bank holding company registered under the Federal Bank Holding
Company Act of 1956, as amended. State Street's home office is located at 225
Franklin Street, Boston, Massachusetts 02110. Through its institutional
investment arm, SSgA, State Street provides a comprehensive array of investment
products that span the spectrum from indexed to fully active investment
management approaches.
Its customers include corporate, union, and public pension plans, endowments,
foundations and other financial institutions in the U.S. and abroad. As of
December 31, 1997, State Street was ranked the largest U.S. manager of
international index assets and the second largest U.S. manager of tax-exempt
assets. It had total assets of $398.5 billion under management at December 31,
1997.
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THE LIFECYCLE FUND GROUP TRUSTS AND UNDERLYING FUNDS
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Each of the Lifecycle Fund Group Trusts and the Underlying Funds (referred to
collectively herein as "Trust" or "Trusts") is a collective investment fund
maintained by State Street. Although similar in many respects to mutual funds,
a collective investment fund is excluded from regulation under the 1940 Act if
it is maintained by a bank and consists only of assets of tax qualified
retirement plans. The Trusts and Underlying Funds each satisfy both of these
requirements, and are not subject to the 1940 Act as otherwise applicable to
mutual funds.
Each Trust is operated by a single corporate trustee (State Street), which is
responsible for all aspects of the Trust, including portfolio management,
administration and custody. Under the Trusts, participants have no voting
rights with respect to the selection of State Street, as trustee, the selection
of the Trust's investment adviser or manager, or changes to any investment
policy of the Trust.
State Street is subject to supervision and examination by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, and the Massachusetts Commissioner of Banks. This, however, does
not provide any protection against loss that may be experienced as a result of
an investment in the Trusts. Further, State Street is required to comply with
ERISA, to the extent applicable, in connection with the administration of the
Program.
TAX STATUS OF THE LIFECYCLE FUND GROUP TRUSTS AND UNDERLYING FUNDS. Each Trust
is a tax-exempt group trust established pursuant to Revenue Ruling 81-100. As a
tax-exempt group trust, each Trust is not subject to federal income tax unless
the Trust generates unrelated business taxable income as defined in the Code
("UBTI"). It is the policy of State Street not to invest any portion of the
assets of a Trust in a manner that will generate UBTI. If State Street
determines, however, that a proposed investment cannot be structured to avoid
UBTI and that the projected after-tax return on that investment is sufficient
to justify the making of such investment, then State Street may elect to make
that investment. In the unlikely event that any UBTI is incurred by a Trust, it
is anticipated that any tax thereon would be reported and paid by the Trust as
an expense of such Trust.
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INVESTMENT PERFORMANCE
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MEASURING THE INVESTMENT PERFORMANCE OF THE FUNDS
- -------------------------------------------------------------------------------
We recognize that the performance of the Funds that you invest your retirement
savings in is important to you. The purpose of this discussion is to give you
an overview of how our Funds have performed in the past year. OF COURSE, PAST
PERFORMANCE CANNOT BE USED TO PREDICT FUTURE PERFORMANCE.
Fund performance is most often measured by the change in the value of fund
units over time. Unlike typical mutual funds, which usually distribute earnings
annually, separate account funds reinvest all earnings. As described
previously, the unit value calculations for the Funds include all earnings,
including dividends and realized and unrealized capital gains. Changes in the
unit values can be expressed in terms of the Fund's annual percentage change,
its average annual change, or its cumulative change over a period of years.
Each of these measurements is valuable on its own. In addition, it often is
helpful to compare the Fund's performance with the results of unmanaged market
indices.
The following tables and graphs provide a historical view of the Funds'
investment performance. The information presented includes performance results
for each Fund, along with data representing unmanaged market indices. Financial
statements for the Funds can be found in the SAI.
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UNMANAGED MARKET INDICES
- -------------------------------------------------------------------------------
Unmanaged market indices, or "benchmarks," while providing a broader
perspective on relative performance, are only a tool for comparison.
Performance data for the unmanaged market indices do not reflect any deductions
for investment advisory, brokerage or other expenses of the type typically
associated with an actively managed fund. This effectively overstates the rate
of return of the market indices relative to that which would be available to a
typical investor, and limits the usefulness of these indices in assessing the
performance of the Funds. Since the Funds do not distribute dividends or
interests, the market indices have been adjusted to reflect reinvestment of
dividends and interest to provide greater comparability.
We have presented data for the following unmanaged indices. Each of these may
be appropriate comparative measures of performance for the applicable Funds.
o STANDARD AND POOR'S 500 INDEX ("S&P 500") -- an unmanaged weighted index of
the securities of 500 industrial, transportation, utility and financial
companies widely regarded by investors as representative of the stock
market. This index should not be confused with the performance of the
Equity Index Fund nor that of the SSgA S&P 500 Index Fund, which seek to
emulate the results of the S&P 500 Index. See The Investment Options -- The
Equity Index Fund for more information.
o RUSSELL 2000 INDEX ("RUSSELL 2000") -- an unmanaged broadly diversified index
maintained by Frank Russell Company consisting of the approximately 2,000
smallest stocks within the Russell 3000 Index. The Russell 3000 Index
consists of the largest 3,000 publicly traded stocks of U.S. domiciled
corporations and includes large, medium and small capitalization stocks. As
such, the Russell 3000 Index represents approximately 98 percent of the
total market capitalization of all U.S. stocks that trade on the New York
and American Stock Exchanges and in the NASDAQ over-the-counter market.
o MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX ("EAFE") -- an unmanaged
index of the securities of over 1,000 companies traded on the markets of
Europe, Australia, New Zealand and the Far East.
o LEHMAN GOVERNMENT/CORPORATE BOND INDEX ("LEHMAN") -- an unmanaged index
widely regarded by investors as representative of the bond market.
o SALOMON BROTHERS 3-MONTH T-BILL INDEX ("SALOMON 3 MO. T-BILL") -- an
unmanaged index of direct obligations of the U.S. Treasury which are issued
in maturities between 31 and 90 days.
o CONSUMER PRICE INDEX (URBAN CONSUMERS -- NOT SEASONALLY ADJUSTED) "CPI" --
an index of inflation.
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HOW PERFORMANCE DATA ARE PRESENTED
- -------------------------------------------------------------------------------
We have shown performance on several different bases:
o The annual percentage changes in Fund Unit Values,
o The average annual percentage change in Fund Unit Values
THE FUNDS' PERFORMANCE SHOWN MAY NOT REPRESENT YOUR ACTUAL EXPERIENCE AND IT
DOES NOT REPRESENT THE EFFECT OF THE RECORD MAINTENANCE AND REPORT OR
ENROLLMENT FEES. The annual percentage change in Fund unit values represents
the percentage increase or decrease in unit values from the beginning of one
year to the end of that year. During any year unit values will, of course,
increase or decrease reflecting fluctuations in the securities markets. The
average annual rates of return are time-weighted, assume an investment at the
beginning of each period, and include the reinvestment of investment income.
Performance data for the Equity Index Fund reflects the performance of Separate
Account No. 195 for the period beginning February 1, 1994. For periods prior to
February 1, 1994, hypothetical performance is shown, which reflects the
performance of the SSgA S&P 500 Index Fund beginning 1993, the first full year
after that Fund began operations. For these hypothetical calculations we have
applied the Program expense charge during those periods plus .15% in estimated
other expenses to the historical investment experience of the SSgA S&P 500
Index Fund. No results are shown for periods prior to 1993, as the State Street
S&P 500 Index Fund began operations during 1992. 1995 performance data for the
Lifecycle Funds is shown for the period when the Funds commenced operations on
May 1, 1995 through December 31, 1995.
- -------------------------------------------------------------------------------
ANNUAL PERCENTAGE CHANGE IN FUND UNIT VALUES*
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
LIFECYCLE LIFECYCLE SALOMON
EQUITY FUND-- FUND-- S&P RUSSELL 3-MO.
INDEX CONSERVATIVE MODERATE 500 2000 EAFE LEHMAN T-BILL CPI
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 31.7% 9.9% 16.1% 33.4% 22.4% 1.8% 9.8% 5.2% 1.9%
- ---------------------------------------------------------------------------------------------------------
1996 21.3 4.3 10.6 23.0 16.5 6.1 2.9 5.3 3.3
- ---------------------------------------------------------------------------------------------------------
1995 35.1 5.9 10.1 37.5 28.4 11.2 19.2 5.7 2.9
- ---------------------------------------------------------------------------------------------------------
1994 0.7 -- -- 1.3 -1.8 7.8 -3.5 4.2 2.7
- ---------------------------------------------------------------------------------------------------------
1993 6.4 -- -- 10.0 18.9 32.6 11.0 3.1 2.7
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL PERCENTAGE CHANGE IN FUND UNIT VALUES -- YEARS ENDING
DECEMBER 31, 1997*
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
LIFECYCLE LIFECYCLE SALOMON
EQUITY FUND-- FUND-- S&P RUSSELL 3-MO.
INDEX CONSERVATIVE MODERATE 500 2000 EAFE LEHMAN T-BILL CPI
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1 Year 31.7% 9.9% 16.1% 33.4% 22.4% 1.8% 9.8% 5.2% 1.9%
- ------------------------------------------------------------------------------------------------------------
3 Years 29.2 -- -- 31.2 22.3 6.3 10.4 5.4 2.6
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Hypothetical results are shown in italics.
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE. NO PROVISIONS HAVE
BEEN MADE FOR THE EFFECT OF TAXES ON INCOME AND GAINS OR UPON DISTRIBUTIONS.
30
<PAGE>
THE PROGRAM
- --------------------------------------------------------------------------------
The purpose of this section is to explain the ADA Members Retirement Program in
more detail. Although we have described important aspects of the Program, you
should understand that the provisions of your plan and the Participation
Agreement will define the scope of the Program and its specific terms and
conditions. This section is for employers, and for the purposes of this
section, "you" and "your" refer to you in that role although you may also be a
participant in the plan.
- -------------------------------------------------------------------------------
EMPLOYERS WHO MAY PARTICIPATE IN THE PROGRAM
- -------------------------------------------------------------------------------
If you are a sole proprietor, a partner or a shareholder in a professional
corporation, your practice, as an employer, can adopt the Program if you or at
least one of your fellow partners or shareholders is a member of:
o the ADA,
o one of its constituent or component societies, or
o an ADA-affiliated organization whose participation in the Program has been
approved by the Council on Insurance of the ADA.
ADA constituent or component societies may also adopt the Program for their own
employees within certain limitations imposed by the Internal Revenue Code.
- -------------------------------------------------------------------------------
CHOICES FOR THE EMPLOYER
- -------------------------------------------------------------------------------
The ADA Members Retirement Program gives you a variety of approaches to choose
from. You can:
o Adopt our Master Plan, which gives you options as to types of plans and
plan provisions. The Master Plan uses the Program Investment Options as
the exclusive investment choices.
o Adopt the Self-Directed Prototype plan, which gives additional flexibility
to choose investments, or
o Maintain your own individually-designed plan, but use the Investment
Options as an investment for your plan.
- -------------------------------------------------------------------------------
SUMMARY OF THE PLANS AND TRUSTS
- -------------------------------------------------------------------------------
THE MASTER PLAN -- Under the Master Plan, you will automatically receive a full
range of services from Equitable Life, including your choice of the Investment
Options, plan-level and participant-level recordkeeping, benefit payments and
tax withholding and reporting.
o The Master Plan is a defined contribution master plan which can be adopted
as a profit sharing plan (including optional 401(k), SIMPLE 401(k)
features, and beginning with plan years after December 31, 1998,
safeharbor 401(k)), a defined contribution pension plan, or both.
THE SELF-DIRECTED PROTOTYPE PLAN -- is a defined contribution prototype plan
which can be used to combine the Program Investment Options with individual
investments such as stocks and bonds. Employers must also adopt the Pooled
Trust and maintain a minimum of $25,000 in the Trust at all times. We provide
recordkeeping services only for plan assets held in the Pooled Trust.
THE ADA MEMBERS POOLED TRUST FOR RETIREMENT PLANS -- is an investment vehicle
to be used by those who have an individually designed qualified retirement
plan. The Pooled Trust is for investment only and can be used for both defined
benefit and defined contribution plans. We provide participant-level or
plan-level recordkeeping services for plan assets held in the Pooled Trust.
31
<PAGE>
- -------------------------------------------------------------------------------
INFORMATION ON JOINING THE PROGRAM
- -------------------------------------------------------------------------------
Our Retirement Program Specialists are available to answer your questions about
joining the Program. To reach one of our Retirement Program Specialists, call
or write to us at:
<TABLE>
<CAPTION>
<S> <C>
By Phone 1-800-523-1125, ext. 2608
From Alaska, 0-201-583-2395, collect
Specialists are available from 9 a.m. to 5 p.m. Eastern Time,
Monday through Friday.
By Regular Mail The ADA Members Retirement Program
c/o Equitable Life
Box 2011
Secaucus, New Jersey 07096
By Registered, Certified or The ADA Members Retirement Program
Overnight Mail c/o Equitable Life
200 Plaza Drive, 2-B55
Secaucus, New Jersey 07094
</TABLE>
- -------------------------------------------------------------------------------
CHOOSING THE RIGHT PLAN
- -------------------------------------------------------------------------------
Choosing the right plan depends on your own unique set of circumstances.
Although Equitable Life's Retirement Program Specialists can help explain the
Program, you and your tax advisors must decide which plan is best for you.
- -------------------------------------------------------------------------------
GETTING STARTED IN THE PROGRAM AFTER CHOOSING A PLAN
- -------------------------------------------------------------------------------
To adopt the Master Plan, you must complete a Participation Agreement. If you
have your own plan and wish to use the Pooled Trust as an investment option,
the trustee of your plan must complete the appropriate Participation Agreement.
Our Retirement Program Specialists can help you complete the Participation
Agreement for review by your tax advisor.
To adopt our prototype self-directed plan, you must complete the prototype plan
adoption agreement and a Participation Agreement for the Pooled Trust. In
addition, you must also arrange separately for plan level accounting and
brokerage services. We provide recordkeeping services only for plan assets held
in the Pooled Trust. You can use any plan recordkeeper of your choice or you
can arrange through us to hire Trust Consultants, Inc. at a special rate. You
can also arrange through us brokerage services from our affiliate, DLJ Direct,
at special rates or use the services of any other broker.
32
<PAGE>
- -------------------------------------------------------------------------------
COMMUNICATING WITH US AFTER YOU ENROLL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
By Phone
To Reach an Account 1-800-223-5790
Executive (9 a.m. to 5 p.m. Eastern Time, Monday through
Friday)
To Reach the Account 1-800-223-5790 (24 Hours)
Investment Management
("AIM") System:
- -------------------------------------------------------------------------------------------------------------------------------
By Regular Mail (Other than The ADA Members Retirement Program
contribution checks) Box 2486 G.P.O.
New York, New York 10116
- -------------------------------------------------------------------------------------------------------------------------------
By Registered, Certified or The ADA Members Retirement Program c/o
Overnight Mail Equitable Life
200 Plaza Drive, Second Floor
Secaucus, New Jersey 07094
- -------------------------------------------------------------------------------------------------------------------------------
For Contribution Checks Only The Association Members Retirement Program
P.O. Box 1599
Newark, New Jersey 07101-9764
</TABLE>
- -------------------------------------------------------------------------------
YOUR RESPONSIBILITIES AS THE EMPLOYER
- -------------------------------------------------------------------------------
Employers adopting the Master Plan are responsible for the plan and its
administration. This includes certain responsibilities relating to the
administration and continued qualification of your plan. See Your
Responsibilities As Employer in the SAI for a list of responsibilities which
you will have if you adopt the Master Plan.
If you have an individually designed plan, you already have these
responsibilities; they are not increased in any way by your adoption of the
Pooled Trust for investment purposes only. It is your responsibility to
determine that the terms of your plan are consistent with the provisions of the
Pooled Trust and our practices described in this prospectus and the SAI.
If you utilize our prototype self-directed plan, you will have responsibilities
as the plan administrator and will also have to appoint a plan trustee; these
responsibilities will be greater than those required by the adoption of the
Master Plan. Again it is also your responsibility to determine that the terms
of your plan are consistent with the provisions of the Pooled Trust and our
practices described in this prospectus and the SAI. You should consult your
legal advisor for an understanding of your legal responsibilities under the
self-directed plan.
We will give you guidance and assistance in the performance of your
responsibilities. The ultimate responsibility, however, rests with you.
- -------------------------------------------------------------------------------
WHEN TRANSACTIONS ARE EFFECTIVE
- -------------------------------------------------------------------------------
A business day is any day both we and the New York Stock Exchange are open.
Contributions, transfers, and allocation changes are normally effective on the
business day they are received. Distribution requests are also effective on the
business day they are received unless, as in the Master Plan, there are plan
provisions to the contrary. However, we may have to delay the processing of any
transaction which is not accompanied by a properly completed form or which is
not mailed to the correct address. An Account
33
<PAGE>
Executive will generally be available to speak with you each business day from
9 a.m. to 5 p.m. Eastern Time. We may, however, close due to emergency
conditions.
- -------------------------------------------------------------------------------
MINIMUM INVESTMENTS
- -------------------------------------------------------------------------------
There is no minimum amount which must be invested if you adopt the Master Plan,
or if you have your own individually-designed plan and use the Pooled Trust as
an investment.
If you adopt our self-directed prototype plan, you must keep at least $25,000
in the Pooled Trust at all times.
- -------------------------------------------------------------------------------
MAKING CONTRIBUTIONS TO THE PROGRAM
- -------------------------------------------------------------------------------
You should send contribution checks or money orders payable to The ADA
Retirement Trust to the address shown under Communicating With Us After You
Enroll. All contributions must be accompanied by a properly completed
Contribution Remittance form which designates the amount to be allocated to
each participant. Contributions are normally credited on the business day that
we receive them, provided the remittance form is properly completed. The
preferred form of payment is a single check on your business or personal
account payable to Equitable Life. Payment may also be in the form of a single
money order, bank draft or cashier's check payable directly to Equitable Life.
These checks, money orders and drafts are accepted subject to collection. Cash
and traveler's checks are not acceptable. Third party checks endorsed to
Equitable Life are not acceptable form of payment unless the check is rollover
money directly from a qualified retirement plan, a tax-free exchange under the
Internal Revenue Code, or a trustee check that involves no refund. We reserve
the right to reject a payment if an unacceptable form of payment is received.
Contributions are only accepted from the employer. Employees may not send
contributions directly to the Program.
- -------------------------------------------------------------------------------
OUR ACCOUNT INVESTMENT MANAGEMENT (AIM) SYSTEM
- -------------------------------------------------------------------------------
We offer an automated telephone system for participants 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 Personal Security Code (PSC) number. You
are assigned a PSC number when we receive a completed enrollment form for the
plan.
If you have a touch-tone telephone you may make transfers on the AIM System.
Procedures have been established by Equitable Life for its AIM System that are
considered to be reasonable and are designed to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring
certain personal identification information prior to acting on telephone
instructions and providing written confirmation of instructions communicated by
telephone. If Equitable Life does not employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, we may be liable for
any losses arising out of any action on our part or any failure or omission to
act as a result of our own negligence, lack of good faith or willful
misconduct. In light of the procedures established, Equitable Life will not be
liable for following telephone instructions that we reasonably believe to be
genuine. We may discontinue the telephone transfer service at any time without
notice.
34
<PAGE>
- -------------------------------------------------------------------------------
ALLOCATING CONTRIBUTIONS AMONG THE INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
Under the Master Plan, participants make all investment decisions. Under an
individually-designed plan or our self-directed prototype plan, either the
participants or the plan trustees make the investment allocation decisions,
depending on the terms of the plan.
Contributions may be allocated among any number of the Investment Options.
Allocation instructions may be changed at any time, and as often as needed, by
calling the AIM System. New instructions become effective on the business day
we receive them. You may allocate employer contributions in different
percentages than employee contributions. IF WE HAVE NOT RECEIVED VALID
INSTRUCTIONS, WE WILL ALLOCATE YOUR CONTRIBUTIONS TO THE MONEY MARKET GUARANTEE
ACCOUNT.
- -------------------------------------------------------------------------------
TRANSFERS AMONG THE INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
Participants in the Master Plan may make transfers on a daily basis without
charge. Participants in other plans may make transfers whenever the plan allows
them to do so. We do not charge a fee for transfers. (If an individually
designed plan does not allow transfers by individual participants, only you as
employer or trustee may make a transfer.)
Participants may use the AIM System to transfer amounts among the investment
options. All transfers are made as of the close of business on the day we
receive the authorized instructions, provided we receive the request by 4:00
p.m. Eastern time. Transfer requests received after that time will be processed
as of the close of business on the following business day.
Transfers from the Equity Index Fund and the Lifecycle Funds are permitted at
any time except if there is any delay in redemptions from the underlying mutual
fund or, with respect to the Lifecycle Funds, the Lifecycle Fund Group Trusts
in which they invest. See The Equity Index Fund and Lifecycle Fund-Conservative
and Moderate.
- -------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE INVESTMENT OPTIONS
- -------------------------------------------------------------------------------
There are two sets of rules that must be kept in mind when considering
distributions or withdrawals from the Program. The first are the rules and
procedures which apply to the Investment Options, exclusive of the provisions
of your plan. These are discussed in this section. The second are the rules
specific to your plan; these are discussed under When Distributions are
Available to Participants.
Amounts in the Equity Index Fund and the Lifecycle Funds are generally
available for distribution at any time, subject to the provisions of your plan.
However, there may be a delay for withdrawals from these Funds if there is any
delay in the redemptions from the underlying mutual fund and the Lifecycle Fund
Group Trusts. Please note that certain plan distributions may be subject to IRS
penalty or excise taxes. See The Program and Federal Income Tax Considerations
for more details.
Payments or withdrawals out of the Equity Index Fund and the Lifecycle Funds
and application of proceeds to an annuity ordinarily will be made promptly upon
request in accordance with Plan provisions. However, we can defer payments,
applications and withdrawals from these Funds for any period during which the
New York Stock Exchange is closed for trading, sales of securities are
restricted or determination of the fair market value of assets of the Funds is
not reasonably practicable because of an emergency.
35
<PAGE>
- -------------------------------------------------------------------------------
WHEN DISTRIBUTIONS ARE AVAILABLE TO PARTICIPANTS
- -------------------------------------------------------------------------------
In addition to the rules and procedures generally applicable to investments in
the Investment Options under the Program, there are other important rules
regarding the distribution and benefit payment options for each type of plan.
Distributions and benefit payment options under a qualified retirement plan are
subject to extremely complicated legal requirements. Certain plan distributions
may be subject to penalty taxes. A general explanation of the federal income
tax treatment of distributions and benefit payment options is provided in
Federal Income Tax Considerations in both this prospectus and the SAI. If a
participant retires, becomes disabled or terminates employment, the benefit
payment options available should be discussed with a qualified financial
advisor. Our Account Executives can also be of assistance.
In general, under the Master Plan or our self-directed prototype plan,
participants are eligible for benefits upon retirement, death or disability, or
upon termination of employment with a vested benefit. ("Vested" refers to the
nonforfeitable portion of your benefits under the plan.) Participants in an
individually designed plan are eligible for retirement benefits depending on
the terms of that plan. See Benefit Payment Options and Federal Income Tax
Considerations for more details. For participants who own more than 5% of the
business, benefits must begin no later than April 1 of the year after the
participant reaches age 70 1/2. For all other participants, distribution must
begin by April 1 of the later of the year after attaining age 70 1/2 or
retirement from the employer sponsoring the plan.
Under the Master Plan, self-employed persons may generally not receive a
distribution prior to age 59 1/2 and employees generally may not receive a
distribution prior to a separation from service.
- -------------------------------------------------------------------------------
PARTICIPANT LOANS
- -------------------------------------------------------------------------------
The Master Plan permits participants to borrow a portion (not to exceed
$50,000) of his or her vested Account Balance (all plans combined), if the
employer has elected this feature. If the participant is a sole proprietor,
partner who owns more than 10% of the business, or a shareholder-employee of an
S Corporation who owns more than 5% of the business, he or she presently may
not borrow from his or her vested Account Balance without first obtaining a
prohibited transaction exemption from the Department of Labor. Participants
should consult with their attorneys or tax advisors regarding the advisability
and procedures for obtaining such an exemption. Loans are also available under
our self-directed prototype plan and under an individually designed plan if the
terms of the plan allow them.
Generally speaking, when a loan is taken, an amount equal to the loan is
transferred out of the Investment Options and is set up as a loan account.
While the loan is outstanding, the participant must pay interest on the loan.
Any principal and interest paid will be added to the participant's loan account
balance and will be taxable on distribution. If you fail to repay the loan when
due, the amount of the unpaid balance may be taxable and subject to additional
penalty taxes. The interest paid on a retirement plan loan may not be
deductible.
Loans from the plan should be applied for through the employer. Loans are
subject to restrictions under federal tax laws and all plans of the employer
are aggregated for purposes of these restrictions. Loan kits containing all
necessary forms, along with an explanation of how interest rates are set, are
available from our Account Executives. If a participant is married, written
spousal consent will be required for a loan.
36
<PAGE>
- -------------------------------------------------------------------------------
BENEFIT PAYMENT OPTIONS
- -------------------------------------------------------------------------------
We offer a variety of benefit payment options to participants who are eligible
to receive benefits from a plan. However, many self-directed and
individually-designed plans do not allow all of these options, so you should
ask your employer for details on which of these options may be available. Your
plan may allow for one or more of the following forms of distribution to be
selected:
o Qualified Joint and Survivor Annuity
o Lump Sum Payment
o Installment Payments
o Life Annuity
o Life Annuity -- Period Certain
o Joint and Survivor Annuity
o Joint and Survivor Annuity -- Period Certain
o Cash Refund Annuity
See Types of Benefits in the SAI for detailed information regarding each of
these options, and Procedures for Withdrawals, Distributions and Transfers in
the SAI.
The annuity options may be either fixed or variable except for the Cash Refund
Annuity and the Qualified Joint and Survivor Annuity. Fixed annuities are
available from insurance companies selected by the Trustees, which meet
criteria established by the Trustees from time to time. Upon request, we will
provide fixed annuity rate quotes available from one or more such companies.
Participants may instruct us to withdraw all or part of their Account Balance
and forward it to the annuity provider selected. Once we have distributed that
amount to the company selected, we will have no further responsibility to the
extent of the distribution. We provide the variable annuity options. Payments
under variable annuity options reflect investment performance of the Growth
Equity Fund. The minimum amount that can be used to purchase any type of
annuity is $5,000. In most cases an annuity administrative charge of $350 will
be deducted from the amount used to purchase an annuity from Equitable Life.
Annuities purchased from other providers may also be subject to fees and
charges.
- -------------------------------------------------------------------------------
SPOUSAL CONSENT RULES
- -------------------------------------------------------------------------------
If a participant is married and has an Account Balance greater than $5,000,
federal law generally requires payment of a Qualified Joint and Survivor
Annuity payable to the participant for life and then to the surviving spouse
for life, unless the participant and spouse have properly waived that form of
payment in advance. If a participant is married, the spouse must consent in
writing before any type of withdrawal can be made. See Spousal Consent
Requirements in the SAI.
- -------------------------------------------------------------------------------
SPOUSAL CONSENT REQUIREMENTS
- -------------------------------------------------------------------------------
Under the Master Plan and the self-directed prototype plan, you may designate a
non-spouse beneficiary any time after the earlier of the first day of the plan
year in which you attain age 35 or the date on which you separate from service
with your employer. If you designate a beneficiary other than your spouse prior
to your reaching age 35, your spouse must consent to the designation and, upon
your reaching age 35, must again give his or her consent or the designation
will lapse. In order for you to make a withdrawal, elect a form of benefit
other than a Qualified Joint and Survivor Annuity or designate a non-spouse
37
<PAGE>
beneficiary, your spouse must consent to your election in writing within the 90
day period before your annuity starting date. To consent, your spouse must sign
on the appropriate line on your election of benefits or beneficiary designation
form. Your spouse's signature must be witnessed by a notary public or plan
representative.
If you change your mind, you may revoke your election and elect a qualified
Joint and Survivor Annuity or designate your spouse as beneficiary, simply by
filing the appropriate form. Your spouse's consent is not required for this
revocation.
It is also possible for your spouse to sign a blanket consent form. By signing
this form, your spouse consents not just to a specific beneficiary or, with
respect to the waiver of the Qualified Joint and Survivor Annuity, the form of
distribution, but gives you the right to name any beneficiary, or if
applicable, form of distribution you want. Once you file such a form, you may
change your election whenever you want, even without spousal consent. No
spousal consent to a withdrawal or benefit in a form other than a Qualified
Joint and Survivor Annuity is required under certain self-directed prototype
profit sharing plans that do not offer life annuity benefits.
- -------------------------------------------------------------------------------
BENEFITS PAYABLE AFTER THE DEATH OF A PARTICIPANT
- -------------------------------------------------------------------------------
If a participant dies before the entire benefit has been paid, the
remaining benefits will be paid to the beneficiary. If a participant dies
before required to begin receiving benefits, the law generally requires the
entire benefit to be distributed no more than five years after death. There are
exceptions -- (1) A beneficiary who is not the participant's spouse may elect
payments over his or her life or a fixed period which does not exceed the
beneficiary's life expectancy, provided payments begin within one year of
death. (2) If the benefit is payable to the spouse, the spouse may elect to
receive benefits over his or her life or a fixed period which does not exceed
his/her life expectancy beginning any time up to the date the participant would
have attained age 70 1/2 or, if later, one year after the participant's death
or (3) The spouse may be able to roll over all or a part of the death benefit
to an individual retirement arrangement. If, at death, a participant was
already receiving benefits, the beneficiary can continue to receive benefits
based on the payment option selected by the participant. To designate a
beneficiary or to change an earlier designation, a participant must have the
employer send us a beneficiary designation form. The spouse must consent in
writing to a designation of any non-spouse beneficiary, as explained in
Procedures for Withdrawals, Distributions and Transfers--Spousal Consent
Requirements in the SAI.
If a participant in the Master Plan dies without designating a beneficiary, the
vested benefit will automatically be paid to the spouse or, if the participant
is not married, to the first surviving class of his or her (a) children, (b)
parents and (c) brothers and sisters. If none of them survive, the
participant's vested benefit will be paid to the participant's estate. If a
participant in our prototype self-directed plan dies without designating a
beneficiary, the vested benefit will automatically be paid to the spouse or, if
the participant is not married, to the first surviving class of his or her (a)
children, (b) grandchildren, (c) parents, (d) brothers and sisters and (e)
nephews and nieces. If none of them survive, the participant's vested benefit
will be paid to the participant's estate.
Under the Master Plan, on the day we receive proof of death, we automatically
transfer the participant's Account Balance in the Equity Index Fund or the
Lifecycle Funds to the Money Market Guarantee Account unless the beneficiary
gives us other written instructions.
38
<PAGE>
- -------------------------------------------------------------------------------
YEAR 2000 PROGRESS
- -------------------------------------------------------------------------------
We rely upon various computer systems in order to administer the Program and
operate the Investment Options. Some of these systems belong to service
providers who are not affiliated with us. In 1995, we began addressing the
question of whether our computer systems would recognize the year 2000 before,
on and after January 1, 2000 and we believe we have identified those of our
systems critical to business operations that are not Year 2000 compliant. By
year end 1998, we expect that the work of modifying or replacing non-compliant
systems will substantially be completed and expect a comprehensive test of its
Year 2000 compliance will be performed in this first half of 1999. We are in
the process of seeking assurances from third party service providers that they
are acting to address the Year 2000 issue with the goal of avoiding any
material adverse effect on services provided to you and no operations of the
Investment Options. Any significant unsolved difficulty related to the Year
2000 compliance initiatives could have a material adverse affect on the ability
to administer the program and operate the Investment Options. Assuming the
timely completion of computer modifications by us and third-party service
providers, there should be no material adverse effect on the ability to
administer the Program and operate the Investment Options.
The Year 2000 issue may impact issuers of portfolio securities held by the
Investment Options to varying degrees. We are unable to predict what impact, if
any, the Year 2000 issue will have on issuers of portfolio securities held by
the Investment Options.
39
<PAGE>
DEDUCTIONS AND CHARGES
- -------------------------------------------------------------------------------
There are two general types of expenses you may incur under the Program. The
first is expenses which are based on amounts invested in the Program. These are
deducted from the assets of a particular Fund in which you invest, or from the
assets of an underlying vehicle in which such Fund invests. The expenses
deducted from the Equity Index Fund and the Lifecycle Funds are the Program
expense charge, the administration fee, and certain other expenses. These
charges are deducted regardless of the type of plan you may have. The charges
also apply to amounts being distributed under installment payout options. The
charges deducted from the SSgA S&P 500 Index Fund in which the Equity Index
Fund invests, the Lifecycle Fund Group Trusts in which the Lifecycle Funds
invest, or the Underlying Funds in which the Lifecycle Fund Group Trusts
invest, include investment management fees, administration fees, custodial fees
and certain other expenses. These charges reduce the net asset value of The
SSgA S&P 500 Index Fund and the Lifecycle Fund Group Trusts, and are ultimately
reflected in the Unit Values of the Equity Index Fund and the Lifecycle Funds.
See Investment Management Fee under Deductions and Charges Related to the
Lifecycle Fund Group Trusts and Underlying Funds.
The second type of charge is expenses which vary by the type of plan you have
or which are charged for specific transactions. These are typically stated in
terms of a defined dollar amount. Unless otherwise noted, fees which are set in
fixed dollar amounts are deducted by reducing the number of Units in the Equity
Index or Lifecycle Funds in which you invest.
No deductions are made from contributions or withdrawals for sales expenses.
The applicable deductions and charges are described in detail below.
CHARGES BASED ON AMOUNTS INVESTED IN THE PROGRAM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROGRAM EXPENSE CHARGE
- -------------------------------------------------------------------------------
We assess the Program expense charge against the combined value of Program
assets in all of the Investment Options available under the Program, including
Investment Options not described in this prospectus. The purpose of this charge
is to cover the expenses incurred by Equitable Life and the ADA in connection
with the Program. The Unit Values of the Equity Index and Lifecycle Funds
reflect the deduction of this charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ANNUAL PROGRAM EXPENSE CHARGE*
- -------------------------------------------------------------------------------
VALUE OF PROGRAM ASSETS EQUITABLE LIFE ADA TOTAL
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
First $400 million .620% .025% .645%
- -------------------------------------------------------------------------------
Over $400 million .620 .020 .640
- -------------------------------------------------------------------------------
</TABLE>
*Effective May 1, 1997 the amount payable to us is based on two components
consisting of (i) a declining percentage of total Program assets ranging from
0.51% of the first $500 million to 0.45% of Program assets over $2 billion, and
(ii) an annual charge per plan enrolled in the Program. The per plan charge
includes two components, an annual charge and an additional charge for plan
set-up. The maximum total per plan charge is currently $400. The per plan
charge will be adjusted for inflation. In addition, the ADA assesses a Program
expense charge to reimburse it for expenses it incurs in connection with the
Program. This charge equals 0.025% of the first $400 million of Program assets
as of January 31 of each year and 0.020% of such assets over $400 million.
Currently, the portion paid to the ADA has been reduced to 0.015% for all asset
levels, but the charge could in the future be increased to the levels set forth
in the preceding sentence. For the 12 months beginning May 1, 1998, the Program
expense charge is 0.635%.
40
<PAGE>
For all Investment Options (other than the Guaranteed Rate Accounts), including
the Equity Index and Lifecycle Funds, the Program expense charge is calculated
based on Program assets on January 31 in each year, and is charged at a monthly
rate of 1/12 of the relevant annual charge. For a description of the Program
expense charge as it relates to the Guaranteed Rate Accounts, please refer to
our separate prospectus for the other Investment Options in the Program.
The portion of the Program expense charge paid to Equitable Life is applied
toward the cost of maintenance of the Investment Options, promotion of the
Program, commissions, administrative costs, such as enrollment and answering
participant inquiries, and overhead expenses such as salaries, rent, postage,
telephone, travel, legal, actuarial and accounting costs, office equipment and
stationery. The ADA's part of this fee covers developmental and administrative
expenses incurred in connection with the Program. The Trustees can direct
Equitable Life to raise or lower the ADA's part of this fee to reflect their
expenses in connection with the Program. During 1997, Equitable received
$7,930,324 and the ADA received $124,994 under the Program expense charge then
in effect.
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ADMINISTRATION FEE
- -------------------------------------------------------------------------------
The computation of the Unit Values for the Equity Index and Lifecycle Funds
also reflects the deduction of charges for administration.
Equitable Life receives an administration fee at the annual rate of .15% of
assets held in the Equity Index and Lifecycle Funds. This fee covers the costs
related to providing administrative services in connection with the operation
of these Funds. Equitable Life maintains records for all portfolio transactions
and cash flow control, calculates Unit Values, and monitors compliance with the
New York Insurance Law in connection with these Funds.
- -------------------------------------------------------------------------------
OTHER EXPENSES BORNE DIRECTLY BY THE FUNDS
- -------------------------------------------------------------------------------
Certain costs and expenses are incurred directly by the Equity Index Fund and
the Lifecycle Funds. These may include Securities and Exchange Commission
filing fees and certain related expenses including printing of SEC filings,
prospectuses and reports, mailing costs, financial accounting costs and outside
auditing and legal expenses. By agreement with the ADA Trustees, Equitable Life
imposes a charge at the annual rate of .03% of the value of the respective
assets of the Lifecycle Funds-Conservative and Moderate to compensate it for
additional legal, accounting and other potential expenses resulting from the
inclusion of the Lifecycle Fund Group Trusts and Underlying Funds maintained by
State Street among the Investment Options described in this prospectus. All of
these costs are included as "Other Expenses" in the tables of Annual Fund
Operating Expenses and Summary of Fund Expenses.
The Equity Index Fund purchases and sells shares in the SSgA S&P 500 Index Fund
at net asset value. The net asset value reflects charges for investment
management, audit, legal, shareholder services, transfer agent and custodian
fees. For a description of charges and expenses assessed by the SSgA S&P 500
Index Fund, which are indirectly borne by the Equity Index Fund, please refer
to the prospectus for the SSgA S&P 500 Index Fund. In addition, the Lifecycle
Funds purchase and sell units of each Lifecycle Fund Group Trust at net asset
value, which reflects charges for management, administration and custodial
services, and other expenses incurred by the Lifecycle Fund Group Trusts, as
well as other expenses and custodial fees incurred by the Underlying Funds in
which each Lifecycle Fund Group Trust invests. See discussion below under
Deductions and Charges Related to the Lifecycle Fund Group Trusts and
Underlying Funds.
41
<PAGE>
PLAN AND TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADA RETIREMENT PLAN, PROTOTYPE SELF-DIRECTED PLAN AND INDIVIDUALLY-
DESIGNED PLAN FEES
- -------------------------------------------------------------------------------
RECORD MAINTENANCE AND REPORT FEE. At the end of each calendar quarter, we
deduct a record maintenance and report fee from each participant's Account
Balance. This fee is
<TABLE>
<CAPTION>
<S> <C>
ADA Members Retirement Plan participants ........................ $3 per quarter
Self-Directed Prototype Plan participants ....................... $3 per quarter
Participants in Pooled-Trust Investment Only Arrangement ........ $1 per quarter
</TABLE>
ENROLLMENT FEE. The employer must pay us a non-refundable enrollment fee of $25
for each participant enrolling under its plan. If we do not maintain individual
participant records under an individually-designed plan, the employer is
instead charged $25 for each plan or trust. If these charges are not paid by
the employer, the amount may be deducted from subsequent contributions or from
participants' Account Balances.
PROTOTYPE SELF-DIRECTED PLAN FEES. Employers who participate in our prototype
self-directed plan will incur additional fees not payable to us, such as
brokerage and administration fees.
- -------------------------------------------------------------------------------
INDIVIDUAL ANNUITY CHARGES
- -------------------------------------------------------------------------------
ANNUITY ADMINISTRATIVE CHARGE. If a participant elects a variable annuity
payment option, a $350 charge will usually be deducted from the amount used to
purchase the annuity to reimburse us for administrative expenses associated
with processing the application for the annuity and with issuing each month's
annuity payment. Annuities purchased from other providers may also be subject
to fees and charges. See Distributions From the Investment Options and Benefit
Payment Options for details.
PREMIUM TAXES. In certain jurisdictions, amounts used to purchase an annuity
are subject to charges for premium and other applicable taxes (rates currently
range up to 5%). Taxes depend, among other things, on your place of residence,
applicable laws and the form or annuity benefit you select. We will deduct any
such charges based on your place of residence at the time the annuity payments
begin.
- -------------------------------------------------------------------------------
GENERAL INFORMATION ON FEES AND CHARGES
- -------------------------------------------------------------------------------
The fees and charges described above may be changed at any time by the mutual
consent of Equitable Life and the ADA. During 1997 we received total fees and
charges under the Program of $11,259,851.
42
<PAGE>
DEDUCTIONS AND CHARGES RELATED TO THE LIFECYCLE FUND
GROUP TRUSTS AND UNDERLYING FUNDS
- --------------------------------------------------------------------------------
In addition to the generally applicable Program fees and charges described
above, fees and charges imposed by State Street are deducted from the assets of
the Lifecycle Fund Group Trusts in which the Lifecycle Funds invest, or the
Underlying Funds in which the Lifecycle Fund Group Trusts invest. Fees are paid
to State Street for providing investment management services, and custodial
services, and for other expenses incurred in connection with operating the
Lifecycle Fund Group Trusts and the Underlying Funds.
INVESTMENT MANAGEMENT FEE. A fee equal to .17% of the average annual net assets
of each Lifecycle Fund Group Trust is paid to State Street for providing
investment management services to the Group Trusts. No fee is paid to State
Street for managing the assets of the Underlying Funds with respect to
investments made in such Fund by each Lifecycle Fund Group Trust. State Street
may receive fees for managing the assets of other collective investment funds
in which the Funds may invest on a temporary basis, and for managing the mutual
funds in which assets of the Underlying Funds may be invested. State Street has
agreed to reduce its management fee charged each of the Lifecycle Fund Group
Trusts to offset any management fees State Street receives attributable to the
Group Trusts' investment in such other collective investment funds and mutual
funds.
FIXED ADMINISTRATION FEE. A deduction is made from the assets of each Lifecycle
Fund Group Trust to compensate State Street for providing various recordkeeping
and accounting services to such Trust and for periodically rebalancing the
assets of each Trust to conform to the target percentage weightings for the
Trust. This fee is currently fixed at $11,100 per year for each Group Trust.
OTHER EXPENSES. Certain costs and expenses are charged directly to the
Lifecycle Fund Group Trusts. These include legal and audit expenses and costs
related to providing educational and other materials to ADA Program
participants about the Lifecycle Fund investment options. In addition,
participants indirectly incur expenses for audit and custodial services
provided to the Underlying Funds. State Street serves as custodian to each of
these Funds.
43
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
Current federal income tax rules relating to adoption of the Program and
generally to distributions to participants under qualified retirement plans are
outlined briefly below. The rules relating to contributions are outlined
briefly in the SAI under Provisions of the ADA Plans. For purposes of this
outline we have assumed that you are not a participant in any other qualified
retirement plan. We have not attempted to discuss other current federal income
tax rules that govern participation, vesting, funding or prohibited
transactions, although some information on these subjects appears here and in
the SAI; nor do we discuss the reporting and disclosure or fiduciary
requirements of the Employee Retirement Income Security Act. In addition, we do
not discuss the effect, if any, of state tax laws that may apply. FOR
INFORMATION ON THESE MATTERS, WE SUGGEST THAT YOU CONSULT YOUR TAX ADVISOR.
- -------------------------------------------------------------------------------
TAX CHANGES
- -------------------------------------------------------------------------------
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities. In addition, the Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing
laws. State tax laws or, if you are not a United States resident, foreign tax
laws, may affect the tax consequences to you or the beneficiary. These laws may
change from time to time without notice and, as a result, the tax consequences
may be altered. There is no way of predicting whether, when or in what form any
such change would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
- -------------------------------------------------------------------------------
ADOPTING THE PROGRAM
- -------------------------------------------------------------------------------
If you adopt an ADA Plan, you will not need IRS approval unless you adopt
certain provisions. We will tell you whether it is desirable for you to submit
your plan to the Internal Revenue Service for approval. If you make such a
submission, you will have to pay an IRS user's fee. The Internal Revenue
Service does not have to approve your adoption of the Pooled Trust.
- -------------------------------------------------------------------------------
INCOME TAXATION OF DISTRIBUTIONS TO QUALIFIED PLAN PARTICIPANTS
- -------------------------------------------------------------------------------
In this section, the word "you" refers to the plan participant.
Amounts distributed to a participant from a qualified plan are generally
subject to federal income tax as ordinary income when benefits are distributed
to you or your beneficiary. Generally speaking, only your post-tax
contributions, if any, are not taxed when distributed.
LUMP SUM DISTRIBUTIONS. If your benefits are distributed to you in a lump sum
after you have participated in the plan for at least five taxable years, you
may be able to use five-year averaging. Under this method, the tax on the lump
sum distribution is calculated separately from taxes on any other income you
may have during the year. The tax is calculated at ordinary income tax rates in
the year of the distribution, but as if it were your only income in each of
five years. The tax payable is the sum of the five years' calculations. To
qualify for five-year averaging, the distribution much consist of your entire
balance in the plan and must be made in one taxable year of the recipient after
you have attained age 59 1/2. Five-year averaging is available only for one
lump sum distribution.
If you were born before 1936, you may elect to have special rules apply to one
lump sum distribution. You may elect either ten-year averaging using 1986 rates
or five-year averaging using then current rates. In addition, you may elect
separately to have the portion of your distribution attributable to pre-1974
contributions taxed at a flat 20% rate.
44
<PAGE>
Effective January 1, 2000, five year averaging on lump sum distributions may no
longer be used.
ELIGIBLE ROLLOVER DISTRIBUTIONS. Many types of distributions from qualified
plans are "eligible rollover distributions" that can be transferred directly to
another qualified plan or individual retirement arrangement ("IRA"), or rolled
over to another plan or IRA within 60 days of the receipt of the distribution.
If a distribution is an "eligible rollover distribution," 20% mandatory federal
income tax withholding will apply unless the distribution is directly
transferred to a qualified plan or IRA. See Eligible Rollover Distributions and
Federal Income Tax Withholding in the SAI for a more detailed discussion.
ANNUITY OR INSTALLMENT PAYMENTS. Each payment you receive is treated as
ordinary income except where you have a "cost basis" in the benefit. Your cost
basis is equal to the amount of your post-tax employee contributions, plus any
employer contributions you were required to include in gross income in prior
years. A portion of each annuity or installment payment you receive will be
excluded from gross income. If you (and your survivor) continue to receive
payments after your cost basis in the contract has been paid out, all amounts
will be taxable.
IN SERVICE WITHDRAWALS; HARDSHIP WITHDRAWALS. Some plans allow in-service
withdrawals of after-tax contributions. The portion of each in-service
withdrawal attributable to cost basis is received income tax-free. The portion
that is attributable to earnings will be included in your gross income. Amounts
contributed before January 1, 1987 to employer plans which on May 5, 1986
permitted such withdrawals are taxable withdrawals only to the extent that they
exceed the amount of your cost basis. Other amounts are treated as partly a
return of cost basis with the remaining portion treated as earnings. Amounts
included in gross income under this rule may also be subject to the additional
10% penalty tax on premature distributions described below. In addition, 20%
mandatory federal income tax withholding may also apply.
PREMATURE DISTRIBUTIONS. You may be liable for an additional 10% penalty tax on
all taxable amounts distributed before age 59 1/2 unless the distribution falls
within a specified exception or is rolled over into an IRA or other qualified
plan.
The exceptions to the penalty tax include (a) distributions made on account of
your death or disability, (b) distributions beginning after separation from
service in the form of a life annuity or installments over your life expectancy
(or the joint lives or life expectancies of you and your beneficiary), (c)
distributions due to separation from active service after age 55 and (d)
distributions used to pay deductible medical expenses.
WITHHOLDING. In almost all cases, 20% mandatory income tax withholding will
apply to all "eligible rollover distributions" that are not directly
transferred to a qualified plan or IRA. If a distribution is not an eligible
rollover distribution, the recipient may elect out of withholding. The rate of
withholding depends on the type of distributions. See Eligible Rollover
Distributions and Federal Income Tax Withholding in the SAI. Under the Master
Plan, we will withhold the tax and send you the remaining amount. Under an
individually designed plan or our prototype self-directed plan that uses the
Pooled Trust for investment only, we will pay the full amount of the
distribution to the plan's trustee. The trustee is then responsible for
withholding federal income tax upon distributions to you or your beneficiary.
- -------------------------------------------------------------------------------
OTHER TAX CONSEQUENCES
- -------------------------------------------------------------------------------
Federal estate and gift and state and local estate, inheritance, and other tax
consequences of participation in the Program depend on the residence and the
circumstances of each participant or beneficiary. For complete information on
federal, state, local and other tax considerations, you should consult a
qualified tax advisor.
45
<PAGE>
MISCELLANEOUS
- --------------------------------------------------------------------------------
CHANGE OR DISCONTINUANCE OF THE PROGRAM. The group annuity contract has been
amended from time to time, and may be amended in the future. No future change
can affect annuity benefits in the course of payment. Provided certain
conditions are met, we may terminate the offer of any of the Investment Options
and offer new ones with different terms.
Our contract with the Trustees may be terminated by us or the ADA. If our
contract with the Trustees is terminated, we will not accept any further
contributions or perform recordkeeping functions after the date of termination.
At that time we would make arrangements with the Trustees as to the disposition
of the assets in the Investment Options we provide, subject to the various
restrictions related to investments in the Real Estate Fund, Money Market
Guarantee Account, and the Guaranteed Rate Accounts. For a discussion of these
restrictions, please refer to the prospectus for these Investment Options. You
may be able to continue to invest amounts in the Investment Options we provide
and elect payment of benefits through us if the Trustees make arrangements with
us.
AGREEMENT WITH STATE STREET. Equitable Life and State Street have entered into
an Agreement with respect to various administrative, procedural, regulatory
compliance and other matters relating to the availability of the Lifecycle Fund
Group Trusts and Underlying Funds in the ADA Program through the Lifecycle
Funds. The Agreement does not contain an expiration date and is intended to
continue in effect indefinitely. However, the Agreement provides, among other
things, that it may be terminated by Equitable Life upon three months prior
written notice to State Street, or by State Street upon six months prior
written notice to Equitable Life. In the event of a termination of the
Agreement, State Street has the right, upon four months' prior notice to
Equitable Life to require the redemption of all units of the Lifecycle Fund
Group Trusts held by the Lifecycle Funds. Should we receive notice of a
required redemption, we will advise you promptly in order to allow you adequate
time to transfer to one or more of the other Investment Options.
DISQUALIFICATION OF PLAN. If your plan is found not to qualify under the
Internal Revenue Code, we may return the plan's assets to the employer, as the
plan administrator or we may prevent plan participants from investing in the
separate accounts.
REPORTS. We send reports annually to employers showing the aggregate Account
Balances of all participants and information necessary to complete annual IRS
filings.
REGULATION. Equitable Life is subject to regulation and supervision by the
Insurance Department of the State of New York, which periodically examines
Equitable Life's affairs. Equitable Life also is subject to the insurance laws
and regulations of all jurisdictions in which it is authorized to do business.
This regulation does not, however, involve any supervision of the investment
policies of the Funds or of the selection of any investments except to
determine compliance with the law of New York. Equitable Life is required to
submit annual statements of its operations, including financial statements, to
the insurance departments of the various jurisdictions in which it does
business for purposes of determining solvency and compliance with local
insurance laws and regulations.
State Street is subject to supervision and examination by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, and the Massachusetts Commissioner of Banks.
LEGAL PROCEEDINGS. Equitable Life and its affiliates are parties to various
legal proceedings, none of which, in our view, are likely to have a material
adverse effect upon the Separate Account, our ability to meet our obligations
under the Contracts or the Contracts' distribution.
State Street is engaged in litigation of various kinds which in its judgment is
not of material importance in relation to its total assets. None of the
litigation now in progress is expected to affect any assets of the Equity Index
Fund or the Lifecycle Fund or the Lifecycle Group Trusts or the Underlying
Funds in which the Group Trusts invest.
46
<PAGE>
ADDITIONAL INFORMATION. A registration statement relating to the offering
described in this prospectus has been filed with the Securities and Exchange
Commission under the Securities Act of 1933. Certain portions of the
Registration Statement have been omitted from this prospectus and the SAI
pursuant to the rules and regulations of the Commission. The omitted
information may be obtained by requesting a copy of the registration statement
from the Commission's principal office in Washington, D.C., and paying the
Commission's prescribed fees or by accessing the Securities and Exchange
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
EXPERTS. The financial statements as of December 31, 1997 and for each of the
two years in the period then ended for Separate Account Nos. 195, 197 and 198
included in the SAI; the condensed financial information for Separate Account
No. 195 for each of the four years in the period ended December 31, 1997 and
for Separate Account Nos. 197 & 198 for each of the three years in the period
ended December 31, 1997 included in this prospectus; and the financial
statements as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 included in the SAI for Equitable Life have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
For 1996 and 1997, the selected financial data included in the prospectus and
the audited financial statements included in the SAI for each of the Underlying
Funds, the Lifecycle Fund Group Trust--Conservative and the Lifecycle Fund
Group Trust--Moderate have been audited by Price Waterhouse LLP, independent
accountants, as stated in their reports that appear in the SAI. The selected
financial data included in the prospectus and the audited financial statements
have been so included in reliance upon the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ACCEPTANCE. The employer or plan sponsor, as the case may be, is solely
responsible for determining whether the Program is a suitable funding vehicle
and should, therefore, carefully read the prospectus and other materials before
entering into a Participation Agreement.
47
<PAGE>
TABLE OF CONTENTS
OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
The Contracts ........................................................ SAI-2
Your Responsibilities as Employer .................................... SAI-2
Procedures for Withdrawals, Distributions and Transfers .............. SAI-3
Types of Benefits .................................................... SAI-5
Provisions of the Master Plan ........................................ SAI-7
Additional Investment Policies and Techniques -- The Underlying Funds SAI-11
Investment Restrictions .............................................. SAI-14
How the Assets of the Funds Are Valued ............................... SAI-15
How the Assets of the Underlying Funds Are Valued .................... SAI-15
Transactions by the Underlying Funds ................................. SAI-17
Investment Management Fee ............................................ SAI-17
Underwriter .......................................................... SAI-18
Management ........................................................... SAI-19
Financial Statements ................................................. SAI-22
</TABLE>
CLIP AND MAIL TO US TO RECEIVE A
STATEMENT OF ADDITIONAL INFORMATION
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
To: The Equitable Life Assurance Society
of the United States
Box 2486 G.P.O.
New York, NY 10116
Please send me a copy of the Statement of Additional Information for the
American Dental Association Members Retirement Program Prospectus dated May 1,
1998 (State Street).
Name
--------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Copyright 1998 by The Equitable Life Assurance Society of the United States.
All rights reserved.
48
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
MAY 1, 1998
AMERICAN DENTAL ASSOCIATION
MEMBERS RETIREMENT PROGRAM
Separate Account Units of interest under a group annuity contract with THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, 1290 Avenue of the
Americas, New York, New York 10104, which funds the American Dental Association
Members Retirement Program. Toll-free tele- phone number 1-800-223-5790.
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus dated May 1, 1998 for the American Dental
Association Members Retirement Program describing the Equity Index Fund and the
Lifecycle Funds--Conservative and Moderate.
A copy of the prospectus to which this Statement of Additional Information
relates is available at no charge by writing to The Equitable Life Assurance
Society of the United States ("Equitable Life"), at Box 2486 G.P.O., New York,
New York 10116 or by calling our toll-free telephone number.
The following information is contained primarily in the prospectus:
Investment Objectives and Policies
Investment Advisory Services
Certain of the cross references in this Statement of Additional Information are
contained in the prospectus dated May 1, 1998 to which this Statement of
Additional Information relates.
TABLE OF CONTENTS
PAGE
-------
The Contracts .............................. SAI-2
Your Responsibilities as Employer .......... SAI-2
Procedures for Withdrawals, Distributions
and Transfers ........................... SAI-3
Pre-Retirement Withdrawals ................ SAI-3
Benefit Distributions ..................... SAI-3
Spousal Consent Requirements .............. SAI-4
Eligible Rollover Distributions and
Federal Income Tax Withholding ......... SAI-5
Types of Benefits .......................... SAI-5
Provisions of the Master Plan .............. SAI-7
Plan Eligibility Requirements ............. SAI-7
Contributions to Qualified Plans .......... SAI-7
Contributions to the Master Plan .......... SAI-7
Allocation of Contributions ............. SAI-9
The Master Plan and Section 404(c)
of ERISA ................................. SAI-9
Vesting ................................. SAI-10
Additional Investment Policies and
Techniques--The Underlying Funds ......... SAI-11
Investment Restrictions .................... SAI-14
How the Assets of the Funds are Valued...... SAI-15
How the Assets of the Underlying Funds
are Valued ............................... SAI-15
Transactions by the Underlying Funds ....... SAI-17
Investment Management Fee .................. SAI-17
Underwriter ................................ SAI-18
Management ................................. SAI-19
Financial Statements ....................... SAI-22
- ----------
Copyright 1998 by The Equitable Life Assurance Society of The United States.
All rights reserved.
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE PROGRAM
THE CONTRACTS
The Program is primarily funded through a group annuity contract issued to the
Trustees by Equitable Life. The contract governs the Investment Options that
are provided by Equitable Life under the Program. The Trustees hold this
contract for the benefit of employers and participants in the Program.
In addition, the Trustees and Equitable Life have entered into an
administrative services agreement that governs Equitable Life's duties relating
to administrative support, recordkeeping and marketing for the Program. This
agreement would under most circumstances terminate at the same time as the
group annuity contract.
YOUR RESPONSIBILITIES AS EMPLOYER
If you adopt the Master Plan, you as the employer and plan administrator will
have certain responsibilities, including:
o sending us your contributions at the proper time and in the proper
format;
o maintaining all personnel records necessary for administering your
plan;
o determining who is eligible to receive benefits;
o forwarding to us all the forms your employees are required to submit;
o distributing summary plan descriptions and participant annual reports
to your employees and former employees;
o distributing our prospectuses and confirmation notices to your
employees and, in some cases, former employees;
o filing an annual information return for your plan with the Internal
Revenue Service, if required;
o providing us the information with which to run special
non-discrimination tests, if you have a 401(k) plan or your plan
accepts post-tax employee or employer matching contributions;
o determining the amount of all contributions for each participant in
the plan;
o forwarding salary deferral and post-tax employee contributions to us;
o selecting interest rates and monitoring default procedures if you
elect the loan provision in your plan; and
o providing us with written instructions for allocating amounts in the
plan's forfeiture account.
SAI-2
<PAGE>
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If you, as an employer, have an individually designed plan, your
responsibilities will not be increased in any way by your adoption of the
Pooled Trust for investment only. If you adopt our self-directed prototype
plan, you will be completely responsible for administering the plan and
complying with all of the reporting and disclosure requirements applicable to
qualified plans, with the assistance of the recordkeeper of your choice.
We will give you guidance and assistance in the performance of your
responsibilities. The ultimate responsibility, however, rests with you. If you
have questions about any of your obligations, you can contact Equitable Life's
Account Executives at 1-800-223-5790 or write to us at Box 2486 G.P.O., New
York, New York 10116.
PROCEDURES FOR WITHDRAWALS, DISTRIBUTIONS AND TRANSFERS
PRE-RETIREMENT WITHDRAWALS. Under the Master Plan, self-employed persons may
generally not receive a distribution prior to age 59 1/2, and employees may
generally not receive a distribution prior to separation from service. However,
if your employer maintains the Master Plan as a profit sharing plan, you may
request distribution of benefits after you reach age 59 1/2 even if you are
still working. If your employer maintains the Master Plan as a 401(k) plan and
you are under age 59 1/2, you may withdraw your own 401(k) contributions only
if you can demonstrate financial hardship within the meaning of applicable
Income Tax Regulations. Each withdrawal must be at least $1,000 (or, if less,
your entire Account Balance or the amount of your hardship withdrawal under a
401(k) plan). If your employer terminates the plan, all amounts (subject to GRA
restrictions) may be distributed to participants at that time.
You may withdraw all or part of your Account Balance under the Master Plan
attributable to post-tax employee contributions at any time, subject to any
withdrawal restrictions applicable to the Investment Options, provided that you
withdraw at least $300 at a time (or, if less, your Account Balance
attributable to post-tax employee contributions). See Federal Income Tax
Considerations in the prospectus.
All benefit payments (including withdrawals due to plan terminations) will be
paid in accordance with the rules described below under Benefit Distributions.
All other withdrawals will be effected as of the close of business on the day
we receive the properly completed form.
If you are married, your spouse must consent in writing before you can make any
type of withdrawal. See Spousal Consent Requirements below.
Under the self-directed prototype plan you may receive a distribution upon
attaining normal retirement age as specified in the plan, or upon separation
from service. If your employer maintains the self-directed prototype plan as a
profit sharing plan, an earlier distribution of funds that have accumulated
after two years is available if you incur a financial hardship, as defined in
the plan. In addition, if you are married, your spouse may have to consent in
writing before you can make any type of withdrawal, except for the purchase of
a Qualified Joint and Survivor Annuity. See Spousal Consent Requirements below.
Under an individually designed plan, the availability of pre-retirement
withdrawals depends on the terms of the plan. We suggest that you ask your
employer what types of withdrawals are available under your plan.
Transfers from the Equity Index Fund and the Lifecycle Funds--Conservative and
Moderate are permitted daily except under infrequent circumstances when they
may be subject to a delay.
BENEFIT DISTRIBUTIONS. In order for you to begin receiving benefits under the
Master Plan, your employer must send us your properly completed Election of
Benefits form and, if applicable, Beneficiary Designation
SAI-3
<PAGE>
- -------------------------------------------------------------------------------
form. If we receive your properly completed forms on or before the 15th of the
month, your benefits will commence as of the close of business on the first
business day of the next month; if your forms arrive after the 15th, your
benefits will commence as of the close of business on the first business day of
the second following month.
Under an individually designed plan and our self-directed prototype plan, your
employer must send us a request for disbursement form. We will send single sum
payments to your plan's trustee as of the close of business on the day we
receive a properly completed form. If you wish to receive annuity payments,
your plan's trustee may purchase a variable annuity contract from us. Fixed
annuities are available from insurance companies selected by the Trustees. See
Types of Benefits. Annuity payments will be paid directly to you and will
commence as of the close of business on the first business day of the next
month if we receive your properly completed forms on or before the 15th of the
month. If we receive your properly completed forms after the 15th, annuity
payments will commence as of the close of business on the first business day of
the second following month.
Transfers and withdrawals from the Equity Index Fund may be deferred if there
is any delay in redemption of shares of the SSgA S&P 500 Index Fund. We
generally do not expect any such delays.
Transfers and withdrawals from the Lifecycle Funds--Conservative and Moderate
may be deferred if there is any delay in redemption of units of the Lifecycle
Fund Group Trusts. We generally do not expect any such delays.
Please note that we use the value of your vested benefits at the close of
business on the day payment is due to determine the amount of benefits you
receive. We will not, therefore, begin processing your check until the
following business day. You should expect your check to be mailed within five
days after processing begins. Annuity checks can take longer. If you buy a
fixed annuity, your check will come from the company you selected. If you are
withdrawing more than $50,000 and you would like expedited delivery at your
expense, you may request it on your election of benefits form.
Distributions under a qualified retirement plan such as yours are subject to
extremely complicated legal requirements. When you are ready to retire, we
suggest that you discuss the available payment options with your employer or
financial advisor. Our Account Executives can provide you or your employer with
information.
SPOUSAL CONSENT REQUIREMENTS. Under the Master Plan and the self-directed
prototype plan, you may designate a non-spouse beneficiary any time after the
earlier of the first day of the plan year in which you attain age 35 or the
date on which you separate from service with your employer. If you designate a
beneficiary other than your spouse prior to your reaching age 35, your spouse
must consent to the designation and, upon your reaching age 35, must again give
his or her consent or the designation will lapse. In order for you to make a
withdrawal, elect a form of benefit other than a Qualified Joint and Survivor
Annuity or designate a non-spouse beneficiary, your spouse must consent to your
election in writing within the 90 day period before your annuity starting date.
To consent, your spouse must sign on the appropriate line on your election of
benefits or beneficiary designation form. Your spouse's signature must be
witnessed by a notary public or plan representative.
If you change your mind, you may revoke your election and elect a Qualified
Joint and Survivor Annuity or designate your spouse as beneficiary, simply by
filing the appropriate form. Your spouse's consent is not required for this
revocation.
It is also possible for your spouse to sign a blanket consent form. By signing
this form, your spouse consents not just to a specific beneficiary or form of
distribution, but gives you the right to name any beneficiary, or
SAI-4
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if applicable, form of distribution you want. Once you file such a form, you
may change your election whenever you want, even without spousal consent. No
spousal consent to a withdrawal or benefit in a form other than a Qualified
Joint and Survivor Annuity is required under certain self-directed and
individually designed profit sharing plans that do not offer life annuity
benefits.
ELIGIBLE ROLLOVER DISTRIBUTIONS AND FEDERAL INCOME TAX WITHHOLDING. All
"eligible rollover distributions" are subject to mandatory federal income tax
withholding of 20% unless the Participant elects to have the distribution
directly rolled over to a qualified plan or individual retirement arrangement
(IRA). An "eligible rollover distribution" is any distribution that is not one
of a series of substantially equal periodic payments made (not less frequently
than annually) (1) for the life (or life expectancy) of the plan Participant or
the joint lives (or joint life expectancies) of the plan Participant and his or
her designated beneficiary, or (2) for a specific period of 10 years or more.
In addition, the following are not subject to mandatory 20% withholding:
o certain corrective distributions under Internal Revenue Code (Code)
Section 401(k) plans;
o certain loans that are treated as distributions; and
o a distribution to a beneficiary other than to a surviving spouse or a
current or former spouse under a qualified domestic relations order.
If a distribution is made to a Participant's surviving spouse, or to a current
or former spouse under a qualified domestic relations order, the distribution
may be an eligible rollover distribution, subject to mandatory 20% withholding,
unless one of the exceptions described above applies.
If a distribution is not an "eligible rollover distribution" income tax will be
withheld from all taxable payments unless the recipient elects not to have
income tax withheld.
TYPES OF BENEFITS
Under the Master Plan, and under most self-directed prototype plans, except as
provided below, you may select one or more of the following forms of
distribution once you are eligible to receive benefits. Please see Benefit
Distributions under Procedures for Withdrawals, Distributions and Transfers.
Not all of these distribution forms may be available to you, if your employer
has adopted an individually designed plan or a self-directed prototype profit
sharing plan that does not offer annuity benefits. We suggest you ask your
employer what types of benefits are available under your plan.
Fixed annuities are available from insurance companies selected by the
Trustees, which meet criteria established by the Trustees from time to time.
Fixed annuities are currently not available from Equitable Life. The types of
fixed annuity benefits described below will be available through one or more of
such companies. Upon your request, the companies will provide annuity benefit
information. We will have no further responsibility for the amount used to
purchase the annuity once it has been sent to the insurance company you select.
The cost of a fixed annuity is determined by each insurance company based on
its current annuity purchase rates. The amount of your monthly annuity benefit
will depend on the type of annuity selected, your age and the age of your
beneficiary if you select a joint and survivor annuity. An Equitable Life
Account Executive has more details regarding the insurance companies currently
providing annuity benefits under the Program.
QUALIFIED JOINT AND SURVIVOR ANNUITY. An annuity providing equal monthly
payments for your life and, after your death, for your surviving spouse's life.
No payments will be made after you and your spouse die, even if you have
received only one payment. THE LAW REQUIRES THAT IF THE VALUE OF YOUR VESTED
BENEFITS
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EXCEEDS $5,000, YOU MUST RECEIVE A QUALIFIED JOINT AND SURVIVOR ANNUITY UNLESS
YOUR SPOUSE CONSENTS IN WRITING TO A CONTRARY ELECTION. Please see Spousal
Consent Requirements under Procedures for Withdrawals, Distributions and
Transfers for an explanation of the procedures for electing not to receive a
Qualified Joint and Survivor Annuity.
LUMP SUM PAYMENT. A single payment of all or part of your vested benefits. If
you take a lump sum payment of only part of your balance, it must be at least
$1,000. IF YOUR VESTED BENEFIT IS $5,000 OR LESS, YOU WILL RECEIVE A LUMP SUM
PAYMENT OF THE ENTIRE AMOUNT.
PERIODIC INSTALLMENTS. Monthly, quarterly, semi-annual or annual payments over
a period of at least three years, where the initial payment on a monthly basis
is at least $300. You can choose either a time-certain payout, which provides
variable payments over a specified period of time, or a dollar-certain payout,
which provides level payments over a variable period of time. During the
installment period, your remaining Account Balance will be invested in whatever
Options you designate, other than the Real Estate Fund; each payment will be
drawn pro rata from all the Options you have selected. If you die before
receiving all the installments, we will make the remaining payments to your
beneficiary. Except in the case of participant accounts transferred from
defined contribution plans, we do not offer installments for benefits under the
individually designed plans or our self-directed prototype plan. For special
conditions applying to installment payments involving the Real Estate Fund and
the Guaranteed Rate Accounts, please refer to the prospectus and SAI for these
options.
LIFE ANNUITY. An annuity providing monthly payments for your life. No payments
will be made after your death, even if you have received only one payment.
LIFE ANNUITY--PERIOD CERTAIN. An annuity providing monthly payments for your
life or, if longer, a specific period of time. If you die before the end of
that specified period, payments will continue to your beneficiary until the end
of the period. Subject to legal limitations, you may specify a minimum payment
period of 5, 10, 15 or 20 years; the longer the specified period, the smaller
the monthly payments will be.
JOINT AND SURVIVOR ANNUITY. An annuity providing monthly payments for your life
and that of your beneficiary. You may specify the percentage of the annuity
payment to be made to your beneficiary. Subject to legal limitations, that
percentage may be 100%, 75%, 50%, or any other percentage you specify.
JOINT AND SURVIVOR ANNUITY--PERIOD CERTAIN. An annuity providing monthly
payments for your life and that of your beneficiary or, if longer, a specified
period of time. If you and your beneficiary both die before the end of the
specified period, payments will continue to your contingent beneficiary until
the end of the period. Subject to legal limitations, you may specify a minimum
payment period of 5, 10, 15 or 20 years and the percentage of the annuity
payment to be made to your beneficiary (as noted above under Joint and Survivor
Annuity); the longer the specified period, the smaller the monthly payments
will be.
CASH REFUND ANNUITY. An annuity providing equal monthly payments for your life
with a guarantee that the sum of those payments will be at least equal to the
portion of your vested benefits used to purchase the annuity. If upon your
death the sum of the monthly payments to you is less than that amount, your
beneficiary will receive a lump sum payment of the remaining guaranteed amount.
Under a Qualified Joint and Survivor Annuity or a Cash Refund Annuity, the
amount of the monthly payments is fixed at retirement and remains level
throughout the distribution period. Under the Life Annuity, Life
Annuity--Period Certain, Joint and Survivor Annuity and Joint and Survivor
Annuity--Period Certain, you may select either fixed or variable payments. All
forms of variable annuity benefits under the Program will be provided by us.
The payments under variable annuity options reflect the investment performance
of the Growth Equity Fund. If you are interested in a variable annuity, when
you are ready to select your benefit please call an Equitable Life Account
Executive for the variable annuity prospectus supplement.
SAI-6
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PROVISIONS OF THE MASTER PLAN
PLAN ELIGIBILITY REQUIREMENTS. Under the Master Plan, the employer specifies
the eligibility requirements for its plan in the Participation Agreement. The
employer may exclude any employee who has not attained a specified age (not to
exceed 21) and completed a specified number of years (not to exceed two) in
each of which he completed 1,000 hours of service. No more than one year of
eligibility service may be required for a 401(k) arrangement.
The employer may also exclude salaried dentists (those with no ownership
interest in the practice), employees of related employers, leased employees and
certain other types of employees at the employer's election, provided such
exclusion does not cause the plan to discriminate in favor of "highly
compensated" employees (defined below). The Master Plan provides that a partner
or shareholder may, upon commencement of employment or upon first becoming
eligible to participate in any qualified plan of the employer, make a one-time
irrevocable election not to participate in the plan or to make a reduced
contribution. This election applies to all plans of the employer, now and in
the future, and should be discussed with your tax advisor.
CONTRIBUTIONS TO QUALIFIED PLANS. Current federal income tax rules relating to
contributions under qualified retirement plans are outlined briefly below. For
purposes of this outline we have assumed that you are not a participant in any
other qualified retirement plan.
The employer's contributions to the plan are deductible in the year for which
they are made. As a general rule, employer contributions must be made for any
year by the due date (including extensions) for filing the employer's federal
income tax return for that year. However, under Department of Labor rules
participants' salary deferrals under a 401(k) plan must be contributed by the
employer as soon as practicable after the payroll period for which the deferral
is made, but no later than the 15th business day of the month following the
month in which participant contributions are withheld or received by the
employer.
If the employer contributes more to the plan than is deductible under the rules
described below, the employer may be liable for a 10% penalty tax on that
nondeductible amount and may risk disqualifying the plan.
CONTRIBUTIONS TO THE MASTER PLAN. The employer makes annual contributions to
its plan based on the plan's provisions.
An employer that adopts the Master Plan as a profit sharing plan makes
contributions in discretionary amounts to be determined annually. The aggregate
employer contribution to the plan, including participants' salary deferrals
under a 401(k) arrangement, is limited to 15% of all participants' compensation
for the plan year. For plan purposes, compensation for self-employed persons
does not include deductible plan contributions made on behalf of the
self-employed person.
A 401(k) arrangement is available as part of the profit sharing plan. Under a
401(k) arrangement, employees are permitted to make contributions to the plan
on a pre-tax basis. The maximum amount that may be contributed by highly
compensated employees is limited depending upon the amount that is contributed
by non-highly compensated employees and the amount the employer designates as a
nonforfeitable 401(k) contribution. Different rules apply to a SIMPLE 401(k) or
safe harbor 401(k), defined below. In 1998, a "highly compensated" employee for
this purpose is (a) an owner of more than 5% of the practice, or (b) anyone
with earnings of more than $80,000 from the practice in 1997. For (b), the
employer may elect to include only employees in the highest paid 20%. In any
event, the maximum amount each employee may defer is limited to $10,000 for
1998 reduced by that employee's salary reduction contributions to simplified
employee pension plans established before 1997 (SARSEPs), SIMPLE plans employee
contributions to tax deferred Section 403(b) arrangements, and contributions
deductible by the employee under a trust described under Section 501(c)(18) of
the Code. The maximum amount a participant may defer in a SIMPLE 401(k) plan
for 1998 is $6,000.
SAI-7
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Beginning in 1998, matching contributions to 401(k) plans on behalf of a
self-employed individual will no longer be treated as elective deferrals and
will be treated the same as matching contributions of other employees.
Effective January 1, 1999 employers may adopt a "safe harbor 401(k)
arrangement". Under this arrangement, an employer agrees to offer a matching
contribution equal to 100% of salary deferral contributions up to 3% of
compensation and 50% of salary deferral contributions that exceed 3% but are
less than 5% of compensation. These contributions must be non-forfeitable. If
these contributions are made and proper notification given, the plan is not
subject to non-discrimination testing on salary deferral and above
contributions.
If the employer adopts the Master Plan as a defined contribution pension plan,
its contribution is equal to the percentage of each participant's compensation
that is specified in the Participation Agreement.
Under either type of plan, compensation in excess of $160,000 must be
disregarded in making contributions. Contributions may be integrated with
Social Security which means that contributions with respect to each
participant's compensation in excess of the integration level may exceed
contributions made with respect to compensation below the integration level,
within limits imposed by the Code. Your Account Executive can help you
determine the legally permissible contribution.
Contributions on behalf of non-key employees must be at least 3% of
compensation (or, under the profit sharing plan, the percentage contributed on
behalf of key employees, if less than 3%). In 1997, a "key employee" means (a)
an owner of one of the ten largest (but more than 1/2%) interests in the
practice with earnings of more than $30,000, or (b) an officer of the practice
with earnings of more than $65,000 or (c) an owner of more than 5% of the
practice, or (d) an owner of more than 1% of the practice with earnings of more
than $150,000. For purposes of (a), no more than 50 employees (or, if less, the
greater of three or 10% of the employees) shall be treated as officers.
Certain plans may also permit participants to make post-tax contributions. We
will maintain a separate account to reflect each participant's post-tax
contributions and the earnings (or losses) thereon. Post-tax contributions are
now subject to complex rules under which the maximum amount that may be
contributed by highly compensated employees is limited, depending on the amount
contributed by non-highly compensated employees. BEFORE PERMITTING ANY
HIGHLY-COMPENSATED EMPLOYEE TO MAKE POST-TAX CONTRIBUTIONS, THE EMPLOYER SHOULD
MAKE SURE THAT ALL NON-DISCRIMINATION TESTS HAVE BEEN PASSED. If an employer
employs only "highly compensated" employees (as defined above), post-tax
contributions may not be made to the plan. In addition, the employer may make
matching contributions to certain plans, i.e., contributions which are based
upon the amount of post-tax or pre-tax 401(k) contributions made by plan
participants. Special non-discrimination rules apply to matching contributions
and may limit the amount of matching contributions that may be made on behalf
of highly compensated employees. These non-discrimination rules for matching
contributions do not apply to SIMPLE and safe harbor 401(k) plans.
Contributions (including forfeiture amounts) on behalf of each participant are
limited to the lesser of $30,000 and 25% of his earnings (excluding, in the
case of self-employed persons, all deductible plan contributions). The
participant's post-tax contributions are taken into account for purposes of
applying this limitation.
Each participant's Account Balance equals the sum of the amounts accumulated in
each Investment Option. We will maintain separate records of each participant's
interest in each of the Investment Options attributable to employer
contributions, 401(k) non-elective contributions, 401(k) elective
contributions, post-tax employee contributions and employer matching
contributions. Any amounts rolled over from the
SAI-8
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plan of a previous employer will also be accounted for separately. Our records
will also reflect each participant's percentage of vesting (see below) in his
Account Balance attributable to employer contributions and employer matching
contributions.
The participant will receive an individual confirmation of each transaction
(including the deduction of record maintenance and report fees). The
participant will also receive an annual statement showing his Account Balance
in each Investment Option attributable to each type of contribution. Based on
information supplied by you, we will run the required special
non-discrimination test (Actual Deferral Percentage and Actual Contribution
Percentage) applicable to 401(k) plans (other than SIMPLE 401(k) and safe
harbor 401(k)) and plans that accept post-tax employee contributions or
employer matching contributions.
Non-discrimination tests do not apply to SIMPLE 401(k) plans, as long as the
employer makes a matching contribution equal to 100% of the amount deferred by
each participant, up to 3% of compensation or a 2% non-elective contribution to
all eligible employees and follows the notification and filing requirements
outlined in the SIMPLE 401(k) model amendment to the Master Plan.
Under a SIMPLE 401(k) the employer must offer all eligible employees the
opportunity to defer part of their salary into the plan and make either a
matching or non-elective contribution. The matching contribution must be based
on a formula of 100% of the salary deferral amount up to 3% of compensation.
The non-elective contribution is 2% of compensation and must be made to all
eligible employees even those not deferring. The matching or non-elective
contribution must be non-forfeitable. Employees must be notified of which
contribution the employer will make 60 days before the beginning of the year.
Elective deferrals to a 401(k) plan are subject to applicable FICA (social
security), Medicare tax and FUTA (unemployment) taxes. They may also be subject
to state income tax.
ALLOCATION OF CONTRIBUTIONS. Contributions may be allocated among any number of
the Investment Options. Allocation instructions may be changed at any time, and
as often as needed, by calling the AIM System. New instructions become
effective on the business day we receive them. Employer contributions may be
allocated in different percentages than employee contributions. The allocation
percentages elected for employer contributions will automatically apply to any
401(k) qualified non-elective contributions, qualified matching contributions
and matching contributions. The allocation percentages for employee
contributions will automatically apply to any post-tax employee contributions
and 401(k) salary deferral contributions. IF WE HAVE NOT RECEIVED VALID
INSTRUCTIONS, WE WILL ALLOCATE CONTRIBUTIONS TO THE MONEY MARKET GUARANTEE
ACCOUNT.
THE MASTER PLAN AND SECTION 404(C) OF ERISA. The Master Plan is a participant
directed individual account plan designed to comply with the requirements of
Section 404(c) of ERISA. Section 404(c) of ERISA, and the related Department of
Labor (DOL) regulation, provide that if a participant or beneficiary exercises
control over the assets in his or her plan account, plan fiduciaries will not
be liable for any loss that is the direct and necessary result of the
participant's or beneficiary's exercise of control. This means that if the
Employer Plan complies with Section 404(c), participants can make and are
responsible for the results of their own investment decisions.
Section 404(c) plans must, among other things, make a broad range of investment
choices available to Participants and beneficiaries and must provide them with
enough information to make informed investment decisions. The ADA Program
provides the broad range of investment choices and information that are needed
in order to meet the requirements of Section 404(c). Our suggested summary plan
descriptions, annual reports, prospectuses, and confirmation notices provide
the required investment
SAI-9
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information; it is the employer's responsibility, however, to see that this
information is distributed in a timely manner to participants and
beneficiaries. You should read this information carefully before making your
investment decisions.
VESTING. Vesting refers to the nonforfeitable portion of a participant's
Account Balance attributable to employer contributions under the Master Plan.
The participant's Account Balance attributable to 401(k) contributions
(including salary deferral, qualified non-elective and qualified matching
contributions), post-tax employee contributions and to rollover contributions
is nonforfeitable at all times.
A participant will become fully vested in all benefits if still employed at
death, disability, attainment of normal retirement age or upon termination of
the plan. If the participant terminates employment before that time, any
benefits that have not yet become vested under the plan's vesting schedule will
be forfeitable. The normal retirement age is 65 under the Master Plan.
Benefits must vest in accordance with any of the schedules below or one at
least as favorable to participants:
<TABLE>
<CAPTION>
SCHEDULE A SCHEDULE B SCHEDULE C
YEARS OF VESTED VESTED VESTED
SERVICE PERCENTAGE PERCENTAGE PERCENTAGE
- ---------- ------------ ------------ -----------
<S> <C> <C> <C>
1 0% 0% 0%
2 100 20 0
3 100 40 100
4 100 60 100
5 100 80 100
6 100 100 100
</TABLE>
If the plan requires more than one year of service for participation, it must
use Schedule A or one at least as favorable to participants.
All contributions to a SIMPLE 401(k) plan are 100% vested and not subject to
the vesting schedule above. This does not include employer and matching
contributions made to a plan before amending to a SIMPLE 401(k) plan.
SAI-10
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ADDITIONAL INVESTMENT POLICIES AND TECHNIQUES -- THE UNDERLYING FUNDS
The following discussion supplements the discussion of the investment policies
and techniques of the Underlying Funds for the Lifecycle Fund Group Trusts
included under the section entitled Investment Options in the prospectus. Also
discussed hereunder are the investment restrictions applicable to investments
made by such Underlying Funds. As a general matter, you should note that the
Flagship Fund, the Russell 2000 Fund, and the Daily EAFE Fund are index funds
and, therefore, not "actively" managed like other collective investment funds.
Each of these Underlying Funds utilizes a "passive" investment approach,
attempting to duplicate the investment performance of its benchmark index
through automated statistical analytic procedures. See the section of the
prospectus entitled Investment Options--Risks and Investment Techniques for
further discussion of this method of management. Therefore, some of the
policies and investment techniques discussed below may not be engaged in to the
same extent as if the Underlying Funds were actively managed.
U.S. GOVERNMENT SECURITIES. The Underlying Funds may invest in securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, which include U.S. Treasury securities that differ in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one
to ten years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities are supported by the full faith and credit of
the U.S. Treasury; others, by the right of the issuer to borrow from the
Treasury; others, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, only by the
credit of the agency or instrumentality. These securities bear fixed, floating
or variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. Certain
of the Underlying Funds may invest in obligations issued or guaranteed by one
or more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by State Street to be of comparable
quality to the other obligations in which such Underlying Fund may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. The percentage of such Underlying Fund's assets invested in
securities issued by foreign governments will vary depending on the relative
yields of such securities, the economic and financial markets of the countries
in which the investments are made and the interest rate climate of such
countries.
BANK OBLIGATIONS. The Underlying Funds may invest in bank obligations,
including certificates of deposit, time deposits, bankers' acceptances and
other short-term obligations of domestic banks, foreign subsidiaries of
domestic banks, foreign branches of domestic banks, and domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. With respect to such securities issued by foreign
branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, such Underlying Fund may be
subject to additional investment risks that are different in some respects from
those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. These risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities and
the possible seizure or nationalization of foreign deposits.
SAI-11
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Certificates of deposit are negotiable certificates evidencing the obligation
of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by such Underlying Fund will not benefit from insurance
administered by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS. The Underlying
Funds may invest in commercial paper. Commercial paper is short-term, unsecured
promissory notes issued to finance short-term credit needs. Any commercial
paper in which such Underlying Fund invests will consist only of direct
obligations which, at the time of their purchase, are (a) rated not lower than
Prime-1 by Moody's Investor Service ("Moody's"), A-1 by S&P, or any equivalent
rating by any other nationally recognized statistical rating organization, (b)
issued by companies having an outstanding unsecured debt issue currently rated
not lower than Aa3 by Moody's or AA- by S&P, or any equivalent rating by any
other nationally recognized statistical rating organization, or (c) if unrated,
determined by State Street to be of comparable quality to those rated
obligations which may be purchased by such Underlying Fund.
REPURCHASE AGREEMENTS. The Underlying Funds may enter into repurchase
agreements. Repurchase agreements involve the acquisition of an underlying debt
instrument, subject to an obligation of the seller to repurchase, and to
resell, the instrument at a fixed price usually not more than one week after
its purchase. Certain costs may be incurred by an Underlying Fund in connection
with the sale of the securities if the seller does not repurchase them in
accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by an Underlying Fund may be delayed or limited.
Each Underlying Fund will consider on an ongoing basis the creditworthiness of
the institutions with which it enters into repurchase agreements.
FLOATING AND VARIABLE RATE OBLIGATIONS. An Underlying Fund may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 13 months. Generally, the
lender may demand repayment, and the borrower has a right to repay the loan
prior to maturity. The interest rate generally fluctuates based on a published
rate such as a bank's prime rate. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where the obligations are not secured by letters of credit
or other credit support arrangements, the Underlying Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. An Underlying Fund may
invest in the securities of foreign issuers in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). These securities
may not necessarily be denominated in the same currency as the securities into
which they may be converted. ADRs are receipts typically issued by a United
States bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-United States banks and trust companies that evidence
ownership of either foreign or domestic securities.
SAI-12
<PAGE>
- -------------------------------------------------------------------------------
FUTURES CONTRACTS. To the extent permitted by applicable regulations, an
Underlying Fund is permitted to use financial futures as a substitute for a
comparable market position in the underlying securities.
An Underlying Fund may trade futures contracts in U.S. domestic markets or, to
the extent permitted under applicable law, on exchanges located outside the
United States.
A stock index future obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to the difference between the value
of a specific stock index at the close of the last trading day of the contract
and the price at which the agreement is made. With respect to stock indexes
that are permitted investments, each Underlying Fund intends to purchase and
sell futures contracts on the stock index for which it can obtain the best
price, with consideration also given to liquidity.
Initially, when purchasing or selling futures contracts, an Underlying Fund
will be required to deposit with its custodian in the broker's name an amount
of cash or cash equivalents up to approximately 10% of the contract amount,
which is returned to the Fund upon termination. This amount is subject to
change. Subsequent payments to and from the broker will be made daily as the
price of the index or securities underlying the futures contract fluctuates.
Although an Underlying Fund intends to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given that
a liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting
the relevant Underlying Fund to substantial losses.
INTEREST RATE AND EQUITY INDEX SWAPS. An Underlying Fund may enter into
interest rate and index swaps. Interest-rate swaps are contracts in which one
party agrees to pay interest at a floating rate for a specified period of time,
while the counterparty agrees to pay interest at a fixed rate for the same
period. Index swaps involve the exchange by an Underlying Fund with another
party of cash flows based upon the performance of an index or a portion of an
index of securities which usually include dividends.
Each Underlying Fund will enter into swap transactions only if: (i) for
transactions with maturities under one year, the counterparty has outstanding
short-term paper rated at least A-1 by S&P, Prime-1 by Moody's, or any
equivalent rating by any other nationally recognized statistical rating
organization, or (ii) for transactions with maturities greater than one year,
the counterparty has outstanding debt securities rated at least Aa by Moody's
or AA by S&P, or any equivalent rating by any other nationally recognized
statistical rating organization, or (iii) if unrated, State Street deems the
counterparty's creditworthiness to be of equivalent quality.
There is no limit on the amount of swap transactions that may be entered into
by an Underlying Fund. The risk of loss with respect to swaps is generally
limited to the net amount of payments that the Underlying Fund is contractually
obligated to make. If the other party to a swap defaults, the Underlying Fund's
risk of loss consists of the net amount of payments that the Underlying Fund
contractually is entitled to receive.
FOREIGN CURRENCY TRANSACTIONS. An Underlying Fund may engage in currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or through entering into forward
contracts to purchase or sell currencies. A forward currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date, which must be more than two days from the date of the contract, at a
price set at the time of the contract. These contracts are entered into in the
interbank market conducted directly between currency traders (typically
commercial banks or other financial institutions) and their customers.
SAI-13
<PAGE>
- -------------------------------------------------------------------------------
LENDING PORTFOLIO SECURITIES. An Underlying Fund may lend securities to
brokers, dealers and other financial institutions. The Underlying Fund will
receive collateral of at least 100% cash, letters of credit or U.S. government
securities. The Underlying Fund can increase its income through the investment
of the collateral as well as the interest receivable on the loan. An Underlying
Fund might experience a loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement.
RATINGS. The ratings of Moody's, S&P, or any other nationally recognized
statistical rating organizations represent their opinions as to the quality of
the obligations which they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of such obligations. Each Underlying Fund will rely on
State Street's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
INVESTMENT RESTRICTIONS
EQUITY INDEX FUND. The Equity Index Fund will operate as discussed under
Investment Options--Equity Index Fund in the prospectus, and will be subject to
the investment policies and limitations described there. The prospectus for the
SSgA S&P 500 Index Fund describes the investment objective, policies and
limitations applicable to the SSgA S&P 500 Index Fund. A free copy of the SSgA
S&P 500 Index Fund prospectus may be obtained by calling an Equitable Account
Executive.
LIFECYCLE FUNDS. The Lifecycle Funds will operate as discussed under Investment
Options--Lifecycle Funds--The Lifecycle Fund Group Trusts -- Conservative and
Moderate in the prospectus, and will be subject to the investment policies and
limitations described therein.
LIFECYCLE FUND GROUP TRUSTS. The Lifecycle Fund Group Trusts will operate as
discussed in Investment Options--The Lifecycle Fund Group Trusts--Conservative
and Moderate in the prospectus, and will be subject to the investment policies
and limitations described therein.
UNDERLYING FUNDS: COMMON INVESTMENT RESTRICTIONS. In addition to the
limitations discussed above under Additional Investment Policies and Techniques
and in the prospectus under Investment Options, each Underlying Fund will not:
(1) Invest in securities for the purpose of obtaining control of
management.
(2) Engage in business of underwriting securities issued by others,
except that an Underlying Fund will not be deemed to be an
underwriter or to be engaged in underwriting by virtue of having
purchased securities subject to legal or contractual restrictions on
disposition.
(3) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance
of transactions. An Underlying Fund may make initial margin deposits
and variation margin payments in connection with transactions in
futures contracts or related options.
(4) Purchase or sell real estate or real estate mortgage loans, except
that an Underlying Fund may invest in securities secured by real
estate or interests in real estate, or securities issued by companies
which invest in real estate or interests in real estate.
(5) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to (1) secure any permitted borrowings, (2) engage in
transactions that involve the purchase of securities on a when-issued
or forward commitment basis, (3) deposit assets in escrow in
connection with writing
SAI-14
<PAGE>
- --------------------------------------------------------------------------------
covered put and call options, and (4) deposit assets as initial or
variation margin or collateral in connection with transactions in
options, forward contracts, futures contracts (including those relating
to indices), and options on futures contracts or indices.
(6) Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities), except to the extent
necessary to comply with the industry weightings of a particular
index in accordance with such Underlying Fund's investment objective
and policies. For purposes of this restriction, the concentration
limit may be exceeded as a result of changes in the market value of
portfolio securities in which an Underlying Fund invests. This limit,
however, may not be exceeded as a result of investments made by an
Underlying Fund.
(7) Purchase or sell commodities or commodity futures contracts, except
that an Underlying Fund may enter into futures contracts to the
extent provided in such Underlying Fund's Declaration of Trust and as
discussed under Additional Investment Policies and Techniques above
and under Investment Options in the prospectus.
While State Street is not required to observe the foregoing restrictions
(except where otherwise required by law or governmental regulation), it
currently does not intend to change any of these restrictions.
HOW THE ASSETS OF THE FUNDS ARE VALUED
The Equity Index Fund will invest all of its assets in the SSgA S&P 500 Index
Fund. The asset value of the SSgA S&P 500 Index Fund is computed on a daily
basis by the SSgA S&P 500 Index Fund. See the prospectus of the SSgA S&P 500
Index Fund for information on valuation methodology.
The Lifecycle Funds--Conservative and Moderate will invest all of their assets
in the Lifecycle Fund Group Trusts--Conservative and Moderate, respectively.
The Group Trusts, in turn, will invest all of their assets in the Underlying
Funds. The method of valuing the assets of each Underlying Fund is discussed
below. The method used for valuing the units of the Group Trust and Underlying
Funds is discussed under How We Calculate the Value of the Amounts Allocated to
the Equity Index and Lifecycle Funds in the prospectus.
HOW THE ASSETS OF THE UNDERLYING FUNDS ARE VALUED
The assets of each Underlying Fund, other than the STIF Fund, will be valued in
the following manner on a daily basis:
o STOCKS listed on a national securities exchange or traded on the
NASDAQ national market system are valued at the last sale price. If
on a particular day there is no sale, such securities are valued at
the latest available bid price reported on a composite tape. Other
unlisted securities reported on the NASDAQ system are valued at
inside (highest) quoted bid prices.
o FOREIGN SECURITIES not traded directly, or in ADR form, in the United
States, are valued at the last sale price in the local currency on an
exchange in the country of origin. Foreign currency is converted into
dollars at current exchange rates.
o UNITED STATES TREASURY SECURITIES and other obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities are valued at representative quoted prices.
SAI-15
<PAGE>
- -------------------------------------------------------------------------------
o LONG-TERM PUBLICLY TRADED CORPORATE BONDS (i.e., maturing in more
than one year) are valued at prices obtained from a bond pricing
service of a major dealer in bonds when such prices are available;
however, in circumstances where it is deemed appropriate to do so, an
over-the-counter or exchange quotation may be used.
o CONVERTIBLE PREFERRED STOCKS listed on national securities exchanges
are valued at their last sale price or, if there is no sale, at the
latest available bid price.
o CONVERTIBLE BONDS and UNLISTED CONVERTIBLE PREFERRED STOCKS are
valued at bid prices obtained from one or more major dealers in such
securities; where there is a discrepancy between dealers, values may
be adjusted based on recent premium spreads to the underlying common
stock.
o SHORT-TERM DEBT SECURITIES that mature in more than 60 days are
valued at representative quoted prices. Short-term debt securities
that mature in 60 days or less are valued at amortized cost, which
approximates market value.
State Street determines in good faith the fair values of securities and other
assets that do not have a readily available market price in accordance with
accepted accounting practices and applicable laws and regulations.
Assets of the STIF Fund are valued at amortized cost on a daily basis. Under
this method of valuation, securities purchased by the STIF Fund, such as bonds,
notes, commercial paper, certificates of deposit, or other evidences of
indebtedness, are recorded at original cost and adjusted daily for premium
amortization or discount accretion. Use of the amortized cost method results in
a value of portfolio securities that approximates the value computed by use of
mark-to-market method (i.e., use of market values). Values computed under both
methods approach each other the closer a debt obligation comes to maturity. In
this regard, the STIF Fund will not hold debt obligations that have a remaining
maturity of more than thirteen months. See discussion under Investment Options
in the prospectus.
SAI-16
<PAGE>
- -------------------------------------------------------------------------------
TRANSACTIONS BY THE UNDERLYING FUNDS
This section discusses the procedures followed by the Underlying Funds, with
respect to the buying and selling of portfolio securities for these Funds. In
connections with such transactions, the Underlying Funds pay brokerage
commissions, transfer taxes, and other fees.
Decisions to buy or sell securities for the Underlying Funds are made by State
Street in accordance with the investment policies and restrictions of each
Underlying Fund. Such decisions are made independently of the decisions made
for other entities managed by State Street. There may be occasions, however,
when the same investment decision is made for more than one account advised or
managed by State Street. In such cases, State Street will allocate such
purchases or sales among the affected accounts in as equitable a manner as it
deems possible. The principal factors State Street will take into account in
making this determination are the relative investment objectives of the
affected client accounts, the relative sizes of the same or comparable
securities held by or on behalf of such accounts, and the availability at the
time of funds in each client account to make the investment.
Portfolio securities held by one State Street client also may be held by one or
more of its other clients. When two or more of State Street's clients are
engaged in the simultaneous purchase or sale of securities, transactions are
allocated as to amount in accordance with the formulae deemed to be equitable
as to each client. There may be circumstances, however, when purchases or sales
of portfolio securities for one or more of State Street's clients will have an
adverse effect on other clients.
In placing portfolio transactions for an Underlying Fund, State Street will
seek the best price and most favorable execution available to such Fund. In
this regard, State Street will take into account all factors which it considers
relevant to making this decision, including the extent of any provision of any
brokerage and research services to such Fund within the meaning of Section
28(e) of the Securities Exchange Act of 1934 ("1934 Act"), viewed in terms of
either that particular transaction or the broker's or dealer's overall
responsibilities to the Underlying Fund.
State Street periodically will review the brokerage commissions paid by an
Underlying Fund to determine whether the commissions paid over a particular
period of time were reasonable in relation to the benefits provided to such
Fund. It is possible that certain of the services received from a broker or
dealer in connection with the execution of transactions will primarily benefit
one or more other accounts for which State Street exercises discretion, or an
Underlying Fund other than that for which the transaction was executed.
Conversely, any given Underlying Fund may be the primary beneficiary of the
service received as a result of portfolio transactions effected for such other
accounts or Underlying Funds. The investment management fees paid to State
Street are not reduced by reason of receipt of such brokerage and research
services.
INVESTMENT MANAGEMENT FEE
No investment management fee was paid to State Street in 1997, with respect to
the Program's investment, by the SSgA S&P 500 Index Fund, the underlying mutual
fund in which the Equity Index Fund invests.
SAI-17
<PAGE>
- -------------------------------------------------------------------------------
UNDERWRITER
EQ Financial Consultants, Inc. ("EQ Financial"), a wholly-owned subsidiary of
Equitable Life, may be deemed to be the principal underwriter of separate
account units under the group annuity contract. EQ Financial is registered with
the SEC as a broker-dealer under the 1934 Act 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. The offering of the
units under the contract is continuous. No underwriting commissions have been
paid during any of the last three fiscal years with respect to units of
interest under the contract. See Deductions and Charges in the prospectus.
No person currently serves as underwriter for the Lifecycle Fund Group Trusts
or the Underlying Funds.
SAI-18
<PAGE>
- -------------------------------------------------------------------------------
MANAGEMENT
EQUITABLE LIFE
Equitable Life is managed by its sole shareholder, The Equitable Companies
Incorporated. Its directors and certain of its executive officers and their
principal occupations are as follows:
<TABLE>
<CAPTION>
DIRECTORS NAME PRINCIPAL OCCUPATION
- -------------- --------------------
<S> <C>
Francoise Colloc'h Senior Executive Vice President, Human Resources and
Communications, AXA-UAP
Henri de Castries Senior Executive Vice President, Financial Services and Life
Insurance Activities, AXA-UAP
Joseph L. Dionne Chairman and Chief Executive Officer, The McGraw-Hill Companies
Denis Duverne Senior Vice President, International AXA-UAP
William T. Esrey Chairman, President and Chief Executive Officer, Sprint Corporation
Jean-Rene Fourtou Chairman and Chief Executive Officer, Rhone Paulenc, S.A.
Norman C. Francis President, Xavier University of Louisiana
Donald J. Greene Counselor-at-Law, Partner, LeBoeuf, Lamb, Greene & MacRae
John T. Hartley Director and retired Chairman and Chief Executive Officer,
Harris Corporation
John H.F. Haskell, Jr. Director and Managing Director, SBC Warburg Dillon Read, Inc.
Mary R. (Nina) Henderson President, Best Foods Grocery; Vice President, BESTFOODS
W. Edwin Jarmain President, Jarmain Group Inc.
G. Donald Johnston, Jr. Retired Chairman and Chief Executive Officer, JWT Group, Inc.
George T. Lowy Counselor-at-Law, Partner, Cravath, Swaine & Moore
Didier Pineau-Valencienne Chairman and Chief Executive Officer, Schneider, S.A.
George J. Sella, Jr. Retired Chairman and Chief Executive Officer,
American Cyanamid Company
Dave H. Williams Chairman and Chief Executive Officer,
Alliance Capital Management Corporation
</TABLE>
Unless otherwise indicated, the following persons have been involved in the
management of Equitable Life in various executive positions during the last
five years.
<TABLE>
<CAPTION>
OFFICER-DIRECTORS NAME PRINCIPAL OCCUPATION
- ---------------------- --------------------
<S> <C>
Edward D. Miller Chairman of the Board and Chief Executive Officer; formerly,
Senior Vice Chairman, Chase Manhattan Corp., and prior thereto,
President and Vice Chairman, Chemical Bank.
Stanley B. Tulin Vice Chairman of the Board and Chief Financial Officer; formerly,
Chairman, Insurance Consulting and Actuarial Practice, Coopers &
Lybrand.
Michael Hegarty President and Chief Operating Officer; formerly, Vice Chairman,
Chase Manhattan Corporation.
</TABLE>
SAI-19
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER OFFICERS NAME PRINCIPAL OCCUPATION*
- ------------------- ---------------------
<S> <C>
Jose Suquet Senior Executive Vice President and Chief Distribution Officer
Leon B. Billis Executive Vice President and Chief Information Officer
Robert E. Garber Executive Vice President and General Counsel
Jerome S. Golden Executive Vice President; formerly with JG Resources and BT
Variable
Peter D. Noris Executive Vice President and Chief Investment Officer; formerly,
Vice President/Manager, Insurance Company Investment Strategies
Group, Salomon Brothers, Inc.
Kevin R. Byrne Senior Vice President and Treasurer
Harvey Blitz Senior Vice President and Deputy Chief Financial Officer
Alvin H. Fenichel Senior Vice President and Controller
Paul J. Flora Senior Vice President and Auditor
Mark A. Hug Senior Vice President; formerly, Vice President, Aetna
Michael S. Martin Senior Vice President and Chief Marketing Officer
Douglas Menkes Senior Vice President and Corporate Actuary; formerly with Milliman
& Robertson, Inc.
Anthony C. Pasquale Senior Vice President
Donald R. Kaplan Vice President and Chief Compliance Officer
Pauline Sherman Vice President, Secretary and Associate General Counsel
</TABLE>
- ----------
* Current positions listed are with Equitable Life unless otherwise specified.
STATE STREET
State Street is managed by its sole shareholder, State Street Corporation. Its
directors and certain of its executive officers and their principal occupations
are as follows:
<TABLE>
<CAPTION>
DIRECTORS NAME PRINCIPAL OCCUPATION
- -------------- --------------------
<S> <C>
Tenley E. Albright, M.D. Chairman, Western Resources, Inc.
Joseph A. Baute, Jr. Former Chairman, Markem Corporation
I. MacAllister Booth Retired Chairman, President and CEO,
Polaroid Corporation
James I. Cash, Jr. The James E. Robison Professor of Business Administration,
Harvard Business School
Truman S. Casner, Esquire Partner
Ropes & Gray
Nader F. Darehshori Chairman, President and CEO,
Houghton Mifflin Company
Arthur L. Goldstein Chairman and CEO, Ionics, Incorporated
Charles F. Kaye Chairman,
Transportation Investments, Inc.
</TABLE>
SAI-20
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIRECTORS NAME PRINCIPAL OCCUPATION
- -------------- --------------------
<S> <C>
John M. Kucharski Chairman, and CEO,
EG&G, Inc.
Charles R. LaMantia President and CEO,
Arthur D. Little, Inc.
David B. Perini Chairman and President,
Perini Corporation
Dennis J. Picard Chairman and CEO,
Raytheon Company
Alfred Poe CEO, Menu Direct
Bernard W. Reznicek President, Premier Group; Retired Chairman and Chief Executive
Officer, Boston Edison
Diana Chapman Walsh President, Wellesley College
Robert E. Weissman Chairman and CEO, Cognizant Corporation
</TABLE>
<TABLE>
<CAPTION>
OFFICER-DIRECTORS NAME PRINCIPAL OCCUPATION
- ---------------------- --------------------
<S> <C>
Marshall N. Carter Chairman and CEO, State Street Bank and Trust Company
David A. Spina President and Chief Operating Officer
State Street Bank and Trust Company
William S. Edgerly Chairman Emeritus
OTHER OFFICERS NAMES PRINCIPAL OCCUPATION*
- -------------------- ---------------------
A. Edward Allinson Executive Vice President
Maureen S. Bateman Executive Vice President and General Counsel
George K. Bird, IV Executive Vice President
Dale L. Carleton Vice Chairman
Joseph W. Chow Executive Vice President
Susan Comeau Executive Vice President
James J. Darr Executive Vice President
Timothy B. Harbert Executive Vice President
Ronald E. Logue Executive Vice President
Nicholas A. Lopardo Vice Chairman
Jacques-Phillipe Marson Executive Vice President
Ronald O'Kelley CFO, Treasurer, Executive Vice President
Albert E. Peterson Executive Vice President
James S. Phalen Executive Vice President
William M. Reghitto Executive Vice President
David J. Sexton Executive Vice President
Stanley W. Shelton Executive Vice President
John R. Towers Executive Vice President
</TABLE>
- ----------
* All positions are with State Street Bank and Trust Company.
SAI-21
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The financial statements of Equitable Life included in this Statement of
Additional Information should be considered only as bearing upon the ability of
Equitable Life to meet its obligations under the group annuity contract. They
should not be considered as bearing upon the investment experience of the
Equity Index Fund. The financial statements of Separate Account No. 195 reflect
applicable fees, charges and other expenses under the Program as in effect
during the periods covered.
SEPARATE ACCOUNT NOS. 195, 197 AND 198:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants .................................... SAI-25
Separate Account No. 195 (Equity Index Fund):
Statement of Assets and Liabilities, December 31, 1997 ............... SAI-26
Statements of Operations and Changes in Net Assets for the Years Ended
December 31, 1997 and 1996 .......................................... SAI-27
Separate Account No. 197 (Lifecycle Fund--Conservative):
Statement of Assets and Liabilities, December 31, 1997 ............... SAI-28
Statement of Operations and Changes in Net Assets for the Year Ended
December 31, 1997 and 1996 .......................................... SAI-29
Separate Account No. 198 (Lifecycle Fund--Moderate):
Statement of Assets and Liabilities, December 31, 1997 ............... SAI-30
Statement of Operations and Changes in Net Assets for the Year Ended
December 31, 1997 and 1996 .......................................... SAI-31
Separate Account Nos. 195, 197 and 198:
Notes to Financial Statements ........................................ SAI-32
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Report of Independent Accountants .................................... SAI-33
Consolidated Balance Sheets, December 31, 1997 and 1996 .............. SAI-34
Consolidated Statements of Earnings for the Years Ended December 31,
1997, 1996 and 1995 ................................................. SAI-35
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 .................................... SAI-36
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995 ................................................. SAI-37
Notes to Consolidated Financial Statements ........................... SAI-38
</TABLE>
The financial statements for each of the Underlying Funds reflect charges for
operating expenses, but do not include any investment management, Program or
other charges imposed against the respective assets of the Lifecycle Funds and
Lifecycle Fund Group Trusts. The financial statements of the Underlying Funds
do, however, indirectly reflect any investment management fees and other
charges paid by the entities in which the Underlying Funds invest.
SAI-22
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY--
<TABLE>
<CAPTION>
<S> <C>
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
Report of Independent Accountants-- ...................................... SAI-76
Lifecycle Fund Group Trust--Conservative:
Statement of Assets and Liabilities, December 31, 1997 ................... SAI-77
Statement of Operations for Year Ended December 31, 1997 ................. SAI-78
Statement of Changes in Net Assets for the Year Ended December 31, 1997
and December 31, 1996 ................................................... SAI-79
Selected Per Unit Data ................................................... SAI-80
Notes to Financial Statements ............................................ SAI-81
STATE STREET BANK AND TRUST COMPANY--
LIFECYCLE FUND GROUP TRUST--MODERATE
Report of Independent Accountants-- ...................................... SAI-84
Lifecycle Fund Group Trust--Moderate:
Statement of Assets and Liabilities, December 31, 1997 ................... SAI-85
Statement of Operations for the Year Ended December 31, 1997 ............. SAI-86
Statement of Changes in Net Assets for the Year Ended December 31, 1997
and December 31, 1996 ................................................... SAI-87
Selected Per Unit Data ................................................... SAI-88
Notes to Financial Statements ............................................ SAI-89
STATE STREET BANK AND TRUST COMPANY--UNDERLYING FUNDS
FLAGSHIP FUND
Report of Independent Accountants-- ...................................... SAI-92
S&P 500 Flagship Fund and S&P 500 Index Fund with Futures:
Combined Statement of Assets and Liabilities, December 31, 1997 .......... SAI-93
Combined Statement of Operations for the Year Ended December 31, 1997..... SAI-94
Combined Statement of Changes in Net Assets for the Years Ended
December 31, 1997 and 1996 .............................................. SAI-95
S&P 500 Index Fund with Futures Selected Per Unit Data ................... SAI-96
S&P 500 Flagship Fund Selected Per Unit Data ............................. SAI-97
Notes to Combined Financial Statements ................................... SAI-98
Combined Schedule of Investments, December 31, 1997 ...................... SAI-102
RUSSELL 2000 FUND
Report of Independent Accountants-- ...................................... SAI-113
Russell 2000 Fund and Russell 2000 Non-Lending Fund:
Combined Statement of Assets and Liabilities, December 31, 1997 .......... SAI-114
Combined Statement of Operations for the Year Ended December 31, 1997..... SAI-115
Combined Statement of Changes in Net Assets for the Years Ended
December 31, 1997 and 1996 .............................................. SAI-116
Selected Per Unit Data ................................................... SAI-117
Notes to Financial Statements ............................................ SAI-119
Combined Schedule of Investments ......................................... SAI-123
</TABLE>
SAI-23
<PAGE>
- --------------------------------------------------------------------------------
The financial statements for the Russell 2000 Fund reflect direct
investments made by this Fund in shares of companies included in the Russell
2000 Index. Beginning February 1, 1995, this Fund has invested in units of the
Russell 2000 Value and Growth Funds, which in turn invest in shares of
companies included in the Russell 2000 Index. Beginning June 17, 1996, the Fund
began making direct investments again.
<TABLE>
<CAPTION>
<S> <C>
DAILY EAFE FUND
Report of Independent Accountants-- ...................................... SAI-163
Daily EAFE Fund and Daily EAFE Fund Non-Lending:
Combined Statement of Assets and Liabilities, December 31, 1997 .......... SAI-164
Combined Statement of Operations for the Year Ended December 31, 1997..... SAI-165
Combined Statement of Changes in Net Assets for the Years Ended
December 31, 1997 and 1996 .............................................. SAI-166
Daily EAFE Fund Selected Per Unit Data ................................... SAI-167
Daily EAFE Non-Lending Fund Selected Per Unit Data ....................... SAI-168
Notes to Combined Financial Statements ................................... SAI-169
Combined Schedule of Investments, December 31, 1997 ...................... SAI-174
GC BOND FUND
Report of Independent Accountants-- ...................................... SAI-200
Daily Government/Corporate Fund:
Statement of Assets and Liabilities, December 31, 1997 ................... SAI-201
Statement of Operations for the Year Ended December 31, 1997 ............. SAI-202
Statement of Changes in Net Assets for the Years Ended December 31,
1997 and 1996 ........................................................... SAI-203
Selected Per Unit Data ................................................... SAI-204
Notes to Financial Statements ............................................ SAI-205
Schedule of Investments, December 31, 1997 ............................... SAI-206
STIF FUND
Report of Independent Accountants-- ...................................... SAI-218
Short Term Investment Fund:
Statement of Assets and Liabilities, December 31, 1997 ................... SAI-219
Statement of Operations for the Year Ended December 31, 1997 ............. SAI-220
Statement of Changes in Net Assets for the Years Ended December 31,
1997 .................................................................... SAI-221
Selected Per Unit Data ................................................... SAI-222
Notes to Financial Statements ............................................ SAI-223
Schedule of Investments, December 31, 1997 ............................... SAI-225
</TABLE>
SAI-24
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and the Contractowners of Separate Account Nos. 195, 197 and 198
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 changes in net assets and the selected per
unit data (included under Condensed Financial Information in the prospectus of
the American Dental Association Members Retirement Program) present fairly, in
all material respects, the financial position of Separate Account Nos. 195 (The
Equity Index Fund), 197 (The Lifecycle Fund--Conservative) and 198 (The
Lifecycle Fund--Moderate) of The Equitable Life Assurance Society of the United
States ("Equitable Life") at December 31, 1997 and each of their results of
operations, the changes in net assets for the periods indicated and the
selected per unit data for the period presented, in conformity with generally
accepted accounting principles. These financial statements and the selected per
unit data (hereafter referred to as "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 underlying mutual
fund with the transfer agent at December 31, 1997, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
SAI-25
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 195 (THE EQUITY INDEX FUND)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statement of Assets and Liabilities
December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in shares of The SSgA S&P 500 Index Fund--at value (cost: $68,944,315)
(Notes 2 and 5) ................................................................. $77,810,063
Receivable from Equitable Life's General Account ................................. 96,841
- ----------------------------------------------------------------------------------- -----------
Total assets .................................................................. 77,906,904
LIABILITIES--Accrued expenses .................................................... 96,640
- ----------------------------------------------------------------------------------- -----------
NET ASSETS ....................................................................... $77,810,264
=================================================================================== ===========
</TABLE>
See Notes to Financial Statements.
SAI-26
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 195
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statement of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
INVESTMENT INCOME (NOTE 2)--Dividends from SSgA S&P 500 Index Fund ....... $ 1,386,961 $ 714,952
EXPENSES (NOTE 3) ........................................................ (572,609) (315,573)
- --------------------------------------------------------------------------- ------------- -------------
NET INVESTMENT INCOME .................................................... 814,352 399,379
- --------------------------------------------------------------------------- ------------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Realized gain from share transactions .................................... 5,236,295 2,170,339
Realized gain distribution from SSgA S&P 500 Index Fund .................. 2,147,525 1,199,133
- --------------------------------------------------------------------------- ------------- -------------
NET REALIZED GAIN ........................................................ 7,383,820 3,369,472
- --------------------------------------------------------------------------- ------------- -------------
Unrealized appreciation of investments:
Beginning of year ....................................................... 2,754,449 1,485,778
End of year ............................................................. 8,865,748 2,754,449
- --------------------------------------------------------------------------- ------------- -------------
Change in unrealized appreciation/depreciation ........................... 6,111,299 1,268,671
- --------------------------------------------------------------------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .......................... 13,495,119 4,638,143
- --------------------------------------------------------------------------- ------------- -------------
Increase in net assets attributable to operations ........................ 14,309,471 5,037,522
- --------------------------------------------------------------------------- ------------- -------------
FROM CONTRIBUTIONS AND WITHDRAWALS:
Contributions ............................................................ 72,942,238 25,357,074
Withdrawals .............................................................. (42,843,748) (16,441,539)
- --------------------------------------------------------------------------- ------------- -------------
Increase in net assets attributable to contributions and withdrawals ..... 30,098,490 8,915,535
- --------------------------------------------------------------------------- ------------- -------------
INCREASE IN NET ASSETS ................................................... 44,407,961 13,953,057
NET ASSETS--BEGINNING OF YEAR ............................................ 33,402,303 19,449,246
- --------------------------------------------------------------------------- ------------- -------------
NET ASSETS--END OF YEAR .................................................. $ 77,810,264 $ 33,402,303
=========================================================================== ============= =============
</TABLE>
See Notes to Financial Statements.
SAI-27
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 197 (THE LIFECYCLE FUND--CONSERVATIVE)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in shares of the Lifecycle Fund Group
Trust Conservative--at value (cost: $6,737,731) (Note 2) ......... $7,251,949
Receivable from Equitable Life's General Account .................. 554
- -------------------------------------------------------------------- ----------
Total assets ...................................................... 7,252,503
- -------------------------------------------------------------------- ----------
LIABILITIES--Accrued expenses ..................................... 25,747
- -------------------------------------------------------------------- ----------
NET ASSETS ........................................................ $7,226,756
==================================================================== ==========
</TABLE>
See Notes to Financial Statements.
SAI-28
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 197
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statement of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
FROM OPERATIONS:
EXPENSES (NOTE 3) ........................................................ $ (91,976) $ (92,493)
- --------------------------------------------------------------------------- ------------ ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Realized gain from share transactions .................................... 278,397 155,169
- --------------------------------------------------------------------------- ------------ ------------
Unrealized appreciation of investments:
Beginning of year ....................................................... 236,188 110,188
End of year ............................................................. 514,218 236,188
- --------------------------------------------------------------------------- ------------ ------------
Change in unrealized appreciation/depreciation ........................... 278,030 126,000
- --------------------------------------------------------------------------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .......................... 556,427 281,169
- --------------------------------------------------------------------------- ------------ ------------
Increase in net assets attributable to operations ........................ 464,451 188,676
- --------------------------------------------------------------------------- ------------ ------------
FROM CONTRIBUTIONS AND WITHDRAWALS:
Contributions ............................................................ 5,122,907 4,350,710
Withdrawals .............................................................. (2,870,864) (3,002,761)
- --------------------------------------------------------------------------- ------------ ------------
Increase in net assets attributable to contributions and withdrawals ..... 2,252,043 1,347,949
- --------------------------------------------------------------------------- ------------ ------------
INCREASE IN NET ASSETS ................................................... 2,716,494 1,536,625
NET ASSETS--BEGINNING OF PERIOD .......................................... 4,510,262 2,973,637
- --------------------------------------------------------------------------- ------------ ------------
NET ASSETS--END OF PERIOD ................................................ $ 7,226,756 $ 4,510,262
=========================================================================== ============ ============
</TABLE>
See Notes to Financial Statements.
SAI-29
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 198 (THE LIFECYCLE FUND-MODERATE)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statement of Assets and Liabilities
December 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in shares of the Lifecycle Fund Group
Trust Moderate--at value (cost: $85,605,635) (Note 2) ......... $108,498,474
Receivable from Equitable Life's General Account ............... 2,888
- ----------------------------------------------------------------- ------------
Total assets ................................................. 108,501,362
LIABILITIES--Accrued expenses .................................. 203,313
- ----------------------------------------------------------------- ------------
NET ASSETS ..................................................... $108,298,049
================================================================= ============
</TABLE>
See Notes to Financial Statements.
SAI-30
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 198
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statement of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
EXPENSES (NOTE 3) ........................................................ $ (1,033,082) $ (897,989)
- --------------------------------------------------------------------------- ------------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Realized gain from share transactions .................................... 1,903,769 981,358
- --------------------------------------------------------------------------- ------------- -------------
UNREALIZED APPRECIATION OF INVESTMENTS:
Beginning of year ....................................................... 9,168,295 828,281
End of year ............................................................. 22,892,839 9,168,295
- --------------------------------------------------------------------------- ------------- -------------
Change in unrealized appreciation/depreciation ........................... 13,724,544 8,340,014
- --------------------------------------------------------------------------- ------------- -------------
Net Realized and Unrealized Gain on Investments .......................... 15,628,313 9,321,372
- --------------------------------------------------------------------------- ------------- -------------
Increase in net assets attributable to operations ........................ 14,595,231 8,423,383
- --------------------------------------------------------------------------- ------------- -------------
FROM CONTRIBUTIONS AND WITHDRAWALS:
Contributions ............................................................ 22,412,496 19,188,987
Withdrawals .............................................................. (16,901,963) (15,636,555)
- --------------------------------------------------------------------------- ------------- -------------
Increase in net assets attributable to contributions and withdrawals ..... 5,510,533 3,552,432
- --------------------------------------------------------------------------- ------------- -------------
INCREASE IN NET ASSETS ................................................... 20,105,764 11,975,815
NET ASSETS--BEGINNING OF PERIOD .......................................... 88,192,285 76,216,470
- --------------------------------------------------------------------------- ------------- -------------
NET ASSETS--END OF PERIOD ................................................ $ 108,298,049 $ 88,192,285
=========================================================================== ============= =============
</TABLE>
See Notes to Financial Statements.
SAI-31
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NOS. 195, 197 AND 198
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Notes to Financial Statements
1. Separate Account Nos. 195 (the Equity Index Fund), 197 (the Lifecycle
Fund-Conservative) and 198 (the Lifecycle Fund-Moderate) (the Funds) of The
Equitable Life Assurance Society of the United States (Equitable Life), a
wholly-owned subsidiary of The Equitable Companies Incorporated, were
established in conformity with the New York State Insurance Law. Pursuant to
such law, to the extent provided in the applicable contracts, the net assets in
the Funds are not chargeable with liabilities arising out of any other business
of Equitable Life.
Separate Account No. 195 was established as of the opening of business on
February 1, 1994 and Separate Account Nos. 197 and 198 were established as of
the opening of business on May 1, 1995 to solely fund the American Dental
Association Members Retirement Trust and the American Dental Association
Members Pooled Trust for Retirement Plans (Trusts) sponsored by the American
Dental Association (ADA).
Equitable Life is the investment manager for the Funds.
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.
Separate Account No. 195 invests its assets in shares of the SSgA S&P 500
Index Fund (formerly the Seven Seas S&P 500 Fund), a portfolio of the SSgA
Funds, which is registered under the Investment Company Act of 1940 as an
open-end management investment company. The investment manager of the SSgA S&P
500 Index Fund is State Street Bank and Trust Company (State Street).
Separate Account Nos. 197 and 198 invest their assets in shares of the
Lifecycle Fund Group Trusts--Conservative and Moderate, respectively. The
Lifecycle Funds Group Trusts are collective investment funds maintained by State
Street. Each Lifecycle Fund Group is organized as a common law trust under
Massachusetts law, and, because of exclusionary provisions, are not subject to
regulation under the Investment Company Act of 1940. State Street serves as the
trustee and investment manager to each of these Group Trusts.
2. Realized gains and losses on investments include gains and losses on
redemptions of the underlying fund's shares (determined on the identified cost
basis) and capital gain distributions from the underlying funds. Dividends and
realized gain distributions from underlying funds are recorded on the ex-date.
Investments in the SSgA S&P 500 Index Fund, the Lifecycle
Funds--Conservative's and Moderate's investments in the Lifecycle Fund Group
Trusts--Conservative and Moderate are valued at the underlying mutual fund's or
trust's net asset value per share.
3. Charges and fees relating to the Funds are deducted in accordance with
the terms of the contracts issued by Equitable Life to the Trusts. With respect
to the American Dental Association Members Retirement Program, these expenses
consist of program expense charges, direct expenses and record maintenance and
report fees. These charges and fees are paid to Equitable Life by the Funds and
are recorded as expenses in the accompanying Statements of Operations and
Changes in Net Assets.
4. No Federal income tax based on net income or realized and unrealized
capital gains was applicable to contracts participating in the Funds, by reason
of applicable provisions of the Internal Revenue Code and no Federal income tax
payable by Equitable Life will affect such contracts. Accordingly, no Federal
income tax provision is required.
SAI-32
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life insurance
contracts and long-lived assets in 1996 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
New York, New York
February 10, 1998
SAI-33
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 3,105.8 3,105.8
Retained earnings........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
SAI-34
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
SAI-35
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
SAI-36
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
SAI-37
<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, prior to
December 31, 1996, its wholly owned life insurance subsidiary, 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") and
Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), an investment banking and
brokerage affiliate. AXA-UAP ("AXA"), a French holding company for an
international group of insurance and related financial services
companies, is the Holding Company's largest shareholder, owning
approximately 58.7% at December 31, 1997 (54.3% if all securities
convertible into, and options on, common stock were to be converted or
exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") 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, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(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 and liabilities and results of
operations are presented in the consolidated financial statements as
single line items (see Note 6). Unless specifically stated, all
disclosures contained herein supporting the consolidated financial
statements exclude the Closed Block related amounts.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
SAI-38
<PAGE>
Closed Block
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. 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 consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the 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, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance 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 7).
Accounting Changes
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of
January 1, 1996. 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
SAI-39
<PAGE>
(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 Equitable's cost of funds. The adoption of the statement
resulted in the release of valuation allowances of $152.4 million and
recognition of impairment losses of $144.0 million on real estate held
for production of income. Real estate which management has committed to
disposing of by sale or abandonment 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. Implementation of the SFAS No. 121 impairment
requirements relative to other assets to be disposed of resulted in a
charge for the cumulative effect of an accounting change of $23.1
million, net of a Federal income tax benefit of $12.4 million, due to
the writedown to fair value of building improvements relating to
facilities vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("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.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other
SAI-40
<PAGE>
comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This statement is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Company will adopt the
provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 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. 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.
SAI-41
<PAGE>
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to 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.
SAI-42
<PAGE>
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% 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 unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
include a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for
SAI-43
<PAGE>
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 DI reserves
have been calculated on a reasonable basis and are adequate, there can
be no assurance reserves will be sufficient to provide for future
liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, 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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
SAI-44
<PAGE>
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, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
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 opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
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<PAGE>
exercise price. See Note 21 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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
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.. 673.0 6.8 .1 679.7
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
================= ================= ================ =================
December 31, 1996
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
SAI-46
<PAGE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based 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, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1997, approximately 17.85% of the $18,610.6 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
SAI-47
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
SAI-48
<PAGE>
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 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, 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, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
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:
SAI-49
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
SAI-50
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. 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 the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed
SAI-51
<PAGE>
maturities classified as available for sale for 1997, 1996 and 1995
amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 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 maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life 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 will continue 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 the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration to be determined at a later date. The excess of the
purchase price, including acquisition costs and minority interest, over
the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively. 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,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
SAI-52
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
SAI-53
<PAGE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million of problem mortgage loans on
real estate.
SAI-54
<PAGE>
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, 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, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and 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 the fourth
quarter, $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.
SAI-55
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
SAI-56
<PAGE>
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 the need
to strengthen the allowance in 1997 and 1996, respectively.
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 the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, 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, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 million, respectively, of real
estate acquired in satisfaction of debt.
SAI-57
<PAGE>
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
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....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
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, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. 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. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 million commercial paper
program, to fund commission payments to financial intermediaries for the
sale of Class B and C shares under Alliance's mutual fund distribution
system, and for general working capital purposes. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
SAI-58
<PAGE>
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. Payments of interest on, or principal of, the Surplus
Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and 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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
SAI-59
<PAGE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
SAI-60
<PAGE>
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. 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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, respectively.
SAI-61
<PAGE>
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's 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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
SAI-62
<PAGE>
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
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 $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, 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 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
SAI-63
<PAGE>
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 costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on interest-sensitive
individual annuities contracts. The outstanding notional amounts at
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 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.
SAI-64
<PAGE>
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, 1997 and 1996.
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 is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's carrying value of short-term
borrowings approximates their estimated fair value.
SAI-65
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
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.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, 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 $47.4 million of letters of credit outstanding
at December 31, 1997.
SAI-66
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United 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. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
alleged failure to properly supervise agents, and other matters. Some of
the lawsuits have resulted in the award of
SAI-67
<PAGE>
substantial judgments against other insurers, including material amounts
of punitive damages, or in substantial settlements. In some states,
juries have substantial discretion in awarding punitive damages.
Equitable Life, Equitable Variable Life Insurance Company ("EVLICO,"
which was merged into Equitable Life effective January 1, 1997, but
whose existence continues for certain limited purposes, including the
defense of litigation) and The Equitable of Colorado, Inc. ("EOC"), like
other life and health insurers, from time to time are involved in such
litigation. Among litigations pending against Equitable Life, EVLICO and
EOC of the type referred to in this paragraph are the litigations
described in the following seven paragraphs.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, EOC, in New York state court, entitled Sidney
C. Cole, et al. v. The Equitable Life Assurance Society of the United
States and The Equitable of Colorado, Inc. The action is brought by the
holders of a joint survivorship whole life policy issued by EOC. The
action purports to be on behalf of a class consisting of all persons who
from January 1, 1984 purchased life insurance policies sold by Equitable
Life and EOC based upon allegedly uniform sales presentations and policy
illustrations. The complaint puts in issue various alleged sales
practices that plaintiffs assert, among other things, misrepresented the
stated number of years that the annual premium would need to be paid.
Plaintiffs seek damages in an unspecified amount, imposition of a
constructive trust, and seek to enjoin Equitable Life and EOC from
engaging in the challenged sales practices. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' cause of action under the New York State consumer protection
statute. The only remaining causes of action are for breach of contract
and negligent misrepresentation. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
SAI-68
<PAGE>
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. The action is brought by the holder of a variable life
insurance policy issued by EVLICO. The plaintiff purports to represent a
class consisting of all persons or entities who purchased one or more
life insurance policies issued by EVLICO from January 1, 1980. The
complaint puts at issue various alleged sales practices and alleges
misrepresentations concerning the extent to which the policy was a
proper replacement policy and the number of years that the annual
premium would need to be paid. Plaintiff seeks damages, including
punitive damages, in an unspecified amount and also seeks injunctive
relief prohibiting EVLICO from canceling policies for failure to make
premium payments beyond the alleged stated number of years that the
annual premium would need to be paid. EVLICO answered the complaint,
denying the material allegations. In September 1996, Equitable Life,
EVLICO and EOC made a motion to have this proceeding moved from Kings
County Supreme Court to New York County for joint trial or consolidation
with the Cole action. The motion was denied by the Court in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC in 1988. The complaint puts
in issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff alleges claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to disclose fully that the product being sold
was life insurance. Plaintiffs allege violations of the Federal
securities laws and seek rescission of the contracts or compensatory
damages and attorneys' fees and expenses. Equitable Life and
SAI-69
<PAGE>
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Motion practice
regarding discovery continues.
On January 9, 1997, an action entitled Rosemarie Chaviano, individually
and on behalf of all others similarly situated v. The Equitable Life
Assurance Society of the United States, and Equitable Variable Life
Insurance Company, was filed in Massachusetts state court making claims
similar to those in the Franze action and alleging violations of the
Massachusetts securities laws. The plaintiff purports to represent all
persons in Massachusetts who purchased variable life insurance contracts
from Equitable Life and EVLICO from January 9, 1993 to the present. The
Massachusetts action seeks rescission of the contracts or compensatory
damages, attorneys' fees, expenses and injunctive relief. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. Although the outcome of litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated 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 any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a
SAI-70
<PAGE>
material adverse effect on the financial position of the Company. The
Company'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
Company's results of operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of the Prime Property Fund ("PPF"). PPF is
an open-end, commingled real estate separate account of Equitable Life
for pension clients. Equitable Life serves as investment manager in PPF
and retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation appears to be focused principally on appraisal and
valuation procedures in respect of fund properties. The most recent
request from the DOL seems to reflect, at least in part, an interest in
the relationship between the valuations for those properties reflected
in appraisals prepared for local property tax proceedings and the
valuations used by PPF for other purposes. At no time has the DOL made
any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("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 Complaint, which sought certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that were not permitted by the Fund's investment objective, and that
there was no shareholder vote to change the investment objective to
permit purchases in such amounts. The Complaint further alleged that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of
the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the Complaint ("First
Decision"). On October 11, 1996, plaintiffs filed a motion for
reconsideration of the First Decision. On November 25, 1996, the court
denied plaintiffs' motion for reconsideration of the First Decision. On
October 29, 1997, the United States Court of Appeals for the Second
Circuit issued an order granting defendants' motion to strike and
dismissing plaintiffs' appeal of the First Decision. On October 29,
1996, plaintiffs filed a motion for leave to file an amended complaint.
The principal allegations of the proposed amended complaint are that (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. While the ultimate outcome of
this matter cannot be determined at this time, management of Alliance
does not expect that it will have a material adverse effect on
Alliance's results of operations or financial condition.
SAI-71
<PAGE>
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") and certain other defendants
for unspecified compensatory and punitive damages in the U. S. District
Court for the Southern District of New York. The suit was brought on
behalf of the purchasers of 126,457 units consisting of $126,457,000
aggregate principal amount of 13 1/2% senior notes due 2001 and 126,457
warrants to purchase shares of common stock of Rickel issued by Rickel
in October 1994. The complaint alleges violations of federal securities
laws and common law fraud against DLJSC, as the underwriter of the units
and as an owner of 7.3% of the common stock of Rickel, Eos Partners,
L.P., and General Electric Capital Corporation, each as owners of 44.2%
of the common stock of Rickel, and members of the board of directors of
Rickel, including a DLJSC managing director. The complaint seeks to hold
DLJSC liable for alleged misstatements and omissions contained in the
prospectus and registration statement filed in connection with the
offering of the units, alleging that the defendants knew of financial
losses and a decline in value of Rickel in the months prior to the
offering and did not disclose such information. The complaint also
alleges that Rickel failed to pay its semi-annual interest payment due
on the units on December 15, 1995, and that Rickel filed a voluntary
petition for reorganization pursuant to Chapter 11 of the Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe that the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation will
have a material adverse effect on DLJ's results of operations in any
particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the U.S. Bankruptcy Court for the Northern District of
Texas seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. On October 10, 1997, DLJSC and others were named as defendants in
a new adversary proceeding in the Bankruptcy Court brought by the NGC
Settlement Trust, an entity created by the NGC plan of reorganization to
deal with asbestos-related claims. The Trust's allegations are
substantially similar to the claims in the State Court action. In court
papers dated October 16, 1997, the State Court plaintiff indicated that
he would intervene in the Trust's adversary proceeding. On January 21,
1998, the Bankruptcy Court ruled that the State Court plaintiff's claims
were not barred by the NGC plan of reorganization insofar as they
alleged nondisclosure of certain cost reductions announced by NGC in
October 1993. The Texas State Court action, which had been removed to
the Bankruptcy Court, has been remanded back to the state court, which
remand is being opposed by DLJSC. DLJSC intends to defend itself
vigorously against all of the allegations contained in the complaints.
Although there can be no assurance, DLJ does not believe that the
ultimate outcome of this litigation will have a material adverse effect
on its financial condition. Due to the early stage of such litigation,
based upon the
SAI-72
<PAGE>
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation will
have a material adverse effect on DLJ's results of operations in any
particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
SAI-73
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include 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. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
SAI-74
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
SAI-75
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
Insurance Operations offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and
small groups and administers traditional participating group annuity
contracts with conversion features, generally for corporate qualified
pension plans, and association plans which provide full service
retirement programs for individuals affiliated with professional and
trade associations. This segment includes Separate Accounts for
individual insurance and annuity products.
Investment Services provides investment fund management, primarily to
institutional clients. This segment includes the Company's equity
interest in DLJ and Separate Accounts which provide various investment
options for group clients through pooled or single group accounts.
Intersegment investment advisory and other fees of approximately $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
SAI-76
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
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)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
</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. Net earnings for
the three months ended December 31, 1996 includes a charge of $339.3
million related to writeoffs of DAC on DI contracts of $94.3 million and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
SAI-77
<PAGE>
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. The Company's ownership interest will be further
reduced upon the issuance of common stock after the vesting of
forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
SAI-78
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
SAI-79
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company 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 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
SAI-80
<PAGE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
SAI-81
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - (.4) $13.64
Expired................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
</TABLE>
SAI-82
<PAGE>
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
SAI-83
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participant and Trustee of
State Street Bank and Trust Company
Lifecycle Fund Group Trust--Conservative
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the selected
per unit data present fairly, in all material respects, the financial position
of State Street Bank and Trust Company Lifecycle Fund Group Trust--Conservative
at December 31, 1997, the results of its operations for the year then ended,
and the changes in its net assets and the selected per unit data for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and selected per unit data (hereafter referred to as
"financial statements") are the responsibility of the Trustee; 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 the Trustee, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 1997 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
March 18, 1998
SAI-84
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in State Street Bank and Trust Company
Investment Funds for Tax Exempt Retirement Plans:
Daily EAFE Fund Non-Lending (57,757units) .................................... $ 737,504
Daily Government/Corporate Bond Fund (277,238 units) ......................... 3,604,654
Russell 2000 Fund (15,708 units) ............................................. 373,432
S&P 500 Flagship Fund (7,041 units) .......................................... 1,121,387
Short Term Investment Fund (1,442,220 units) ................................. 1,442,220
- ------------------------------------------------------------------------------- ----------
Total investments, at value (cost $6,716,498) ................................ 7,279,197
- ------------------------------------------------------------------------------- ----------
Interest receivable .......................................................... 6,984
- ------------------------------------------------------------------------------- ----------
Total assets .............................................................. 7,286,181
- ------------------------------------------------------------------------------- ----------
LIABILITIES ..................................................................
Payable for Fund units redeemed .............................................. 4,255
Accrued expenses ............................................................. 33,315
- ------------------------------------------------------------------------------- ----------
Total liabilities ......................................................... 37,570
- ------------------------------------------------------------------------------- ----------
NET ASSETS (equivalent to $12.77 per unit based on 567,512 units outstanding) $7,248,611
=============================================================================== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-85
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest ............................................................... $ 60,583
Securities lending fee ................................................. 237
- -------------------------------------------------------------------------- --------
Total investment income ............................................. 60,820
- -------------------------------------------------------------------------- --------
EXPENSES
Accounting and recordkeeping ........................................... 11,100
Audit .................................................................. 3,600
Legal .................................................................. 12,000
Management ............................................................. 9,095
- -------------------------------------------------------------------------- --------
Total expenses ...................................................... 35,795
- -------------------------------------------------------------------------- --------
Net investment income ............................................... 25,025
- -------------------------------------------------------------------------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) ............................................... 260,983
Net change in unrealized appreciation (depreciation) ................... 271,184
- -------------------------------------------------------------------------- --------
Net realized and unrealized gain (loss) ................................ 532,167
- -------------------------------------------------------------------------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......... $557,192
========================================================================== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-86
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ............................................................. $ 25,025 $ 13,291
Net realized gain (loss) on investments ........................................... 260,983 109,095
Net change in unrealized appreciation (depreciation) on investments ............... 271,184 158,996
- ------------------------------------------------------------------------------------ ----------- -----------
Net increase (decrease) in net assets resulting from operations ................... 557,192 281,382
- ------------------------------------------------------------------------------------ ----------- -----------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participant transactions ..... 2,157,090 1,270,391
- ------------------------------------------------------------------------------------ ----------- -----------
Net increase (decrease) in net assets ............................................. 2,714,282 1,551,773
NET ASSETS
Beginning of year ................................................................. 4,534,329 2,982,556
- ------------------------------------------------------------------------------------ ----------- -----------
End of year ....................................................................... $ 7,248,611 $ 4,534,329
==================================================================================== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-87
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Period)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995*
----------- ----------- -------------
<S> <C> <C> <C>
Net investment income (loss)** ........................................... $ 0.06 $ 0.05 $ (0.08)
Net realized and unrealized gain (loss) .................................. 1.28 0.65 0.81
- --------------------------------------------------------------------------- -------- -------- --------
Net increase (decrease) .................................................. 1.34 0.70 0.73
NET ASSET VALUE
Beginning of period ...................................................... 11.43 10.73 10.00
- --------------------------------------------------------------------------- -------- -------- --------
End of period ............................................................ $ 12.77 $ 11.43 $ 10.73
=========================================================================== ======== ======== ========
Total return (%)*** .................................................. 11.72 6.52 7.30
=========================================================================== ======== ======== ========
Ratio of expenses to average net assets (a) (c) .......................... 0.66% 0.81% 2.13%
Ratio of net investment income (loss) to average net assets (a) (b) ...... 0.46% 0.31% (1.04%)
Portfolio turnover ....................................................... 44% 54% 131%
Net assets, end of period (000s) ......................................... $ 7,249 $ 4,534 $ 2,983
=========================================================================== ======== ======== ========
</TABLE>
* The Fund commenced operations on May 5, 1995
** Net investment income has been calculated based on an average of units
outstanding
*** Total return calculation (not annualized for period ended December 31,
1995) is based on the value of a single unit of participation outstanding
throughout the period. It represents the percentage change in the net
asset value per unit between the beginning and end of the period. The
calculation includes only those expenses charged directly to the Fund,
and does not include expenses charged to the funds in which the Fund
invests.
(a) Annualized for the period ended December 31, 1995.
(b) Ratio excludes income retained by funds in which the Fund invests
(see Note 2).
(c) The calculation includes only those expenses charged directly to the
Fund, and does not include expenses charged to the funds in which
the Fund invests.
The accompanying notes are an integral part of these financial statements.
SAI-88
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") Lifecycle
Fund Group Trust--Conservative (the "Fund") was formed by State Street Bank
under a Declaration of Trust. The investment objective of the Fund is to seek
to provide current income and a low to moderate growth of capital. State Street
Bank is Trustee and custodian of the Fund. State Street Global Advisors, a
division of State Street Bank, is the Fund's investment manager.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Investments in State Street Bank collective investment funds are valued at
the net asset value per unit on the valuation date. Investments held by State
Street Bank collective investment funds, excluding Short Term Investment Fund,
are valued at the last reported sale price on the valuation date or, if no
sales are reported for that day and in the case of over-the-counter securities,
at the last published sale price. Investments held by Short Term Investment
Fund are stated at amortized cost, which approximates market value. Certain
investments are valued at fair value on the basis of valuations furnished by a
pricing service, approved by the Trustee, which determines valuations using
methods based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Fund in connection with the issuance and redemption of units of participation
are based on the valuations of those securities determined as described above.
The cost of securities delivered and the net gain or loss on securities sold
are determined using the average cost method. Interest income earned on
securities is recorded on the accrual basis.
With the exception of the Short Term Investment Fund, the State Street
Bank and Trust Company Investment Funds for Tax Exempt Retirement Plans, in
which the Fund invests, retain all net investment income earned and net
realized gains (except for securities lending fee income). Accordingly,
realized and unrealized gains and losses reported by the Fund include a
component attributable to investment income. Distributions from the Short Term
Investment Fund are accrued daily and paid monthly.
C. INCOME TAXES
It is the Fund's policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Fund is exempt from federal income taxes and no
federal income tax provision is required.
D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
The net asset value of the Fund is determined each business day
("valuation date"). The number and value of units issued in connection with a
contribution of assets to the Fund or redeemed in connection with a withdrawal
SAI-89
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
from the Fund shall be determined on the basis of the value of the Fund as of
the Fund's last preceding valuation date to the date on which such order to
contribute assets or order to withdraw assets is received; provided, however,
that the Trustee, in its sole discretion, reserves the right to value any
contribution or withdrawal as of the next succeeding valuation date or another
date as the Trustee deems appropriate.
E. EXPENSES
Under the Declaration of Trust, the Fund may pay certain expenses for
services received during the year. The Trustee is paid a management fee by the
Fund at the annual rate of 0.17% of the Fund's average net asset value.
Additionally, the Trustee is paid an annual fee of $11,100 for providing
various recordkeeping and accounting services to the Fund.
F. DISTRIBUTIONS TO PARTICIPANTS
All net investment income and net realized gains are retained by the Fund.
G. USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit the Trustee to make certain
estimates and assumptions at the date of the financial statements. Actual
results could differ from those estimates.
3. SECURITIES LENDING PROGRAM
Certain collective investment funds in which the Fund invests engage in
securities lending activities, under which State Street Bank, as agent, loans
securities to certain brokers and other financial institutions (the
"Borrowers"). The Borrowers provide cash, securities, or letters of credit as
collateral against loans in an amount at least equal to 100% of the market
value of the loaned securities. The Borrowers are required to maintain the
collateral at not less than 100% of the market value of the loaned securities.
To the extent cash is provided as collateral, it is invested in Quality A
Short-Term Investment Fund. A portion of the income generated upon the
investment of the cash collateral is remitted to the Borrowers, and the
remainder is allocated between the funds and State Street Bank in its capacity
as lending agent. Negotiated lenders' fees are received for those loans
collateralized by securities or letters of credit, if any. Income earned by the
funds from securities lending activities is distributed to participants
monthly. State Street Bank, as lending agent, indemnifies the funds for
replacement of any loaned securities (or, in certain circumstances, return of
equivalent cash value) due to Borrower default on a security loan. Participants
of the funds, however, bear the risk of loss with respect to the investment of
collateral.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments and
including in-kind contributions and redemptions, if any, during the year ended
December 31, 1997 were $4,024,541 and $2,365,041, respectively, resulting in a
net realized gain (loss) of $260,983.
Purchases and sales of short-term investments (including maturities) were
$1,150,100 and $643,472, respectively.
SAI-90
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--CONSERVATIVE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. UNITS OF PARTICIPATION
Participant transactions for the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996
------------------------------ -------------------------------
UNITS AMOUNTS UNITS AMOUNTS
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Units issued .................... 372,044 $ 4,598,331 356,358 $ 3,869,523
Units redeemed .................. (201,223) (2,441,241) (237,533) (2,599,132)
-------- ------------ -------- ------------
Net increase (decrease) ......... 170,821 $ 2,157,090 118,825 $ 1,270,391
======== ============ ======== ============
</TABLE>
All of the Fund's units outstanding were held by one unitholder at
December 31, 1997.
SAI-91
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participant and Trustee of
State Street Bank and Trust Company
Lifecycle Fund Group Trust--Moderate
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the selected
per unit data present fairly, in all material respects, the financial position
of State Street Bank and Trust Company Lifecycle Fund Group Trust--Moderate at
December 31, 1997, the results of its operations for the year then ended, and
the changes in its net assets and the selected per unit data for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and selected per unit data (hereafter referred to as
"financial statements") are the responsibility of the Trustee; 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 the Trustee, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 1997 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
March 18, 1998
SAI-92
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in State Street Bank and Trust Company
Investment Funds for Tax Exempt Retirement Plans:
Daily EAFE Fund Non-Lending (1,278,109 units) .................................. $ 16,320,170
Daily Government/Corporate Bond Fund (2,453,548 units) ......................... 31,901,037
Russell 2000 Fund (464,264 units) .............................................. 11,037,423
S&P 500 Flagship Fund (242,378 units) .......................................... 38,600,203
Short Term Investment Fund (10,639,316 units) .................................. 10,639,316
- --------------------------------------------------------------------------------- ------------
Total investments, at value (cost $88,656,193) .............................. 108,498,149
- --------------------------------------------------------------------------------- ------------
Interest receivable ............................................................ 52,278
- --------------------------------------------------------------------------------- ------------
Total assets ................................................................ 108,550,427
- --------------------------------------------------------------------------------- ------------
LIABILITIES
Payable for Fund units redeemed ................................................ 67,636
Accrued expenses ............................................................... 47,792
- --------------------------------------------------------------------------------- ------------
Total liabilities ........................................................... 115,428
- --------------------------------------------------------------------------------- ------------
NET ASSETS (equivalent to $14.60 per unit based on 7,428,296 units outstanding) $108,434,999
================================================================================= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-93
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest ................................................................ $ 545,576
Securities lending fee .................................................. 9,148
- --------------------------------------------------------------------------- -----------
Total investment income ............................................... 554,724
- --------------------------------------------------------------------------- -----------
EXPENSES
Accounting and recordkeeping ............................................ 11,100
Audit ................................................................... 3,600
Legal ................................................................... 12,000
Management .............................................................. 167,925
- --------------------------------------------------------------------------- -----------
Total expenses ........................................................ 194,625
- --------------------------------------------------------------------------- -----------
Net investment income ................................................ 360,099
- --------------------------------------------------------------------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments ................................. 4,188,185
Net change in unrealized appreciation (depreciation) on investments ..... 11,081,534
- --------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) ................................. 15,269,719
- --------------------------------------------------------------------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .......... $15,629,818
=========================================================================== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-94
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
--------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) .................................................. $ 360,099 $ 290,770
Net realized gain (loss) on investments ....................................... 4,188,185 1,108,666
Net change in unrealized appreciation (depreciation) on investments ........... 11,081,534 7,887,616
- ------------------------------------------------------------------------------- ------------ -----------
Net increase (decrease) in net assets resulting from operations ............... 15,629,818 9,287,052
- ------------------------------------------------------------------------------- ------------ -----------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participants transactions 4,532,218 2,739,940
- ------------------------------------------------------------------------------- ------------ -----------
Net increase (decrease) in net assets ......................................... 20,162,036 12,026,992
NET ASSETS
Beginning of year ............................................................. 88,272,963 76,245,971
- ------------------------------------------------------------------------------- ------------ -----------
End of year ................................................................... $108,434,999 $88,272,963
=============================================================================== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-95
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Period)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995*
------------ ---------- -----------
<S> <C> <C> <C>
Net investment income (loss)** ........................................... $ 0.05 $ 0.04 $ (0.01)
Net realized and unrealized gain (loss) .................................. 2.11 1.27 1.14
- --------------------------------------------------------------------------- ------- ------- -------
Net increase (decrease) .................................................. 2.16 1.31 1.13
NET ASSET VALUE
Beginning of period ...................................................... 12.44 11.13 10.00
- --------------------------------------------------------------------------- ------- ------- -------
End of period ............................................................ $ 14.60 $ 12.44 $ 11.13
Total return (%)*** ................................................... 17.36 11.77 11.30
- --------------------------------------------------------------------------- ------- ------- -------
Ratio of expenses to average net assets (a) (c) .......................... 0.20% 0.20% 0.52%
Ratio of net investment income (loss) to average net assets (a) (b) ...... .37% 0.35% (0.07%)
Portfolio turnover ....................................................... 22% 18% 30%
Net assets, end of period (000s) ......................................... $108,435 $88,273 $76,246
=========================================================================== ======== ======= =======
</TABLE>
- ----------
* The Fund commenced operations on May 5, 1995
** Net investment income has been calculated based on an average of units
outstanding
*** Total return calculation (not annualized for period ended December 31,
1995) is based on the value of a single unit of participation outstanding
throughout the period. It represents the percentage change in the net
asset value per unit between the beginning and end of the period. The
calculation includes only those expenses charged directly to the Fund,
and does not include expenses charged to the funds in which the Fund
invests.
(a) Annualized for the period ended December 31, 1995.
(b) Ratio excludes income retained by funds in which the Fund invests
(see Note 2).
(c) The calculation includes only those expenses charged directly to the
Fund, and does not include expenses charged to the funds in which
the Fund invests.
The accompanying notes are an integral part of these financial statements.
SAI-96
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") Lifecycle
Fund Group Trust--Moderate (the "Fund") was formed by State Street Bank under a
Declaration of Trust. The investment objective of the Fund is to seek to
provide a reasonable level of current income and growth of capital. State
Street Bank is Trustee and custodian of the Fund. State Street Global Advisors,
a division of State Street Bank, is the Fund's investment manager.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Investments in State Street Bank collective investment funds are valued at
the net asset value per unit on the valuation date. Investments held by State
Street Bank collective investment funds, excluding Short Term Investment Fund,
are valued at the last reported sale price on the valuation date or, if no
sales are reported for that day and in the case of over-the-counter securities,
at the last published sale price. Investments held by Short Term Investment
Fund are stated at amortized cost, which approximates market value. Certain
investments are valued at fair value on the basis of valuations furnished by a
pricing service, approved by the Trustee, which determines valuations using
methods based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Fund in connection with the issuance and redemption of units of participation
are based on the valuations of those securities determined as described above.
The cost of securities delivered and the net gain or loss on securities sold
are determined using the average cost method. Interest income earned on
securities is recorded on the accrual basis.
With the exception of the Short Term Investment Fund, the State Street
Bank and Trust Company Investment Fund for Tax Exempt Retirement Plans, in
which the Fund invests, retain all net investment income earned and net
realized gains (except for securities lending fee income). Accordingly,
realized and unrealized gains and losses reported by the Fund include a
component attributable to investment income. Distributions from the Short Term
Investment Fund are accrued daily and paid monthly.
C. INCOME TAXES
It is the Fund's policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Fund is exempt from federal income taxes and no
federal income tax provision is required.
D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
The net asset value of the Fund is determined each business day
("valuation date"). The number and value of units issued in connection with a
contribution of assets to the Fund or redeemed in connection with a withdrawal
SAI-97
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
from the Fund shall be determined on the basis of the value of the Fund as of
the Fund's last preceding valuation date to the date on which such order to
contribute assets or order to withdraw assets is received; provided, however,
that the Trustee, in its sole discretion, reserves the right to value any
contribution or withdrawal as of the next succeeding valuation date or another
date as the Trustee deems appropriate.
E. EXPENSES
Under the Declaration of Trust, the Fund may pay certain expenses for
services received during the year. The Trustee is paid a management fee by the
Fund at the annual rate of 0.17% of the Fund's average net asset value.
Additionally, the Trustee is paid an annual fee of $11,100 for providing
various recordkeeping and accounting services to the Fund.
F. DISTRIBUTIONS TO PARTICIPANTS
All net investment income and net realized gains are retained by the Fund.
G. USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit the Trustee to make certain
estimates and assumptions at the date of the financial statements. Actual
results could differ from those estimates.
3. SECURITIES LENDING PROGRAM
Certain collective investment funds in which the Fund invests engage in
securities lending activities, under which State Street Bank, as agent, loans
securities to certain brokers and other financial institutions (the
"Borrowers"). The Borrowers provide cash, securities, or letters of credit as
collateral against loans in an amount at least equal to 100% of the market
value of the loaned securities. The Borrowers are required to maintain the
collateral at not less than 100% of the market value of the loaned securities.
To the extent cash is provided as collateral, it is invested in Quality A
Short-Term Investment Fund. A portion of the income generated upon the
investment of the cash collateral is remitted to the Borrowers, and the
remainder is allocated between the funds and State Street Bank in its capacity
as lending agent. Negotiated lenders' fees are received for those loans
collateralized by securities or letters of credit, if any. Income earned by the
funds from securities lending activities is distributed to participants
monthly. State Street Bank, as lending agent, indemnifies the funds for
replacement of any loaned securities (or, in certain circumstances, return of
equivalent cash value) due to Borrower default on a security loan. Participants
of the funds, however, bear the risk of loss with respect to the investment of
collateral.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments and
including in-kind contributions and redemptions, if any, during the year ended
December 31, 1997 were $23,500,651 and $21,210,656, respectively, resulting in
a net realized gain (loss) of $4,188,185.
Purchases and sales of short-term investments (including maturities) were
$4,652,227 and $2,002,900, respectively.
SAI-98
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LIFECYCLE FUND GROUP TRUST--MODERATE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. UNITS OF PARTICIPATION
Participant transactions for the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996
-------------------------------- ------------------------------
UNITS AMOUNT UNITS AMOUNT
------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Units issued .................... 1,075,166 $ 14,656,380 1,071,085 $ 12,433,172
Units redeemed .................. (741,413) (10,124,162) (826,360) (9,693,232)
--------- ------------- --------- ------------
Net increase (decrease) ......... 333,753 $ 4,532,218 244,725 $ 2,739,940
========= ============= ========= ============
</TABLE>
All of the Fund's units outstanding were held by one unitholder at
December 31, 1997.
SAI-99
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Trustee of
State Street Bank and Trust Company
S&P 500 Flagship Fund
and State Street Bank and Trust Company
S&P 500 Index Fund with Futures
In our opinion, the accompanying combined statement of assets and liabilities,
including the combined schedule of investments, and the related combined
statements of operations and of changes in net assets and the selected per unit
data present fairly, in all material respects, the financial position of State
Street Bank and Trust Company S&P 500 Flagship Fund and State Street Bank and
Trust Company S&P 500 Index Fund with Futures at December 31, 1997, the results
of their operations for the year then ended, and the changes in their net
assets and the selected per unit data for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
selected per unit data (hereafter referred to as "financial statements") are
the responsibility of the Trustee; 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 the Trustee, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where securities purchased were not yet
received by the custodian, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
March 11, 1998
SAI-100
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $30,716,797,433)................................ $ 44,151,622,132
Investment in State Street Bank and Trust Company Quality A Short-Term Investment Fund,
at value ............................................................................... 712,628,120
Receivable for investments sold .......................................................... 116,321,329
Receivable for Fund units issued ......................................................... 390,314,708
Interest receivable ...................................................................... 1,696,621
Dividends receivable ..................................................................... 60,201,751
Securities lending fee income receivable ................................................. 217,008
- ------------------------------------------------------------------------------------------ ----------------
Total assets ............................................................................ 45,433,001,669
- ------------------------------------------------------------------------------------------ ----------------
LIABILITIES
Payable to custodian ..................................................................... 3,420,696
Collateral on securities loaned .......................................................... 712,628,120
Payable for investments purchased ........................................................ 281,324,536
Payable for Fund units redeemed .......................................................... 208,420,171
Distributions of securities lending fee income payable ................................... 217,008
Accrued expenses ......................................................................... 17,693
Variation margin payable ................................................................. 118,416
- ------------------------------------------------------------------------------------------ ----------------
Total liabilities ....................................................................... 1,206,146,640
- ------------------------------------------------------------------------------------------ ----------------
NET ASSETS ............................................................................... $ 44,226,855,029
========================================================================================== ================
S&P 500 Flagship Fund
(230,218,761 units outstanding, at $159.26 per unit net asset value)..................... $ 36,663,786,422
S&P 500 Index Fund with Futures
(47,489,920 units outstanding, at $159.26 per unit net asset value)...................... 7,563,068,607
- ------------------------------------------------------------------------------------------ ----------------
$ 44,226,855,029
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-101
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of taxes withheld of $1,903).............................................. $ 535,605,654
Interest ................................................................................ 36,467,225
Securities lending fee income (net of related expenses) allocated to S&P 500 Flagship
Fund (Note 3) .......................................................................... 915,319
- -------------------------------------------------------------------------------------------
Total investment income .............................................................. 572,988,198
- ------------------------------------------------------------------------------------------ --------------
EXPENSES
Audit ................................................................................... 38,519
Custody ................................................................................. 184,606
Other ................................................................................... 8,144
- ------------------------------------------------------------------------------------------ --------------
Total expenses ....................................................................... 231,269
- ------------------------------------------------------------------------------------------ --------------
Net investment income ................................................................ 572,756,930
- ------------------------------------------------------------------------------------------ --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on investments ................................................. 1,609,792,700
Net realized gain (loss) on futures contracts ........................................... 101,152,921
Net change in unrealized appreciation (depreciation) on investments ..................... 6,281,377,102
Net change in unrealized appreciation (depreciation) on futures contracts ............... 6,661,537
- ------------------------------------------------------------------------------------------ --------------
Net realized and unrealized gain (loss) on investments and futures contracts ............ 7,998,984,260
- ------------------------------------------------------------------------------------------ --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .......................... $8,571,741,190
========================================================================================== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-102
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................................................. $ 572,756,929 $ 466,937,186
Net realized gain (loss) on investments ................................................ 1,609,792,700 534,042,688
Net realized gain (loss) on futures contracts .......................................... 101,152,921 64,873,769
Net change in unrealized appreciation (depreciation) on investments .................... 6,281,377,102 3,142,759,498
Net change in unrealized appreciation (depreciation) on futures contracts .............. 6,661,537 (7,725,400)
- ---------------------------------------------------------------------------------------- --------------- ---------------
Net increase (decrease) in net assets resulting from operations ........................ 8,571,741,189 4,200,887,741
- ---------------------------------------------------------------------------------------- --------------- ---------------
Distributions of securities lending fee income to S&P 500 Flagship Fund participants
(Note 3) .............................................................................. (915,319) (561,261)
- ---------------------------------------------------------------------------------------- --------------- ---------------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participant transactions .......... 11,401,185,824 2,754,178,689
- ---------------------------------------------------------------------------------------- --------------- ---------------
Net increase (decrease) in net assets .................................................. 19,972,011,694 6,954,505,169
NET ASSETS
Beginning of year ...................................................................... 24,254,843,335 17,300,338,166
- ---------------------------------------------------------------------------------------- --------------- ---------------
End of year ............................................................................ $44,226,855,029 $24,254,843,335
======================================================================================== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-103
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 INDEX FUND WITH FUTURES
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net investment income** .......................... $ 2.64 $ 2.48 $ 2.24 $ 1.90 $ 1.80
Net realized and unrealized gain (loss) .......... 37.22 19.86 24.26 (0.93) 4.55
- --------------------------------------------------- -------- -------- ------- ------- -------
Net increase (decrease) .......................... 39.86 22.34 26.50 0.97 6.35
NET ASSET VALUE
Beginning of year ................................ 119.40 97.06 70.56 69.59 63.24
- --------------------------------------------------- -------- -------- ------- ------- -------
End of year ...................................... $ 159.26 $ 119.40 $ 97.06 $ 70.56 $ 69.59
- --------------------------------------------------- -------- -------- ------- ------- -------
Total return (%)*** .......................... 33.38 23.02 37.56 1.39 10.06
=================================================== ======== ======== ======= ======= =======
Ratio of expenses to average net assets* ......... 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of net investment income to average net
assets .......................................... 1.85% 2.33% 2.66% 2.88% 2.68%
Portfolio turnover ............................... 18% 27% 10% 12% 22%
Average broker commission per share (a) .......... $ 0.03 $ 0.04 N/A N/A N/A
Net assets, end of year (000,000s) ............... $ 7,563 $ 3,339 $ 2,165 $ 1,432 $ 275
=================================================== ======== ======== ======= ======= =======
</TABLE>
- ----------
* Zero amounts represent those which are less than .005%.
** Net investment income has been calculated based on an average of units
outstanding.
*** Total return calculation is based on the value of a single unit of
participation outstanding throughout the year. It represents the
percentage change in net asset value per unit between the beginning and
end of each year. The calculation includes only those expenses charged
directly to the Fund. This result may be reduced by any administrative or
other fees which are incurred in the management or maintenance of
individual participant accounts.
(a) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of these financial statements.
SAI-104
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net investment income** ................................... $ 2.64 $ 2.48 $ 2.24 $ 1.90 $ 1.81
Net realized and unrealized gain (loss) ................... 37.22 19.86 24.26 (0.93) 4.55
Distribution of securities lending fee income (a) ......... 0.00 0.00 0.00 0.00 (0.01)
- ----------------------------------------------------------- -------- -------- ------- ------- -------
Net increase (decrease) ................................... 39.86 22.34 26.50 0.97 6.35
NET ASSET VALUE
Beginning of year ......................................... 119.40 97.06 70.56 69.59 63.24
- ----------------------------------------------------------- -------- -------- ------- ------- -------
End of year ............................................... $ 159.26 $ 119.40 $ 97.06 $ 70.56 $ 69.59
- ----------------------------------------------------------- -------- -------- ------- ------- -------
Total return (%)*** ................................... 33.38 23.02 37.56 1.39 10.06
=========================================================== ======== ======== ======= ======= =======
Ratio of expenses to average net assets* .................. 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of net investment income to average net
assets ................................................... 1.86% 2.33% 2.66% 2.88% 2.68%
Portfolio turnover ........................................ 18% 27% 10% 12% 22%
Average broker commission per share (b) ................... $ 0.03 $ 0.04 N/A N/A N/A
- ----------------------------------------------------------- -------- -------- ------- ------- -------
Net assets, end of year (000,000s) ........................ $ 36,664 $ 20,916 $15,135 $ 8,258 $ 5,753
=========================================================== ======== ======== ======= ======= =======
</TABLE>
- ----------
* Zero amounts represent those which are less than .005%.
** Net investment income has been calculated based on an average of units
outstanding.
*** Total return calculation is based on the value of a single unit of
participation outstanding throughout the year. It represents the
percentage change in the net asset value per unit between the beginning
and end of each year and assumes reinvestment of distributions. The
calculation includes only those expenses charged directly to the Fund.
This result may be reduced by any administrative or other fees which are
incurred in the management or maintenance of individual participant
accounts.
(a) Zero amounts represent those which are less than $.005 per unit.
(b) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of these financial statements.
SAI-105
<PAGE>
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") S&P 500
Flagship Fund and S&P 500 Index Fund with Futures (collectively, the "Funds")
were formed by State Street Bank under a Declaration of Trust. The investment
objective of the Funds is to replicate, as closely as possible, the Standard &
Poor's (S&P) 500 Index, which is accomplished by investing in substantially all
of the equity securities which comprise the S&P 500 Index. Additionally, the
Funds may hold up to 25% of their value in S&P 500 stock index futures
contracts and invest in certain other collective funds maintained by State
Street Bank, consistent with its investment objectives. State Street Bank is
Trustee and custodian of the Funds. State Street Global Advisors, a division of
State Street Bank, is the Funds' investment manager.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Investments in securities listed on a national securities exchange and
over-the-counter securities are valued at the last reported sale price on the
valuation date or, if no sales are reported for that day, the last published
sale price. Short-term investments are stated at amortized cost, which
approximates market value. Investments in regulated investment companies or
other State Street Bank collective investment funds are valued at net asset
value per share/unit on the valuation date. Futures contracts are valued at the
last settlement price at the end of each day on the board of trade or exchange
upon which they are traded.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Funds in connection with the issuance and redemption of units of participation
are based on the valuations of those securities determined as described above.
The cost of securities delivered and the net gain or loss on securities sold
are determined using the average cost method. Dividend income is recorded on
the ex-dividend date. Interest income earned on securities is recorded on the
accrual basis. Interest income is increased by accretion of discount and
decreased by amortization of premium.
C. INCOME TAXES
It is the Funds' policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Funds are exempt from federal income taxes and
no federal income tax provision is required.
D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
The net asset values of the Funds are determined each business day
("valuation date"). Issuances and redemptions of Fund units are made based upon
the closing market value of the securities bought or sold as of the valuation
date, adjusted for the related market effect and transaction costs which are
allocated to the applicable
SAI-106
<PAGE>
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
participant. Transaction costs include brokerage commissions, taxes and other
direct costs related to security transactions. Market effect is the difference
between the execution price of the investment on the trade date and the
investment's closing market value on the valuation date.
E. EXPENSES
Under the Declaration of Trust, the Funds may pay certain expenses for
services received during the year. The Trustee is paid a custody fee at the
annual rate of $50,000, plus a charge for each security and futures transaction
executed.
F. DISTRIBUTIONS TO PARTICIPANTS
All net investment income (excluding securities lending fee income, if
any) and net realized gains are retained by the Funds. Income generated by
securities lending is distributed monthly to participants of the S&P 500
Flagship Fund.
G. FUTURES CONTRACTS
The Funds may use futures contracts to manage exposure to the equity
markets. Buying futures tends to increase a fund's exposure to the underlying
instrument. Selling futures tends to decrease a fund's exposure to the
underlying instrument, or hedge other investments. Futures contracts involve,
to varying degrees, credit and market risks.
The Funds enter into futures contracts only on exchanges or boards of
trade where the exchange or board of trade acts as the counterparty to the
transaction. Thus, credit risk on such transactions is limited to the failure
of the exchange or board of trade. Losses in value may arise from changes in
the value of the underlying instruments or if there is an illiquid secondary
market for the contracts. In addition, there is the risk that there may not be
an exact correlation between a futures contract and the underlying index. The
maximum potential loss on a long futures contract is the U.S. dollar value of
the notional amount at the time the contract is opened. The potential loss on a
short futures contract is unlimited.
Upon entering into a futures contract, the Funds are required to deposit
either in cash or securities an amount ("initial margin") equal to a certain
percentage of the nominal value of the contract. Subsequent payments are made
or received by the Funds periodically, depending on the daily fluctuation in
the value of the underlying securities, and are recorded as unrealized gains or
losses by the Funds. A gain or loss is realized when the contract is closed or
expires.
H. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make certain estimates
and assumptions at the date of the financial statements. Actual results could
differ from those estimates.
SAI-107
<PAGE>
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. SECURITIES LENDING PROGRAM
The participants in the S&P 500 Flagship Fund (the "Lending Fund") have
authorized the Lending Fund to participate in the Securities Lending Program
maintained by State Street Bank. The investment objective, techniques and
results of operations of the Lending Fund are identical to those of the S&P 500
Index Fund with Futures (the "Index Fund"), except that the Lending Fund
engages in securities lending activities. Accordingly, the financial statements
of the Lending Fund and the Index Fund have been prepared on a combined basis,
with separate disclosure of the participant transactions and per unit data of
the Lending Fund and the Index Fund. The Lending Fund and the Index Fund each
maintain a divided pro-rata interest in the combined assets and liabilities
(including each investment security position but excluding assets and
liabilities related to securities lending activities) proportionate to the net
asset value of the outstanding combined units of the Funds. All interfund
transactions have been eliminated in the combined financial statements.
Under the Securities Lending Program, securities held by the Lending Fund
are loaned by State Street Bank, as agent, to certain brokers and other
financial institutions (the "Borrowers"). The Borrowers provide cash,
securities, or letters of credit as collateral against loans in an amount at
least equal to 100% of the market value of the loaned securities. The Borrowers
are required to maintain the collateral at not less than 100% of the fair
market value of the loaned securities. At December 31, 1997, the market value
of securities loaned by the Lending Fund was $818,648,191 against which was
held cash collateral of $712,628,120 and securities of $129,649,641. Cash
collateral provided by the Borrowers is invested in State Street Bank and Trust
Company Quality A Short-Term Investment Fund. A portion of the income generated
upon investment of the collateral is remitted to the Borrowers, and the
remainder is allocated between the Lending Fund and State Street Bank in its
capacity as lending agent. Negotiated lenders' fees are received for those
loans collateralized by securities or letters of credit, if any. Income earned
from lending activities is distributed to Lending Fund participants monthly.
State Street Bank, as lending agent, indemnifies the Lending Fund for
replacement of any loaned securities (or, in certain circumstances, return of
equivalent cash value) due to Borrower default on a security loan. Lending Fund
participants, however, bear the risk of loss with respect to the investment of
collateral.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments and
including in-kind contributions and redemptions, if any, during the year ended
December 31, 1997 were $16,670,343,885 and $4,742,564,565, respectively,
resulting in a net realized gain (loss) of $1,606,904,034. This gain (loss) is
prior to the recognition of the market effect and transaction costs associated
with contributions and redemptions.
SAI-108
<PAGE>
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. UNITS OF PARTICIPATION
Participant transactions for each of the Funds were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996
--------------------------------------- -------------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------- -------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
S&P 500 FLAGSHIP FUND:
Units issued .................... 148,471,895 $ 22,051,541,332 98,935,366 $10,682,791,463
Issued upon reinvestment of
distributions .................. -- -- -- --
Units redeemed .................. (93,427,456) (13,465,036,826) (79,681,942) (8,532,480,187)
----------- ----------------- ----------- ---------------
Total ....................... 55,044,439 8,586,504,506 19,253,424 2,150,311,276
----------- ----------------- ----------- ---------------
S&P 500 INDEX FUND WITH FUTURES:
Units issued .................... 25,998,880 3,740,090,979 9,657,971 1,027,503,584
Units redeemed .................. (6,471,396) (925,409,661) (3,999,223) (423,636,171)
----------- ----------------- ----------- ---------------
Total ....................... 19,527,484 2,814,681,318 5,658,748 603,867,413
----------- ----------------- ----------- ---------------
Net increase (decrease) ......... 74,571,923 $ 11,401,185,824 24,912,172 $2,754,178,689
=========== ================= =========== ===============
</TABLE>
S&P 500 FLAGSHIP FUND
Units in excess of 10% of the Lending Fund units outstanding at December
31, 1997 held by one of the Lending Fund's 193 unitholders aggregated 28% of
the Fund's total units outstanding.
During the year ended December 31, 1997, the net market effect and
transaction costs (absorbed by) credited to participants in issuance and
redemption of Lending Fund units were $(2,555,742).
S&P 500 INDEX FUND WITH FUTURES
Units in excess of 10% of the Index Fund units outstanding at December 31,
1997 held by two of the Index Fund's 27 unitholders aggregated 68% of the Index
Fund's total units outstanding.
During the year ended December 31, 1997, the net market effect and
transaction costs (absorbed by) credited to participants in issuance and
redemption of Index Fund units were $(332,924).
Participants in each of the Lending Fund or the Index Fund may exchange
their units for units of the other fund on any valuation date.
SAI-109
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<S> <C> <C>
COMMMON STOCK 99.0% (unless otherwise noted) .........
3COM Corp. ........................................... 2,000,584 $ 69,895,403
Abbott Laboratories .................................. 4,416,613 289,564,190
Adobe Systems Inc. ................................... 430,818 17,771,243
Adolph Coors Co. Class B ............................. 191,569 6,369,669
Advanced Micro Devices Inc. .......................... 803,376 14,410,557
Aeroquip Vickers Inc. ................................ 171,147 8,396,900
Aetna Inc. ........................................... 906,274 63,948,959
Agrium Inc ........................................... 50,100 610,594
Air Products & Chemicals Inc. ........................ 634,192 52,162,292
Airtouch Communications .............................. 2,895,838 120,358,267
Alberto Culver Co. Class B Convertible ............... 275,415 8,830,493
Albertson's Inc. ..................................... 1,440,930 68,264,059
Alcan Aluminum Ltd. .................................. 1,315,279 36,334,582
Allegheny Teledyne Inc. .............................. 1,008,284 26,089,349
Allergan Inc. ........................................ 327,218 10,982,254
Allied Signal Inc. ................................... 3,332,380 129,754,546
Allstate Corp. ....................................... 2,573,652 233,880,625
Alltel Corp. ......................................... 1,068,541 43,876,965
Aluminum Co. of America .............................. 1,080,451 76,036,739
Alza Corp. ........................................... 489,901 15,584,976
Amerada Hess Corp. ................................... 680,468 37,340,681
American Electric Power Co., Inc. .................... 1,086,632 56,097,377
American Express Co. ................................. 2,692,609 240,315,353
American General Corp. ............................... 1,428,277 77,216,225
American Greetings Corp. Class A ..................... 423,172 16,556,605
American Home Products Corp. ......................... 3,759,720 287,618,580
American International Group Inc. .................... 4,043,086 439,685,602
American Stores Co. .................................. 1,717,561 35,317,348
Ameritech Corp. ...................................... 3,158,595 254,266,897
Amgen Inc. ........................................... 1,523,612 82,465,499
Amoco Corp. .......................................... 2,814,226 239,560,988
AMP Inc. ............................................. 1,252,785 52,616,970
AMR Corp. ............................................ 551,323 70,845,005
Anadarko Petroleum Corp. ............................. 344,085 20,881,658
Andrew Corp. ......................................... 467,699 11,224,776
Anheuser Busch Cos., Inc. ............................ 2,832,752 124,641,088
Aon Corp. ............................................ 911,750 53,451,344
Apache Corp. ......................................... 549,731 19,274,943
Apple Computer ....................................... 684,404 8,982,803
Applied Materials Inc. ............................... 2,108,238 63,510,670
Archer Daniels Midland Co. ........................... 3,182,411 69,018,539
Armco Inc. ........................................... 450,435 2,224,023
Armstrong World Industries Inc. ...................... 246,745 18,444,189
Asarco Inc. .......................................... 207,717 4,660,650
Ashland Inc. ......................................... 412,853 22,165,045
AT&T Corp. ........................................... 9,388,888 575,069,390
Atlantic Richfield Co. ............................... 1,848,419 148,104,572
Autodesk Inc. ........................................ 253,361 9,374,357
Automatic Data Processing Inc. ....................... 1,671,314 102,576,897
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-110
<PAGE>
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
Avery Dennison Corp. ...................... 598,094 $ 26,764,707
Avon Products Inc. ........................ 789,362 48,447,093
B.F. Goodrich Co. ......................... 277,888 11,514,984
Baker Hughes Inc. ......................... 981,214 42,805,461
Ball Corp. ................................ 154,102 5,441,727
Baltimore Gas & Electric Co. .............. 831,710 28,330,122
BancOne Corp. ............................. 3,344,603 181,653,750
Bank of New York Co., Inc. ................ 2,175,065 125,745,945
BankAmerica Corp. ......................... 4,105,843 299,726,539
BankBoston Corp. .......................... 880,045 82,669,227
Bankers Trust New York Corp. .............. 555,174 62,422,377
Barnett Banks Inc. ........................ 1,135,073 81,583,372
Barrick Gold Corp. ........................ 2,062,782 38,419,315
Battle Mountain Gold Co. .................. 1,255,514 7,376,145
Bausch & Lomb Inc. ........................ 331,082 13,119,124
Baxter International Inc. ................. 1,615,233 81,468,314
Bay Networks Inc. ......................... 1,140,091 29,143,576
BB&T Corp. ................................ 790,600 50,647,812
Becton Dickinson & Co. .................... 707,100 35,355,000
Bell Atlantic Corp. ....................... 4,494,038 408,957,421
Bellsouth Corp. ........................... 5,690,087 320,423,024
Bemis Co., Inc. ........................... 267,320 11,778,788
Beneficial Corp. .......................... 329,910 27,423,769
Bethlehem Steel Corp. ..................... 656,283 5,660,441
Biomet Inc. ............................... 584,680 14,982,425
Black & Decker Corp. ...................... 713,210 27,859,766
Boeing Co. ................................ 5,740,544 280,927,872
Boise Cascade Corp. ....................... 254,260 7,691,365
Boston Scientific Corp. ................... 1,132,162 51,937,932
Briggs & Stratton Corp. ................... 123,692 6,006,793
Bristol-Myers Squibb Co. .................. 5,754,051 544,477,076
Brown Forman Corp. Class B ................ 372,993 20,607,863
Browning Ferris Industries Inc. ........... 1,156,277 42,782,249
Brunswick Corp. ........................... 563,901 17,093,249
Burlington Northern Santa Fe Inc. ......... 971,723 90,309,506
Burlington Resources Inc. ................. 1,072,170 48,046,618
C.R. Bard Inc. ............................ 298,319 9,341,114
Cabletron Systems Inc. .................... 914,060 13,710,900
Caliber System Inc. ....................... 204,162 9,940,137
Campbell Soup Co. ......................... 2,627,358 152,715,184
Cardinal Health Inc. ...................... 620,616 46,623,777
Carolina Power & Light Co. ................ 837,451 35,539,327
Case Corp. ................................ 437,231 26,425,149
Caterpillar Inc. .......................... 2,168,932 105,328,760
CBS Corp. ................................. 4,094,229 120,523,866
Cendant Corporation ....................... 4,598,111 158,060,060
Centex Corp. .............................. 153,988 9,691,620
Central & South West Corp. ................ 1,196,083 32,368,996
Champion International Corp. .............. 555,824 25,185,775
Ceridian Corp. ............................ 442,165 20,256,684
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-111
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
Charles Schwab Corp. ............................. 1,543,509 $ 64,730,909
Charming Shoppes Inc. ............................ 517,927 2,427,783
Chase Manhattan Corp. ............................ 2,501,034 273,863,223
Chevron Corp. .................................... 3,737,555 287,791,735
Chrysler Corp. ................................... 4,073,549 143,338,005
Chubb Corp. ...................................... 976,921 73,879,651
CIGNA Corp. ...................................... 422,039 73,039,124
Cincinnati Financial Corp. ....................... 321,200 45,208,900
Cincinnati Milacron Inc. ......................... 201,293 5,221,037
Cinergy Corp. .................................... 899,559 34,464,354
Cipsco Inc. ...................................... 43,300 1,916,458
Circuit City Stores Inc. ......................... 566,016 20,128,944
Cisco Systems Inc. ............................... 5,785,151 322,522,168
Citicorp ......................................... 2,679,854 338,834,040
Clear Channel Communications ..................... 567,500 45,080,781
Clorox Co. ....................................... 599,217 47,375,594
Coastal Corp. .................................... 586,806 36,345,297
Coca Cola Co. .................................... 14,300,193 952,750,359
Cognizant Corp. .................................. 911,480 40,617,827
Colgate Palmolive Co. ............................ 1,686,683 123,971,200
Columbia Gas System Inc. ......................... 332,776 26,143,715
Columbia/HCA Healthcare Corp. .................... 3,822,493 113,241,355
Comcast Corp. Class A ............................ 210,400 6,706,500
Comcast Corp. Class A Special .................... 2,016,026 63,630,821
Comerica Inc. .................................... 602,327 54,360,012
Compaq Computer Corp. ............................ 4,428,821 249,951,585
Computer Associates International Inc. ........... 3,122,361 165,094,838
Computer Sciences Corp. .......................... 449,335 37,519,472
ConAgra Inc. ..................................... 2,715,886 89,115,009
Conseco Inc. ..................................... 1,065,127 48,396,708
Consolidated Edison Co. of New York Inc. ......... 1,320,551 54,142,591
Consolidated Natural Gas Co. ..................... 549,093 33,220,127
Cooper Industries Inc. ........................... 748,197 36,661,653
Cooper Tire & Rubber Co. ......................... 416,488 10,151,895
Corestates Financial Corp. ....................... 1,156,609 92,601,008
Corning Inc. ..................................... 1,348,427 50,060,352
Costco Cos., Inc. ................................ 1,231,191 54,941,898
Countrywide Credit Industries Inc. ............... 583,647 25,023,865
CPC International Inc. ........................... 842,908 90,823,337
Crane Co. ........................................ 234,957 10,191,260
Crown Cork & Seal Co., Inc. ...................... 736,754 36,929,794
CSX Corp. ........................................ 1,212,675 65,484,450
Cummins Engine Co., Inc. ......................... 221,306 13,070,886
CVS Corp. ........................................ 992,637 63,590,808
Cyprus Amax Minerals Co. ......................... 543,395 8,354,698
Dana Corp. ....................................... 617,733 29,342,318
Darden Restaurants Inc. .......................... 766,852 9,585,650
Data General Corp. ............................... 283,963 4,951,605
Dayton Hudson Corp. .............................. 1,260,692 85,096,710
Deere & Co. ...................................... 1,408,799 82,150,592
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-112
<PAGE>
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ ---------------
<S> <C> <C>
Dell Computer Corp. ........................... 1,909,343 $160,384,812
Delta Air Lines Inc. .......................... 435,155 51,783,445
DeLuxe Corp. .................................. 484,603 16,718,804
Digital Equipment Corp. ....................... 970,202 35,897,474
Dillards Inc. Class A ......................... 655,956 23,122,449
Dominion Resources Inc. ....................... 1,057,199 44,997,032
Dover Corp. ................................... 1,310,410 47,338,561
Dow Chemical Co. .............................. 1,327,248 134,715,672
Dow Jones & Co., Inc. ......................... 547,751 29,407,382
Dresser Industries Inc. ....................... 1,009,382 42,330,958
DSC Communications Corp. ...................... 669,853 16,076,472
DTE Energy Co. ................................ 809,171 28,068,119
Duke Power Co. ................................ 2,080,084 115,184,651
Dun & Bradstreet Corp. ........................ 973,893 30,129,815
E.I. du Pont de Nemours & Co. ................. 6,502,057 390,529,799
Eastern Enterprises ........................... 117,750 5,298,750
Eastman Chemical Co. .......................... 442,728 26,369,987
Eastman Kodak Co. ............................. 1,890,764 114,982,086
Eaton Corp. ................................... 449,347 40,104,220
Echlin Inc. ................................... 324,508 11,743,133
Echo Bay Mines Ltd. ........................... 591,105 1,440,818
Ecolab Inc. ................................... 359,443 19,926,621
Edison International .......................... 2,455,760 66,765,975
EG&G Inc. ..................................... 232,190 4,832,454
Eli Lilly & Co. ............................... 6,409,570 446,266,311
EMC Corp. ..................................... 2,857,256 78,395,961
Emerson Electric Co. .......................... 2,546,070 143,693,826
Engelhard Corp. ............................... 768,704 13,356,232
Enron Corp. ................................... 1,796,523 74,667,987
Entergy Corp. ................................. 1,367,103 40,927,646
Equifax Inc. .................................. 852,062 30,194,947
Exxon Corp. ................................... 14,268,206 873,035,855
Federal Express Corp. ......................... 671,989 41,033,328
Federal Home Loan Mortgage Corp. .............. 4,010,375 168,185,102
Federal National Mortgage Association ......... 6,084,149 347,176,752
Federated Department Stores Inc. .............. 1,357,273 58,447,569
Fifth Third Bancorp ........................... 883,245 72,205,279
First Chicago Corp. ........................... 1,718,185 143,468,447
First Data Corp. .............................. 2,533,288 74,098,674
First Union Corp. ............................. 3,728,979 191,110,174
Firstenergy Corp. ............................. 1,311,011 38,019,319
Fleet Financial Group Inc. .................... 1,454,619 109,005,511
Fleetwood Enterprises Inc. .................... 188,268 7,989,623
Fluor Corp. ................................... 502,190 18,769,351
FMC Corp. ..................................... 232,134 15,625,520
Ford Motor Co. ................................ 6,997,321 340,682,066
Fort James Corp. .............................. 1,253,551 47,948,326
Fortune Brands Inc. ........................... 980,244 36,330,293
Foster Wheeler Corp. .......................... 204,767 5,541,507
FPL Group Inc. ................................ 1,030,517 60,993,725
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-113
<PAGE>
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ ----------------
<S> <C> <C>
Freeport-McMoran Copper & Gold Inc. Class B ......... 1,096,046 $ 17,262,725
Frontier Corp. ...................................... 949,700 22,852,156
Fruit of the Loom Inc. Class A ...................... 604,845 15,499,153
Gannett Co., Inc. ................................... 1,616,842 99,941,046
Gap Inc. ............................................ 2,412,568 85,495,361
General Dynamics Corp. .............................. 344,170 29,749,194
General Electric Co. ................................ 18,919,139 1,388,191,824
General Mills Inc. .................................. 913,056 65,397,636
General Motors Corp. ................................ 4,096,023 248,321,394
General Reinsurance Corp. ........................... 459,886 97,495,832
General Signal Corp. ................................ 255,768 10,790,213
Genuine Parts Co. ................................... 1,037,421 35,207,475
Georgia Pacific Corp. ............................... 519,197 31,541,218
Georgia Pacific Corporation ......................... 116,536 2,643,911
Giant Foods Inc. Class A ............................ 309,271 10,418,567
Gillette Co. ........................................ 3,221,090 323,518,227
Golden West Financial Corp. ......................... 320,942 31,392,139
Goodyear Tire & Rubber Co. .......................... 875,177 55,683,137
GPU Inc. ............................................ 797,458 33,592,918
Great Atlantic & Pacific Tea Co., Inc. .............. 217,556 6,458,694
Great Lakes Chemical Corp. .......................... 351,604 15,778,230
Green Tree Financial Corp. .......................... 763,320 19,989,443
GTE Corp. ........................................... 5,577,416 291,419,986
Guidant Corp. ....................................... 833,720 51,899,070
H&R Block Inc. ...................................... 599,205 26,851,874
H.F. Ahmanson & Co. ................................. 569,365 38,111,870
H.J. Heinz Co. ...................................... 2,112,161 107,324,181
Halliburton Co. ..................................... 1,435,699 74,566,617
Harcourt General Inc. ............................... 403,247 22,077,773
Harnischfeger Industries Inc. ....................... 314,394 11,102,038
Harrahs Entertainment Inc. .......................... 535,226 10,102,391
Harris Corp. ........................................ 484,749 22,237,860
Hartford Financial Services Group ................... 699,888 65,483,271
Hasbro Inc. ......................................... 731,891 23,054,567
HBO & Co. ........................................... 1,171,200 56,217,600
Healthsouth Rehabilitation .......................... 2,248,543 62,397,068
Helmerich & Payne Inc. .............................. 131,561 8,929,703
Hercules Inc. ....................................... 731,002 36,595,788
Hershey Foods Corp. ................................. 801,684 49,654,303
Hewlett Packard Co. ................................. 5,943,554 371,472,125
Hilton Hotels Corp. ................................. 1,471,062 43,764,094
Home Depot Inc. ..................................... 4,196,065 247,043,327
Homestake Mining Co. ................................ 747,670 6,635,571
Honeywell Inc. ...................................... 795,020 54,458,870
Household International Inc. ........................ 680,705 86,832,432
Houston Industries Inc. ............................. 1,605,922 42,858,043
Humana Inc. ......................................... 1,196,518 24,827,749
Huntington Bancshares Inc. .......................... 1,049,900 37,796,400
IBM Corp. ........................................... 5,679,195 593,830,827
Ikon Office Solutions Inc. .......................... 746,435 20,993,484
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-114
<PAGE>
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<S> <C> <C>
Illinois Tool Works Inc. ................... 1,421,358 $ 85,459,150
INCO Ltd. .................................. 897,520 15,257,840
Ingersoll Rand Co. ......................... 946,592 38,336,976
Inland Steel Industries Inc. ............... 248,283 4,251,846
Intel Corp. ................................ 9,418,006 661,614,921
International Flavors & Fragrances ......... 604,737 31,143,956
International Paper Co. .................... 1,692,010 72,967,931
Interpublic Group of Cos., Inc. ............ 701,280 34,932,510
ITT Corp. .................................. 670,243 55,546,389
ITT Industries Inc. ........................ 705,823 22,145,197
J.C. Penney Co., Inc. ...................... 1,501,380 90,551,981
J.P. Morgan & Co., Inc. .................... 1,087,305 122,729,552
Jefferson-Pilot Corp. ...................... 406,011 31,618,107
John Harland Co. ........................... 156,757 3,291,897
Johnson & Johnson .......................... 7,650,983 504,008,505
Johnson Controls Inc. ...................... 497,489 23,755,100
Jostens Inc. ............................... 198,292 4,573,109
K Mart Corp. ............................... 2,931,858 33,899,608
Kaufman & Broad Home Corp. ................. 203,159 4,558,380
Kellogg Co. ................................ 2,356,600 116,946,275
Kerr McGee Corp. ........................... 266,112 16,848,216
Keycorp .................................... 1,236,180 87,536,996
Kimberly-Clark Corp. ....................... 3,246,060 160,071,334
King World Productions Inc. ................ 210,795 12,173,411
KLA Instruments Corp. ...................... 488,400 18,864,450
Knight-Ridder Inc. ......................... 500,254 26,013,208
Kroger Co. ................................. 1,471,966 54,370,744
Laidlaw Inc. ............................... 1,778,414 24,230,891
Limited Inc. ............................... 1,902,837 48,522,343
Lincoln National Corp. ..................... 567,783 44,358,047
Liz Claiborne Inc. ......................... 502,636 21,016,468
Lockheed Martin Corp. ...................... 1,105,413 108,883,180
Loews Corp. ................................ 670,215 71,126,567
Longs Drug Stores Corp. .................... 201,191 6,463,261
Louisiana-Pacific Corp. .................... 549,547 10,441,393
Lowes Cos., Inc. ........................... 1,004,383 47,896,514
LSI Logic Corp. ............................ 795,585 15,712,804
Lucent Technologies Inc. ................... 3,681,112 294,028,821
Mallinckrodt Inc. .......................... 385,013 14,630,494
Manor Care Inc. ............................ 364,264 12,749,240
Marriott International Inc. ................ 741,014 51,315,219
Marsh & McLennan Cos., Inc. ................ 1,003,155 74,797,745
Masco Corp. ................................ 941,324 47,889,858
Mattel Inc. ................................ 1,722,294 64,155,451
May Department Stores Co. .................. 1,342,797 70,748,617
Maytag Corp. ............................... 549,852 20,516,353
MBIA Inc. .................................. 510,106 34,081,457
MBNA Corp. ................................. 2,966,798 81,030,670
McDermott International Inc. ............... 442,997 16,224,765
McDonald's Corp. ........................... 3,981,207 190,102,634
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-115
<PAGE>
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
McGraw-Hill Inc. .................................. 616,456 $ 45,617,744
MCI Communications Corp. .......................... 3,983,220 170,531,606
Mead Corp. ........................................ 614,248 17,198,944
Medtronic Inc. .................................... 2,715,210 142,039,423
Mellon Bank Corp. ................................. 1,434,057 86,939,706
Mercantile Stores Co., Inc. ....................... 174,960 10,650,690
Merck & Co., Inc. ................................. 6,972,742 740,853,837
Meredith Corp. .................................... 271,956 9,705,430
Merrill Lynch & Co., Inc. ......................... 1,901,978 138,725,520
MGIC Investment Corp. ............................. 685,668 45,596,922
Micron Technology Inc. ............................ 1,226,553 31,890,378
Microsoft Corp. ................................... 6,921,876 894,652,473
Millipore Corp. ................................... 211,055 7,162,679
Minnesota Mining & Manufacturing Co. .............. 2,397,512 196,745,828
Mirage Resorts Inc. ............................... 1,153,900 26,251,225
Mobil Corp. ....................................... 4,614,534 333,111,673
Monsanto Co. ...................................... 3,418,614 143,581,788
Moore Corp., Ltd. ................................. 465,776 7,044,862
Morgan Stanley Dean Witter Discover & Co. ......... 3,355,552 198,397,012
Morton International Inc. ......................... 817,020 28,085,063
Motorola Inc. ..................................... 3,405,541 194,328,683
NACCO Industries Inc. Class A ..................... 42,006 4,502,518
Nalco Chemical Co. ................................ 375,962 14,873,997
National City Corp. ............................... 1,207,018 79,361,433
National Semiconductor Corp. ...................... 846,731 21,962,085
National Service Industries Inc. .................. 248,306 12,306,666
NationsBank Corp. ................................. 4,201,431 255,499,523
Navistar International Corp. ...................... 376,537 9,342,824
New York Times Co. Class A ........................ 545,631 36,079,850
Newell Co. ........................................ 943,943 40,117,577
Newmont Mining Corp. .............................. 871,262 25,593,321
Nextlevel Systems Inc. ............................ 841,220 15,036,808
Niagara Mohawk Power Corp. ........................ 1,284,757 13,489,949
Nicor Inc. ........................................ 271,016 11,433,488
Nike Inc. Class B ................................. 1,680,614 65,964,099
Nordstrom Inc. .................................... 429,654 25,940,360
Norfolk Southern Corp. ............................ 2,126,413 65,520,101
Northern States Power Co. ......................... 399,690 23,281,943
Northern Telecom Ltd. ............................. 1,498,541 133,370,149
Northrop Grumman Corp. ............................ 366,383 42,134,045
Norwest Corp. ..................................... 4,495,506 173,638,919
Novell Inc. ....................................... 1,872,386 14,042,895
Nucor Corp. ....................................... 505,455 24,419,795
Occidental Petroleum Corp. ........................ 1,929,680 56,563,745
Omnicom Group Inc. ................................ 962,300 40,777,462
Oneok Inc. ........................................ 159,296 6,431,576
Oracle Corp. ...................................... 5,617,332 125,336,720
Oryx Energy Co. ................................... 629,689 16,057,070
Owens Corning Fiberglas Corp. ..................... 303,924 10,371,407
Owens Illinois Inc. ............................... 780,100 29,595,044
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-116
<PAGE>
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STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
PACCAR Inc. .................................. 437,549 $ 22,971,323
Pacific Enterprises .......................... 455,239 17,128,367
PacifiCorp ................................... 1,710,616 46,721,199
Pall Corp. ................................... 727,505 15,050,260
Parametric Technology Corp. .................. 731,304 34,645,527
Parker Hannifin Corp. ........................ 622,671 28,565,032
PECO Energy Co. .............................. 1,291,222 31,312,134
Pennzoil Co. ................................. 263,539 17,607,699
Peoples Energy Corp. ......................... 169,509 6,674,417
Pep Boys -- Manny, Moe & Jack ................ 293,866 7,016,051
PepsiCo Inc. ................................. 8,776,013 319,775,974
Perkin-Elmer Corp. ........................... 248,152 17,634,302
Pfizer Inc. .................................. 7,443,669 555,018,570
PG&E Corp. ................................... 2,545,899 77,490,801
Pharmacia & Upjohn Inc. ...................... 2,908,834 106,536,045
Phelps Dodge Corp. ........................... 333,773 20,777,369
Philip Morris Cos., Inc. ..................... 14,095,433 638,699,308
Phillips Petroleum Co. ....................... 1,503,153 73,090,815
Pioneer HI-Bred International Inc. ........... 344,600 36,958,350
Pitney Bowes Inc. ............................ 841,184 75,653,986
Placer Dome Inc. ............................. 1,208,906 15,337,995
PNC Bank Corp. ............................... 1,781,963 101,683,264
Polaroid Corp. ............................... 227,846 11,093,252
Potlatch Corp. ............................... 147,070 6,324,010
PP&L Resources Inc. .......................... 887,453 21,243,406
PPG Industries Inc. .......................... 1,078,689 61,620,109
Praxair Inc. ................................. 893,542 40,209,390
Procter & Gamble Co. ......................... 7,793,934 622,053,357
Progressive Corp. ............................ 398,700 47,794,162
Providian Financial Corp. .................... 539,526 24,379,831
Public Service Enterprise Group Inc. ......... 1,302,927 41,286,499
Pulte Corp. .................................. 120,696 5,046,602
Quaker Oats Co. .............................. 775,825 40,924,769
R.R. Donnelley & Sons Co. .................... 826,887 30,801,541
Ralston Purina Co. ........................... 606,585 56,374,493
Raychem Corp. ................................ 506,322 21,803,491
Raytheon Company Class A ..................... 61,800 3,047,539
Raytheon Company Class B ..................... 1,859,335 93,896,417
Reebok International Ltd. .................... 283,056 8,155,551
Republic New York Corp. ...................... 303,971 34,709,689
Reynolds Metals Co. .......................... 420,161 25,209,660
Rite Aid Corp. ............................... 735,751 43,179,387
Rockwell International Corp. ................. 1,156,390 60,421,377
Rohm & Haas Co. .............................. 360,901 34,556,271
Rowan Cos., Inc. ............................. 493,034 15,037,537
Royal Dutch Petroleum Co. .................... 12,361,584 669,843,333
Rubbermaid Inc. .............................. 895,252 22,381,300
Russell Corp. ................................ 189,104 5,023,075
Ryder Systems Inc. ........................... 431,161 14,120,523
SAFECO Corp. ................................. 796,724 38,840,295
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-117
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
Safety-Kleen Corp. .................................. 335,251 $ 9,198,449
Sara Lee Corp. ...................................... 2,763,953 155,645,103
SBC Communications Inc. ............................. 5,242,014 383,977,525
Schering-Plough Corp. ............................... 4,198,031 260,802,676
Schlumberger Ltd. ................................... 2,870,507 231,075,813
Scientific Atlanta Inc. ............................. 391,075 6,550,506
Seagate Technology .................................. 1,430,690 27,540,783
Seagram Co., Ltd. ................................... 2,037,373 65,832,615
Sears Roebuck & Co. ................................. 2,238,928 101,311,492
Service Corp. International ......................... 1,478,203 54,601,123
Shared Medical Systems Corp. ........................ 142,076 9,377,016
Sherwin-Williams Co. ................................ 982,581 27,266,623
Sigma Aldrich Corp. ................................. 541,818 21,537,266
Silicon Graphics Inc. ............................... 992,753 12,347,365
Snap On Inc. ........................................ 375,980 16,402,128
Sonat Inc. .......................................... 482,454 22,072,271
Southern Co. ........................................ 3,781,114 97,836,325
Southwest Airlines Co. .............................. 1,270,360 31,282,615
Springs Industries Inc. ............................. 108,475 5,640,700
Sprint Corp. ........................................ 2,479,647 145,369,305
St. Jude Medical Inc. ............................... 519,472 15,843,896
St. Paul Cos. Inc. .................................. 468,555 38,450,795
Stanley Works ....................................... 482,852 22,784,579
State Street Corp. (a) .............................. 917,586 53,392,035
Stone Container Corp. ............................... 938,612 9,796,763
Sun Co., Inc. ....................................... 408,667 17,189,556
Sun Microsystems Inc. ............................... 2,106,707 84,004,942
Sunamerica Inc. ..................................... 1,105,112 47,243,538
Suntrust Banks Inc. ................................. 1,208,792 86,277,529
Supervalu Inc. ...................................... 328,967 13,775,493
Synovus Financial Corp. ............................. 1,006,400 32,959,600
Sysco Corp. ......................................... 996,643 45,409,547
Tandy Corp. ......................................... 639,060 24,643,751
Tektronix Inc. ...................................... 271,860 10,789,444
Tele-Communications Inc. TCI Group Series A ......... 2,935,912 82,022,041
Tellabs Inc. ........................................ 1,061,050 56,103,019
Temple Inland Inc. .................................. 344,088 18,000,104
Tenet Healthcare Corp. .............................. 1,917,734 63,524,939
Tenneco Inc. ........................................ 992,100 39,187,950
Texaco Inc. ......................................... 3,182,794 173,064,424
Texas Instruments Inc. .............................. 2,245,214 101,034,630
Texas Utilities Co. ................................. 1,544,836 64,207,246
Textron Inc. ........................................ 948,068 59,254,250
Thermo Electron Corp. ............................... 867,873 38,620,348
Thomas & Betts Corp. ................................ 297,315 14,048,134
Time Warner Inc. .................................... 3,282,736 203,529,632
Times Mirror Co. Series A ........................... 522,178 32,113,947
Timken Co. .......................................... 350,702 12,055,381
TJX Cos., Inc. ...................................... 940,623 32,333,916
Torchmark Corp. ..................................... 921,479 38,759,710
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-118
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ --------------
<S> <C> <C>
Toys R Us Inc. ............................. 1,772,008 $ 55,707,501
TransAmerica Corp. ......................... 369,874 39,391,581
Travelers Inc. ............................. 6,694,697 360,676,801
Tribune Co. ................................ 688,502 42,859,249
Tricon Global Restaurants Inc. ............. 878,241 25,523,879
TRW Inc. ................................... 674,479 36,000,317
Tupperware Corp. ........................... 310,179 8,646,240
Tyco International Ltd. .................... 3,079,728 138,780,243
Unicom Inc. ................................ 1,234,065 37,947,499
Unilever NV ................................ 3,676,264 229,536,733
Union Camp Corp. ........................... 398,563 21,397,851
Union Carbide Corp. ........................ 840,052 36,069,733
Union Electric Co. ......................... 714,519 30,902,947
Union Pacific Corp. ........................ 1,404,701 87,706,019
Union Pacific Resources Group Inc. ......... 1,438,846 34,892,015
Unisys Corp. ............................... 1,009,498 14,006,785
United Healthcare Corp. .................... 1,126,760 55,985,887
United Technologies Corp. .................. 1,396,354 101,672,026
Unocal Corp. ............................... 1,635,891 63,493,019
UNUM Corp. ................................. 822,740 44,736,487
US Bancorp ................................. 13,384,583 154,986,816
US Surgical Corp. .......................... 341,042 9,996,794
US West Inc. -- Communications ............. 2,934,602 132,423,915
US West Inc. -- Media ...................... 3,489,657 100,763,846
USAir Group Inc. ........................... 539,971 33,748,188
USF&G Corp. ................................ 548,892 12,109,930
UST Inc. ................................... 1,078,868 39,850,687
USX Marathon Group ......................... 1,683,819 56,828,891
USX United States Steel .................... 463,304 14,478,250
VF Corp. ................................... 716,500 32,914,219
Viacom Inc. Class B ........................ 2,038,716 84,479,294
W.W. Grainger Inc. ......................... 302,234 29,373,367
Wachovia Corp. ............................. 1,135,997 92,157,757
Wal Mart Stores Inc. ....................... 12,982,163 511,984,053
Walgreen Co. ............................... 2,824,564 88,620,695
Walt Disney Co. ............................ 3,892,267 385,577,700
Warner Lambert Co. ......................... 1,568,664 194,514,336
Washington Mutual Inc. ..................... 1,447,554 92,372,040
Waste Management Inc. ...................... 2,643,978 72,709,395
Wells Fargo & Co. .......................... 507,499 172,264,192
Wendy's International Inc. ................. 712,619 17,147,395
Western Atlas Inc. ......................... 296,798 21,963,052
Westvaco Corp. ............................. 549,476 17,274,152
Weyerhaeuser Co. ........................... 1,120,561 54,977,524
Whirlpool Corp. ............................ 419,787 23,088,285
Whitman Corp. .............................. 612,945 15,974,879
Willamette Industries Inc. ................. 624,353 20,096,362
William Wrigley Jr. Co. .................... 663,497 52,789,480
Williams Cos., Inc. ........................ 1,825,474 51,797,825
Winn Dixie Stores Inc. ..................... 852,756 37,254,778
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-119
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
S&P 500 FLAGSHIP FUND
S&P 500 INDEX FUND WITH FUTURES
Combined Schedule of Investments (Concluded)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
----------------- ------------------
<S> <C> <C>
Woolworth Corp. .................................... 734,815 $ 14,971,856
Worldcom Inc. ...................................... 5,186,926 156,904,511
Worthington Industries ............................. 399,525 6,592,163
WR Grace & Co. ..................................... 473,365 38,076,297
Xerox Corp. ........................................ 1,929,267 142,404,020
---------------
Total Common Stock
(Cost $30,284,625,454)............................. $43,719,450,153
---------------
STATE STREET BANK AND TRUST COMPANY INVESTMENT FUNDS
FOR TAX EXEMPT RETIREMENT FUNDS--0.9% UNITS
---------
SHORT TERM INVESTMENT FUND (B) ..................... 390,054,267 390,054,267
- ----------------------------------------------------- ----------- ---------------
SHORT TERM US GOVERNMENT OBLIGATIONS--0.1% PRINCIPAL
-----------
US TREASURY BILLS 5.14% 05-MARCH-98 (C) ............ $ 42,500,000 $ 42,117,712
- ----------------------------------------------------- ------------ ---------------
TOTAL INVESTMENTS--100%
(Cost $30,716,797,433)............................. $44,151,622,132
===================================================== ===============
</TABLE>
(a) Parent Company of State Street Bank and Trust Company.
(b) Collective investment fund advised by State Street Global Advisors.
(c) At December 31, 1997, US Treasury Bills were pledged to cover margin
requirements for open futures contracts.
- --------------------------------------------------------------------------------
The following long futures contracts were open at December 31, 1997:
<TABLE>
<CAPTION>
FUTURES NUMBER OF MATURITY UNREALIZED
CONTRACTS CONTRACTS DATE GAIN/LOSS
- -------------------------- -------------------------------- ------------- -------------
<S> <C> <C> <C>
S&P 500 Index ......... 2,059 March, 1998 $2,258,262
==========
(Notional amount $501,733,493)
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-120
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Trustee of the
State Street Bank and Trust Company
Russell 2000 Fund
and State Street Bank and Trust Company
Russell 2000 Non-Lending Fund
In our opinion, the accompanying combined statement of assets and liabilities,
including the combined schedule of investments, and the related combined
statements of operations and of changes in net assets and the selected per unit
data present fairly, in all material respects, the financial position of State
Street Bank and Trust Company Russell 2000 Fund and State Street Bank and Trust
Company Russell 2000 Non-Lending Fund at December 31, 1997, the results of
their operations for the year then ended, and the changes in their net assets
and the selected per unit data for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
selected per unit data (hereafter referred to as "financial statements") are
the responsibility of the Trustee; 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 the Trustee, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
March 14, 1998
SAI-121
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $1,181,361,320) ........... $ 1,291,401,945
Investment in State Street Bank and Trust Company
Quality A Short-Term Investment Fund, at value ..................... 259,712,427
Receivable for investments sold ..................................... 329,300
Dividends receivable ................................................ 1,294,662
Interest and other receivables ...................................... 391,052
Variation margin receivable ......................................... 474,240
- --------------------------------------------------------------------- ---------------
Total assets ..................................................... 1,553,603,626
- --------------------------------------------------------------------- ---------------
LIABILITIES
Collateral on securities loaned ..................................... 259,712,427
Accrued expenses .................................................... 170,900
- --------------------------------------------------------------------- ---------------
Total liabilities ................................................ 259,883,327
- --------------------------------------------------------------------- ---------------
NET ASSETS .......................................................... $ 1,293,720,299
===================================================================== ===============
Russell 2000 Fund
(49,394,173 units outstanding, at $23.77 per unit net asset value) . $ 1,174,145,954
Russell 2000 Non-Lending Fund
(5,030,274 units outstanding, at $23.77 per unit net asset value) .. 119,574,345
- --------------------------------------------------------------------- ---------------
$ 1,293,720,299
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-122
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of taxes withheld of $1,259).............................................. $ 10,222,572
Interest ................................................................................ 2,914,492
Securities lending fee income (net of related expenses), allocated to Russell 2000 Fund 516,852
- ------------------------------------------------------------------------------------------- ------------
(Note 3)
- -------------------------------------------------------------------------------------------
Total investment income ............................................................... 13,653,916
- ------------------------------------------------------------------------------------------- ------------
EXPENSES
Audit ................................................................................... 597
Custody ................................................................................. 517,330
- ------------------------------------------------------------------------------------------- ------------
Total expenses ........................................................................ 517,927
- ------------------------------------------------------------------------------------------- ------------
Net investment income ................................................................ 13,135,989
- ------------------------------------------------------------------------------------------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on investments ................................................. 69,538,744
Net realized gain (loss) on futures contracts ........................................... 3,170,735
- ------------------------------------------------------------------------------------------- ------------
Net change in unrealized appreciation (depreciation) on investments ..................... 72,783,320
Net change in unrealized appreciation (depreciation) on futures contracts ............... 741,008
Net realized and unrealized gain (loss) on investments and futures contracts ............ 146,233,807
- ------------------------------------------------------------------------------------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .......................... $159,369,796
=========================================================================================== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-123
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996*
------------------ ----------------
<S> <C> <C>
FROM OPERATIONS**
Net investment income .............................................................. $ 13,135,989 $ 12,774,718
Net realized gain (loss) on investments ............................................ 69,538,744 174,309,587
Net realized gain (loss) on futures contracts ...................................... 3,170,735 2,101,712
Net change in unrealized appreciation (depreciation) on investments ................ 72,783,320 (71,757,270)
Net change in unrealized appreciation (depreciation) on futures contracts .......... 741,008 (112,775)
- ------------------------------------------------------------------------------------- -------------- -------------
Net increase (decrease) in net assets resulting from operations .................... 159,369,796 117,315,972
- ------------------------------------------------------------------------------------- -------------- -------------
Distributions of securities lending fee income to Russell 2000 Fund participants
(Note 3) .......................................................................... (516,852) (399,647)
- ------------------------------------------------------------------------------------- -------------- -------------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participant transactions ...... 148,997,093 332,105,190
- ------------------------------------------------------------------------------------- -------------- -------------
Net increase (decrease) in net assets .............................................. 307,850,037 449,021,515
NET ASSETS
Beginning of year .................................................................. 985,870,262 536,848,747
- ------------------------------------------------------------------------------------- -------------- -------------
End of year ........................................................................ $1,293,720,299 $ 985,870,262
===================================================================================== ============== =============
</TABLE>
- ----------
* The Russell 2000 Non-Lending Fund commenced operations on September 30,
1996.
** See Note 1 to the financial statements
The accompanying notes are an integral part of these financial statements.
SAI-124
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net investment income (a) ................................ $ 0.36 $ 0.32 $ 0.03 $ 0.21 $ 0.17
Distribution of securities lending fee income(b) ......... ( 0.02) ( 0.01) ( 0.01) ( 0.01) ( 0.00)
Net realized and unrealized gain (loss) .................. 4.19 2.45 3.61 ( 0.46) 1.83
- ---------------------------------------------------------- ---------- -------- -------- -------- --------
Net increase (decrease) .................................. 4.53 2.76 3.63 ( 0.26) 2.00
NET ASSET VALUE
Beginning of year ........................................ 19.24 16.48 12.85 13.11 11.11
- ---------------------------------------------------------- ---------- -------- -------- -------- --------
End of year .............................................. $ 23.77 $ 19.24 $ 16.48 $ 12.85 $ 13.11
- ---------------------------------------------------------- ---------- -------- -------- -------- --------
Total return(%) (c) .................................. 23.66 16.81 28.33 ( 1.98) 18.00
========================================================== ========== ======== ======== ======== ========
Ratio of expenses to average net assets (%)(d) ........... 0.06 0.06 0.10 0.07 0.09
Ratio of net investment income to average net assets
(%)(d) .................................................. 1.63 1.80 1.80 1.61 1.37
Portfolio turnover(%) .................................... 105 131 103 48 35
Average broker commission per share(e) ................... $ 0.02 $ 0.02 N/A N/A N/A
Net assets, end of year (000s) ........................... $1,174,146 $951,405 $536,849 $372,107 $451,119
========================================================== ========== ======== ======== ======== ========
</TABLE>
- ----------
(a) Net investment income has been calculated based on an average of
units outstanding.
(b) Zero amounts represent those which are less than $.005 per unit.
(c) Total return calculation is based on the value of a single unit of
participation outstanding throughout the year. It represents the
percentage change in the net asset value per unit between the
beginning and end of the year and assumes reinvestment of
distributions. The calculation includes only those expenses charged
directly to the Russell 2000 Fund. This result may be reduced by any
administrative or other fees which are incurred in the management or
maintenance of individual participant accounts.
(d) 1996 ratios reflect net investment income and expenses attributable
to the Russell 2000 Fund from its ownership in other collective
investment funds.
(e) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of these financial statements.
SAI-125
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 NON-LENDING FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Year)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
----------------------------
1997 1996(A)
------------- ------------
<S> <C> <C>
Net investment income (b) ............................................ $ 0.34 $ 0.09
Net realized and unrealized gain (loss) .............................. 4.19 0.84
- ----------------------------------------------------------------------- --------- --------
Net increase (decrease) .............................................. 4.53 0.93
NET ASSET VALUE
Beginning of period .................................................. 19.24 18.31
- ----------------------------------------------------------------------- --------- --------
End of period ........................................................ $ 23.77 $ 19.24
======================================================================= ========= ========
Total return (%) (c) ............................................. 23.54 5.08
Ratio of expenses to average net assets (%) (d) ...................... 0.06 0.06
Ratio of net investment income to average net assets (%) (d) ......... 1.56 1.80
Portfolio turnover (%) ............................................... 105 131
Average broker commission per share (e) .............................. $ 0.02 $ 0.02
Net assets, end of period (000s) ..................................... $ 119,574 $ 34,465
======================================================================= ========= ========
</TABLE>
- ----------
(a) The Russell 2000 Non-Lending Fund commenced operations on September
30, 1996.
(b) Net investment income has been calculated based on an average of
units outstanding.
(c) Total return calculation (not annualized for period ended December
31, 1996) is based on the value of a single unit of participation
outstanding throughout the period. It represents the percentage
change in the net asset value per unit between the beginning and end
of the period. The calculation includes only those expenses charged
directly to the Russell 2000 Non-Lending Fund. This result may be
reduced by any administrative or other fees which are incurred in
the management or maintenance of individual participant accounts.
(d) 1996 data annualized.
(e) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of these financial statements.
SAI-126
<PAGE>
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") Russell 2000 Fund
and the State Street Bank and Trust Company Russell 2000 Non-Lending Fund
(collectively, the "Funds") were formed by State Street Bank under a
Declaration of Trust. The Funds' investment objective is to replicate, as
closely as possible, the return of the Russell 2000 Index. State Street Bank is
Trustee and custodian of the Funds. State Street Global Advisors, a division of
State Street Bank, is the Funds' investment manager.
From February 1, 1995 through June 17, 1996, the Russell 2000 Fund
invested in two other State Street Bank collective investment funds, the
Russell 2000 Growth Fund and the Russell 2000 Value Fund. Effective June 18,
1996, the Russell 2000 Growth Fund and the Russell 2000 Value Fund ceased
operations. All assets and liabilities of these funds were transferred to the
Russell 2000 Fund. The results of operations of the Russell 2000 Growth Fund
and the Russell 2000 Value Fund for the period January 1, 1996 through June 17,
1996 have been consolidated in the 1996 results of operations of the Russell
2000 Fund. The Russell 2000 Fund recorded a $174,542,657 realized gain on
securities as a result of this transaction. Subsequent to this transaction, the
Funds have invested directly in the securities contained in the Russell 2000
Index.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Investments in securities listed on a national securities exchange and
over-the-counter securities are valued at the last reported sale price on the
valuation date or, if no sales are reported for that day, the last published
sale price, or at fair value as determined in good faith by the Trustee.
Short-term investments are stated at amortized cost, which approximates market
value. Investments in regulated investment companies or other State Street Bank
collective investment funds are valued at net asset value per share/unit on the
valuation date. Futures contracts are valued at the last settlement price at
the end of each day on the board of trade or exchange upon which they are
traded.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Funds in connection with the issuance and redemption of units of participation
are based on the valuations of those securities determined as described above.
The cost of securities delivered and the net gain or loss on securities sold
are determined using the average cost method. Dividend income is recorded on
the ex-dividend date. Interest income earned on securities is recorded on the
accrual basis. Interest income is increased by accretion of discount and
decreased by amortization of premium.
C. INCOME TAXES
It is the Funds' policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Funds are exempt from federal income taxes and
no federal income tax provision is required.
SAI-127
<PAGE>
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
The net asset values of the Funds are determined each business day
("valuation date"). Issuances and redemptions of Fund units are made based upon
the closing market value of the securities bought or sold as of the valuation
date, adjusted for the related market effect and transaction costs which are
allocated to the applicable participant. Transaction costs include brokerage
commissions, taxes and other direct costs related to security transactions.
Market effect is the difference between the execution price of the investment
on the trade date and the investment's closing market value on the valuation
date.
E. EXPENSES
Under the Declaration of Trust, the Funds may pay certain expenses for
services received during the year. The Trustee is paid a custody fee at the
annual rate of $50,000, plus .0125% of the Funds' average net asset value and a
charge for each security and futures transaction executed.
F. DISTRIBUTIONS TO PARTICIPANTS
All net investment income (excluding securities lending fee income, if
any) and net realized gains are retained by the Funds. Income generated by
securities lending is distributed monthly to participants of the Russell 2000
Fund.
G. FUTURES CONTRACTS
The Funds may use futures contracts to manage exposure to the equity
markets. Buying futures tends to increase a fund's exposure to the underlying
instrument. Selling futures tends to decrease a fund's exposure to the
underlying instrument, or hedge other investments. Futures contracts involve,
to varying degrees, credit and market risks.
The Funds enter into futures contracts only on exchanges or boards of
trade where the exchange or board of trade acts as the counterparty to the
transaction. Thus, credit risk on such transactions is limited to the failure
of the exchange or board of trade. Losses in value may arise from changes in
the value of the underlying instruments or if there is an illiquid secondary
market for the contracts. In addition, there is the risk that there may not be
an exact correlation between a futures contract and the underlying index. The
maximum potential loss on a long futures contract is the U.S. dollar value of
the notional amount at the time the contract is opened. The potential loss on a
short futures contract is unlimited.
Upon entering into a futures contract, the Funds are required to deposit
either in cash or securities an amount ("initial margin") equal to a certain
percentage of the notional value of the contract. Subsequent payments are made
or received by the Funds periodically, depending on the daily fluctuation in
the value of the underlying securities, and are recorded as unrealized gains or
losses by the Funds. A gain or loss is realized when the contract is closed or
expires.
SAI-128
<PAGE>
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
H. USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the Trustee to make certain
estimates and assumptions at the date of the financial statements. Actual
results could differ from those estimates.
3. SECURITIES LENDING PROGRAM
The participants in the Russell 2000 Fund (the "Lending Fund") have
authorized the Lending Fund to participate in the Securities Lending Program
maintained by State Street Bank. The investment objective, techniques and
results of operations of the Lending Fund are identical to those of the Russell
2000 Non-Lending Fund (the "Non-Lending Fund"), except that the Lending Fund
engages in securities lending activities. Accordingly, the financial statements
of the Lending Fund and the Non-Lending Fund have been prepared on a combined
basis, with separate disclosure of the participant transactions and per unit
data of the Lending Fund and the Non-Lending Fund. The Lending Fund and the
Non-Lending Fund each maintain a divided pro-rata interest in the combined
assets and liabilities (including each investment security position but
excluding assets and liabilities related to securities lending activities)
proportionate to the net asset value of the outstanding combined units of the
Fund. All interfund transactions have been eliminated in the combined financial
statements.
Under the Securities Lending Program, securities held by the Lending Fund
are loaned by State Street Bank, as agent, to certain brokers and other
financial institutions (the "Borrowers"). The Borrowers provide cash,
securities, or letters of credit as collateral against loans in an amount at
least equal to 100% of the market value of the loaned securities. The Borrowers
are required to maintain the collateral at not less than 100% of the market
value of the loaned securities. At December 31, 1997, the market value of
securities loaned by the Lending Fund was $250,416,132 against which was held
cash collateral of $259,712,427 and securities of $1,279,864. Cash collateral
provided by the Borrowers is invested in a State Street Bank and Trust Company
Quality A Short-Term Investment Fund. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder is
allocated between the Lending Fund and State Street Bank in its capacity as
lending agent. Negotiated lenders' fees are received for those loans
collateralized by securities or letters of credit, if any. Income earned from
lending activities is distributed to Lending Fund participants monthly.
State Street Bank, as lending agent, indemnifies the Lending Fund for
replacement of any loaned securities (or, in certain circumstances, return of
equivalent cash value) due to Borrower default on a security loan. Lending Fund
participants, however, bear the risk of loss with respect to the investment of
collateral.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments and
including in-kind contributions and redemptions, if any, during the year ended
December 31, 1997 were $971,715,196 and $850,379,706, respectively, resulting
in a net realized gain (loss) of $69,262,355. This gain (loss) is prior to the
recognition of the market effect and transaction costs associated with
contributions and redemptions.
SAI-129
<PAGE>
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. UNITS OF PARTICIPATION
Participant transactions for the Funds were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
RUSSELL 2000 FUND
Units issued ...................................... 40,460,685 $ 906,815,162 26,821,340 $ 474,201,831
Issued upon reinvestment of distributions ......... 0 0 0 0
Units redeemed .................................... (40,524,286) (831,286,512) (9,933,191) (174,945,263)
----------- -------------- ---------- --------------
Total ........................................... (63,601) $ 75,528,650 16,888,149 $ 299,256,568
=========== ============== ========== ==============
RUSSELL 2000 NON-LENDING FUND
Units issued ...................................... 3,820,070 $ 86,839,791 1,791,660 $ 32,848,622
Units redeemed .................................... (581,456) (13,371,348) 0 0
----------- -------------- ---------- --------------
Total ........................................... 3,238,614 $ 73,468,443 1,791,660 $ 32,848,622
----------- -------------- ---------- --------------
Net increase (decrease) ........................... 3,175,013 $ 148,997,093 18,679,809 $ 332,105,190
=========== ============== ========== ==============
</TABLE>
The Non-Lending Fund commenced operations on September 30, 1996. Initial
Non-Lending Fund units had an offering price equivalent to the net asset value
per unit of the Lending Fund on the commencement date.
RUSSELL 2000 FUND
Units in excess of 10% of Lending Fund units outstanding at December 31,
1997 held by three of the Lending Fund's 43 unitholders aggregated 38% of the
Lending Fund's total units outstanding.
During the year ended December 31, 1997, the net market effect and
transaction costs (absorbed by) credited to participants in issuance and
redemption of Lending Fund units were $(236,555).
RUSSELL 2000 NON-LENDING FUND
Units in excess of 10% of Non-Lending Fund units outstanding at December
31, 1997 held by four of the Non-Lending Fund's five unitholders aggregated 96%
of the Non-Lending Fund's total units outstanding.
During the year ended December 31, 1997, the net market effect and
transaction costs (absorbed by) credited to participants in issuance and
redemption of Non-Lending Fund units were $(39,834).
Participants in each of the Lending Fund or the Non-Lending Fund may
exchange their units for units of the other fund on any valuation date.
SAI-130
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
COMMON STOCK 93.7% (unless otherwise noted)
1st Source Corp. ................................... 11,538 $ 367,774
99 Cents Only Stores ............................... 12,500 368,750
A. Schulman Inc. ................................... 53,400 1,341,675
A.M. Castle & Co. .................................. 14,550 332,831
A.O. Smith Corp. ................................... 15,800 667,550
A.T. Cross Co., Class A ............................ 12,200 123,525
Aames Financial Corp. .............................. 31,399 406,225
AAR Corp. .......................................... 24,900 964,875
Aaron Rents Incorporated, Class B .................. 19,500 377,813
Abacus Direct Corp. ................................ 11,000 451,000
Abercrombie & Fitch Co., Class A ................... 9,300 290,625
ABM Industries Inc. ................................ 24,500 748,781
ABR Information Services Inc. ...................... 30,350 724,606
ABT Building Products Corp. ........................ 13,600 244,800
AC Nielsen Corp. ................................... 79,900 1,947,562
ACC Corp. .......................................... 24,100 1,217,050
Acceptance Insurance Cos., Inc. .................... 15,700 379,744
Access Health Marketing Inc. ....................... 23,350 685,906
Acclaim Entertainment Inc. ......................... 53,400 193,575
Ackerley Communications Inc. ....................... 12,300 208,331
Acme Metals Inc. ................................... 15,200 150,100
Act Manufacturing Inc. ............................. 13,600 192,100
Actel Corp. ........................................ 31,200 393,900
Action Performance Cos., Inc. ...................... 21,600 818,100
Activision Inc. .................................... 16,600 296,725
Acuson ............................................. 27,200 450,500
ACX Technologies ................................... 16,300 398,331
Acxiom Corp. ....................................... 52,600 1,012,550
Adac Laboratories .................................. 29,200 576,700
Ade Corp. .......................................... 12,500 218,750
Administaff Inc. ................................... 5,400 139,725
Adolph Coors Co., Class B .......................... 52,300 1,738,975
Adtran Inc. ........................................ 24,400 671,000
Advanced Energy Industries Inc. .................... 4,000 59,750
Advanced Lighting Technologies Inc. ................ 16,900 321,100
Advanced Tissue Sciences Inc. ...................... 43,900 543,262
Advent Software Inc. ............................... 2,900 83,013
Advo Inc. .......................................... 35,800 698,100
AEP Industries Inc. ................................ 4,600 142,025
Aerial Communications Incorporated ................. 5,300 37,763
AFC Cable Systems Inc. ............................. 8,500 252,875
Affiliated Computer Services Inc., Class A ......... 51,200 1,347,200
Affymetrix Inc. .................................... 33,400 1,039,575
Aftermarket Technology Corp. ....................... 26,200 474,875
AG Chemical Equipment Inc. ......................... 3,800 52,725
AGL Resources Inc. ................................. 79,800 1,630,912
Agouron Pharmaceuticals Inc. ....................... 42,100 1,236,687
Air Express International Corp. .................... 43,455 1,325,377
Airborne Freight Corp. ............................. 35,600 2,211,650
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-131
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Airnet Systems Inc. .................................. 11,000 $ 236,500
Airtran Holdings Inc. ................................ 47,600 190,400
Alamo Group Inc. ..................................... 10,500 227,719
Alaska Air Group Inc. ................................ 21,600 837,000
Alaska Steel Holding Corp. ........................... 65,800 1,163,837
Albank Financial Corp. ............................... 15,000 771,562
Albany International Corp., Class A .................. 24,300 558,900
Albemarle Corp. ...................................... 29,000 692,375
Alberto Culver Co., Class B .......................... 24,100 772,706
Alexander's Inc. ..................................... 3,700 336,006
Alexandria Real Estate Equitities,Inc. ............... 9,100 287,219
Alfa Corp. ........................................... 29,000 500,250
Algos Pharmaceutical Corp. ........................... 14,400 432,000
Aliant Communications Inc. ........................... 51,200 1,606,400
Alkermes Inc. ........................................ 27,200 540,600
Allen Telecom Inc. ................................... 30,900 569,719
Alliance Pharmaceutical Corp. ........................ 38,800 281,300
Alliance Semiconductor Corp. ......................... 31,200 142,350
Alliant Techsystems Inc. ............................. 13,100 730,325
Allied Capital Corporation New ....................... 34,560 768,960
Allied Group Inc. .................................... 33,512 959,281
Allied Products Corp. ................................ 13,500 324,000
Allied Waste Industries Inc. ......................... 143,600 3,347,675
Alltrista Corp. ...................................... 9,925 281,622
Alpharma Inc., Class A ............................... 18,200 395,850
Alpine Group Inc. .................................... 23,800 446,250
Alternative Living Services Inc. ..................... 13,000 384,313
Alternative Resources Corp. .......................... 18,300 422,044
Altron Inc. .......................................... 17,350 229,888
Amax Gold Inc. ....................................... 61,700 142,681
Amazon. Com Inc. ..................................... 7,000 421,750
Ambassador Apts Inc. ................................. 11,800 242,638
AMC Entertainment Inc. ............................... 5,400 120,150
Amcast Industrial Corp. .............................. 14,000 321,125
Amcol International Corp. ............................ 38,250 607,219
Amcore Financial Inc. ................................ 30,502 766,363
Amerco ............................................... 15,400 394,625
America West Holding Corp., Class B .................. 59,215 1,102,879
American Annuity Group Inc. .......................... 11,293 248,446
American Business Info Incorporated, Class A ......... 500 5,250
American Business Information Inc. ................... 30,900 316,725
American Business Products Inc. ...................... 15,512 335,447
American Financial Group Incorporated Ohio ........... 1,900 76,594
American Freightways Corp. ........................... 26,400 260,700
American General Hospitality Corp. ................... 32,700 874,725
American Health Properties Inc. ...................... 31,100 857,194
American Heritage Life Investment Corp. .............. 12,115 436,140
American HomePatient Inc. ............................ 20,000 470,000
American Homestar Corp. .............................. 15,112 249,348
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-132
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
American Management Systems Inc. ....................... 60,400 $ 1,177,800
American Media Inc., Class A ........................... 64,600 500,650
American Mobile Satellite Corp. ........................ 21,000 147,000
American Oncology Resources Inc. ....................... 37,100 593,600
American Pad & Paper Co. ............................... 39,800 383,075
American Radio Systems Corp., Class A .................. 30,599 1,631,309
American Residential Services Inc. ..................... 18,200 284,375
American Safety Razor Co. .............................. 15,500 310,000
American Satellite Network Industries (b) .............. 1,750 0
Americredit Corp. ...................................... 43,500 1,204,406
Amerin Corp. ........................................... 33,600 940,800
Amerisource Health Corp., Class A ...................... 30,400 1,770,800
Ameritrade Holding Corp., Class A ...................... 2,200 64,350
Ameron Inc. ............................................ 5,100 322,575
Amerus Life Holdings Inc. .............................. 24,620 907,862
Ames Department Stores Inc. ............................ 28,900 505,750
Ametek Aerospace Products Inc. ......................... 48,600 1,312,200
AMLI Residential Properties Trust ...................... 21,800 485,050
Ampex Corp., Class A ................................... 37,800 94,500
Amphenol Corp., Class A ................................ 25,600 1,425,600
Amresco Inc. ........................................... 51,100 1,545,775
Amylin Pharmaceuticals Inc. ............................ 32,400 176,175
Anadigics Inc. ......................................... 20,550 619,069
Analogic Corp. ......................................... 9,000 342,000
Analysts International Corp. ........................... 32,961 1,137,154
Anchor Bancorp Inc. .................................... 11,800 429,225
Anchor Gaming .......................................... 8,200 457,150
Andrx Corp. ............................................ 13,800 472,650
Anixter International Inc. ............................. 51,500 849,750
Ann Taylor Stores Corp. ................................ 32,300 432,013
Antec Corp. ............................................ 34,650 541,406
Apac Teleservices Inc. ................................. 20,900 282,150
Apartment Investment & Management Co., Class A ......... 49,600 1,822,800
Apex PC Solutions Inc. ................................. 5,700 126,113
Aphton Corp. ........................................... 6,100 61,763
Apogee Enterprises Inc. ................................ 36,300 431,063
Apple South Inc. ....................................... 38,900 510,563
Applebees International Inc. ........................... 46,700 843,519
Applied Analytical Industries Inc. ..................... 12,300 202,950
Applied Graphics Technologies .......................... 9,700 516,525
Applied Industrial Technologies Inc. ................... 24,312 650,346
Applied Magnetics Corp. ................................ 32,307 359,415
Applied Power Inc., Class A ............................ 18,600 1,283,400
Apria Healthcare Group Inc. ............................ 75,700 1,017,219
Aptargroup Inc. ........................................ 26,100 1,448,550
Aquarion Co. ........................................... 9,300 321,431
Aquila Gas Pipeline Corp. .............................. 6,400 82,400
Arbor Drugs Inc. ....................................... 62,577 1,157,674
Arbor Software Corp. ................................... 16,900 684,450
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-133
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Arcadia Financial Ltd. ...................... 49,800 $ 370,388
Arch Coal Inc. .............................. 31,000 848,625
Arctic Cat Inc. ............................. 28,400 275,125
Arden Reality Inc. .......................... 47,700 1,466,775
Area Bancshares Corp. ....................... 8,900 213,600
Argonaut Group Inc. ......................... 25,100 850,262
Armco Inc. .................................. 123,200 608,300
Arnold Industries Inc. ...................... 26,600 458,850
Arqule Inc. ................................. 13,200 302,775
Arris Pharmacuetical Corp. .................. 19,400 162,475
Arrow International Inc. .................... 17,600 651,200
Arterial Vascular Engineering Inc. .......... 43,200 2,808,000
Arvin Industries Inc. ....................... 32,000 1,066,000
ASA Holdings Inc. ........................... 29,000 824,687
Ascent Entertainment Group Inc. ............. 36,683 380,586
Aspect Development Inc. ..................... 12,100 629,200
Aspect Telecommunications Corp. ............. 69,600 1,452,900
Aspen Technology Inc. ....................... 31,000 1,061,750
Associated Banc Corp. ....................... 68,709 3,787,584
Associated Estates Realty Corp. ............. 20,300 480,856
Associated Group Inc., Class A .............. 19,500 577,687
Astoria Financial Corp. ..................... 33,404 1,862,273
Asyst Technologies Inc. ..................... 15,900 345,825
ATL Ultrasound .............................. 18,600 855,600
Atlantic Energy Inc. ........................ 74,400 1,576,350
Atlas Air Inc. .............................. 11,100 266,400
ATMI Inc. ................................... 23,700 574,725
Atmos Energy Corp. .......................... 42,000 1,270,500
Atria Communities Inc. ...................... 11,600 198,650
Atwood Oceanics Inc. ........................ 13,400 634,825
Aurther J. Gallagher & Co. .................. 21,600 743,850
Auspex Systems Inc. ......................... 31,600 316,000
Authentic Fitness Corp. ..................... 24,000 442,500
Avalon Properties Inc. ...................... 51,200 1,584,000
Avant Corp. ................................. 29,326 491,211
Avatar Holdings Inc. ........................ 8,700 247,406
Aviall Inc. ................................. 20,100 300,244
Aviation Sales Co. .......................... 8,100 304,763
Avid Technology Inc. ........................ 33,200 888,100
Avondale Industries Inc. .................... 14,000 415,625
Aware Inc. .................................. 18,500 189,625
Aztar Corp. ................................. 57,200 357,500
B.F. Goodrich Co. ........................... 20,440 846,982
BA Merchants Services Inc., Class A ......... 8,200 145,550
Bacou USA Inc. .............................. 5,700 99,750
Baldor Electric Co. ......................... 34,313 744,163
Baldwin & Lyons Inc., Class B ............... 15,400 371,525
Ball Corp. .................................. 42,600 1,504,312
Ballard Medical Products .................... 42,800 1,037,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-134
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Bally's Grand Inc. ......................... 2,100 $ 107,494
Bancfirst Corp. ............................ 4,100 137,863
Bancorpsouth Inc. .......................... 29,090 1,374,502
Banctec Inc. ............................... 31,182 836,067
Bank of Granite Corp. ...................... 12,275 377,456
Bank Plus Corp. ............................ 23,600 297,950
Bank United Corporation, Class A ........... 39,900 1,952,606
Bankatlantic Bancorp Inc. .................. 15,500 259,625
Banknorth Group Inc. ....................... 10,200 655,350
Banner Aerospace Inc. ...................... 8,700 96,244
Banta Corp. ................................ 45,550 1,229,850
Barnes Group Inc. .......................... 13,900 316,225
Barnett Banks Inc. ......................... 21,100 464,200
Barr Laboratories Inc. ..................... 10,525 359,166
Barra Inc. ................................. 13,350 322,069
Barrett Resources Corp. .................... 44,370 1,342,192
Bassett Furniture Industries Inc. .......... 19,762 592,860
Bay Apartment Communities Inc. ............. 36,400 1,419,600
Bay State Gas Co. .......................... 17,000 631,125
Bay View Capital Corp. ..................... 16,000 580,000
BE Aerospace Inc. .......................... 31,600 845,300
BEA Systems Inc. ........................... 14,000 242,375
Bedford Property Invs Incorporated ......... 33,100 724,062
Belco Oil & Gas Corp. ...................... 11,300 212,581
Belden Inc. ................................ 35,500 1,251,375
Bell & Howell Co. .......................... 16,500 399,094
Benchmark Electronics Inc. ................. 14,600 325,763
Benton Oil & Gas Co. ....................... 40,700 526,556
Berg Electric Corp. ........................ 24,400 555,100
Berkshire Realty Co., Inc. ................. 51,600 619,200
Berlitz International Inc. ................. 2,000 52,000
Berry Petroleum Co., Class A ............... 22,500 392,344
Best Buy Co., Inc. ......................... 48,200 1,777,375
BET PLC Holdings Inc., Class A ............. 8,200 447,925
BGS Systems Inc. ........................... 2,500 87,500
Big Flower Holdings Inc. ................... 20,400 492,150
Billing Info Concepts Corp. ................ 22,200 1,065,600
Bindley Western Industries Inc. ............ 17,800 549,575
Bio Rad Laboratories Inc., Class A ......... 11,200 292,600
Bio Technology General Corp. ............... 70,500 757,875
Biomatrix Inc. ............................. 13,400 402,000
Birmingham Steel Corp. ..................... 40,400 636,300
Bisys Group Inc. ........................... 36,000 1,197,000
BJs Wholesale Club Incorporated ............ 52,900 1,659,737
Black Box Inc. ............................. 23,600 834,850
Black Hills Corp. .......................... 21,500 757,875
Block Drug Co., Inc., Class A .............. 8,351 361,191
Blount International Inc., Class A ......... 30,300 808,631
BMC Industries Inc. ........................ 35,900 578,887
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-135
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Bob Evans Farms Inc. ............................ 62,300 $ 1,378,387
BOK Financial Corp. ............................. 6,558 254,532
Boole & Babbage Inc. ............................ 23,375 698,328
Borg Warner Security Corp. ...................... 15,900 280,238
Borland International Inc. ...................... 48,400 353,925
Boston Beer Inc., Class A ....................... 16,300 127,344
Boston Technology Inc. .......................... 37,000 929,625
Bowne & Co., Inc. ............................... 26,900 1,072,637
Boyd Gaming Corp. ............................... 45,100 298,788
Boykin Lodging Company .......................... 10,800 285,525
Bradley Real Estate Inc. ........................ 32,264 677,544
BRC Holdings Inc. ............................... 7,100 271,575
BRE Properties Inc. ............................. 48,982 1,377,619
Breed Technologies Inc. ......................... 17,400 317,550
Brenton Banks Inc. .............................. 7,219 288,760
Brightpoint Inc. ................................ 65,948 915,028
Brinker International Inc. ...................... 95,000 1,520,000
Bristol Hotel Co. ............................... 63,250 1,838,203
Broderbund Software Inc. ........................ 27,100 694,437
Brooks Fiber Properties Inc. .................... 52,800 2,904,000
Brown & Sharpe Manufacturing Co. ................ 14,800 150,775
Brown Group Inc. ................................ 22,900 304,856
Brush Wellman Inc. .............................. 19,400 475,300
Brylane Inc. .................................... 6,400 315,200
BSB Bancorp Inc. ................................ 10,300 368,225
BT Financial Corp. .............................. 8,640 440,640
BT Office Products International Inc. ........... 13,100 101,525
Buckeye Technologies Inc. ....................... 18,500 855,625
Buckle Inc. ..................................... 5,000 171,250
Budget Group Inc., Class A ...................... 24,500 846,781
Buffets Inc. .................................... 59,105 554,109
Burlington Coat Factory Warehouse Corp. ......... 25,199 414,209
Burlington Industries Inc. ...................... 80,100 1,106,381
Burnham Pacific Properties Inc. ................. 29,700 454,781
Burr-Brown Corp. ................................ 35,599 1,143,618
Bush Boake Allen Inc. ........................... 7,800 204,263
Bush Industries Inc., Class A ................... 10,450 271,700
Butler Manufacturing Co. ........................ 8,650 278,963
C Cube Microsystems Inc. ........................ 42,600 694,912
C&D Technologies ................................ 8,000 386,000
Cable Design Technologies Corp. ................. 25,050 973,819
Cablevision Systems Corp., Class A .............. 22,000 2,106,500
Cabot Oil & Gas Corp., Class A .................. 30,900 600,619
CACI International Inc., Class A ................ 13,400 265,488
Cadus Pharmaceutical Corp. ...................... 9,100 58,013
Calgon Carbon Corp. ............................. 54,000 580,500
California Microwave Inc. ....................... 19,200 372,000
California Water Service Co. .................... 7,500 442,969
Calmat Co. ...................................... 28,400 791,650
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-136
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Calpine Corp. ...................................... 24,900 $ 370,388
Cambrex Corp. ...................................... 14,550 669,300
Camden Property Trust .............................. 44,864 1,390,784
Canandaigua Wine Co., Inc., Class B ................ 8,000 456,000
Canandaigua Wine Inc., Class A ..................... 21,900 1,212,712
Capital Bancorp Florida ............................ 11,400 659,062
Capital City Bank Group Inc. ....................... 1,300 52,650
Capital Factors Holding Inc. ....................... 2,100 39,900
Capital Reinsurance Corp. .......................... 14,100 875,081
Capitol Transamerica Corp. ......................... 11,000 234,438
Capmac Holdings Inc. ............................... 19,500 677,625
Capstar Hotel Co. .................................. 35,000 1,200,937
Capstead Mortgage Corp. ............................ 73,225 1,459,923
Capstone Capital Corp. ............................. 25,800 659,512
Caraustar Industries Inc. .......................... 36,300 1,243,275
Carbide/Graphite Group Inc. ........................ 11,100 374,625
Carbo Ceramics Inc. ................................ 8,600 275,200
Cardiothoracic Systems Inc. ........................ 11,600 63,800
Carematrix Corp. ................................... 10,900 313,375
Caribiner International Inc. ....................... 13,100 582,950
Carlisle Cos., Inc. ................................ 37,200 1,590,300
Carmike Cinemas Inc., Class A ...................... 12,900 370,069
Carpenter Technology Corp. ......................... 28,400 1,364,975
Carson Pirie Scott & Co. ........................... 23,200 1,162,900
Carter Wallace Inc. ................................ 28,700 484,313
Cascade Corp. ...................................... 13,100 222,700
Casey's General Stores Inc. ........................ 34,300 870,362
Cash America International Inc. .................... 30,800 398,475
Castle & Cooke Inc. ................................ 19,600 330,750
Catalina Marketing Corp. ........................... 27,000 1,248,750
CB Commercial Real Estate Services Group ........... 13,700 440,969
CBL & Associates Properties Inc. ................... 28,600 706,062
CBT Corp. .......................................... 8,500 263,500
CCC Information Services Group Inc. ................ 30,200 596,450
CDI Corp. .......................................... 12,600 576,450
CDW Computer Centers Inc. .......................... 9,000 469,125
Cellnet Data Systems ............................... 42,200 327,050
Cellstar Corp. ..................................... 19,450 386,569
Cellular Communications International Inc. ......... 15,200 710,600
Cellular Technical Services Co., Inc. .............. 22,406 71,419
Centennial Cellular Corp., Class A ................. 21,115 432,858
Centerpoint Properties Corp. ....................... 21,900 769,237
Centex Construction Products Inc. .................. 14,100 424,763
Central Garden & Pet Co. ........................... 24,000 630,000
Central Hudson Gas & Electric Corp. ................ 22,800 1,000,350
Central Louisiana Electric Co., Inc. ............... 29,400 951,825
Central Maine Power Co. ............................ 49,500 754,875
Central Parking Corp. .............................. 9,450 428,203
Century Aluminum Co. ............................... 24,700 333,450
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-137
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Century Communications Corp., Class A ......... 42,400 $ 413,400
Cephalon Inc. ................................. 32,000 364,000
Cerner Corp. .................................. 33,800 714,025
CFM Technologies Inc. ......................... 7,400 113,775
CFW Communications Co. ........................ 16,600 371,425
CFX Corp. ..................................... 17,100 521,550
Champion Enterprises Inc. ..................... 63,344 1,302,511
Chaparral Steel Co. ........................... 3,600 55,575
Charles E. Smith Residential .................. 39,100 1,388,050
Charming Shoppes Inc. ......................... 137,900 646,406
Chart Industries Inc. ......................... 10,400 237,250
Charter One Financial Inc. .................... 64 4,040
Chartwell Re Corp. ............................ 10,500 354,375
Chase Inds Inc. ............................... 11,000 280,500
Chateau Communities Inc. ...................... 37,200 1,171,800
Checkfree Corp. ............................... 59,600 1,609,200
Checkpoint Systems Inc. ....................... 49,700 869,750
Cheesecake Factory ............................ 12,800 390,400
Chelsea GCA Realty Inc. ....................... 18,800 717,925
Chemed Corp. .................................. 11,000 455,813
Chemfirst Inc. ................................ 26,800 757,100
Chemical Financial Corp. ...................... 16,087 719,895
Chesapeake Corp. .............................. 30,300 1,041,562
Chesapeake Energy Corp. ....................... 60,500 457,531
Chicago Miniature Lamp Inc. ................... 11,650 393,188
Chips & Technologies Inc. ..................... 16,600 239,663
Chittenden Corp. .............................. 20,734 725,681
Choice Hotels Inc. ............................ 68,400 1,094,400
Christiana Cos., Inc. ......................... 2,900 114,913
CHS Electronics Inc. .......................... 40,999 702,108
Church & Dwight Co., Inc. ..................... 23,400 656,662
Ciber Inc. .................................... 14,700 852,600
CIDCO Inc. .................................... 18,700 364,650
Cilcorp Inc. .................................. 17,800 869,975
Cincinnati Milacron Inc. ...................... 51,000 1,322,812
Circle International Group Inc. ............... 15,250 349,797
Circuit City Stores Inc. ...................... 20,200 181,800
Cirrus Logic Inc. ............................. 88,900 944,562
Citation Corp. ................................ 9,200 149,500
Citfed Bancorp Inc. ........................... 16,875 658,125
Citizens Bancshares Inc. ...................... 7,300 534,725
Citizens Banking Corp. ........................ 21,000 724,500
Citizens Corp. ................................ 8,600 247,250
Citrix Systems Inc. ........................... 35,300 2,682,800
Cityscape Financial Corp. ..................... 13,800 6,900
CKE Restaurants Inc. .......................... 58,450 2,462,206
CKS Group Inc. ................................ 7,900 111,588
Claire's Stores Inc. .......................... 64,025 1,244,486
Clarcor Inc. .................................. 23,900 708,037
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-138
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Claremont Technology Group Inc. ................. 13,900 $ 257,150
Clarify Inc. .................................... 27,000 313,875
Cleveland-Cliffs Inc. ........................... 15,600 714,675
Cliffs Drilling Co. ............................. 21,800 1,087,275
Clintrials Research Inc. ........................ 12,450 98,044
Closure Med Corp. ............................... 8,500 219,938
CMAC Investment Corp. ........................... 31,600 1,907,850
CNA Surety Corporation .......................... 53,200 821,275
CNB Bancshares Inc. ............................. 26,209 1,262,946
CNET Inc. ....................................... 8,800 259,600
CNS Inc. ........................................ 25,200 168,525
Coach USA Inc. .................................. 25,100 840,850
Coachmen Industries Inc. ........................ 19,300 416,156
Coast Savings Financial Inc. .................... 26,200 1,796,337
Coca Cola Bottling Co. .......................... 4,700 324,300
Coeur D'Alene Mines Corp. ....................... 27,798 250,182
Cognex Corp. .................................... 49,533 1,349,774
Coherent Communications Systems Corp. ........... 12,400 345,650
Coherent Inc. ................................... 14,700 516,338
Coho Energy Inc. ................................ 33,300 303,863
Cohu Inc. ....................................... 12,300 376,688
Coinmach Laundry Corp. .......................... 13,100 320,950
Cole National Corp., Class A .................... 21,200 634,675
Coleman Co., Inc. ............................... 9,700 155,806
Collins & Aikman Corp. .......................... 79,300 683,962
Colonial Bancgroup Inc. ......................... 44,300 1,525,581
Colonial Gas Co. ................................ 11,050 318,378
Colonial Properties Trust ....................... 31,300 942,912
Columbia Laboratories Inc. ...................... 42,800 679,450
Columbus McKinnon Corp. ......................... 14,300 346,775
Commerce Bancorp Inc. ........................... 24,317 1,240,167
Commerce Group Inc. ............................. 26,100 851,512
Commercial Federal Corp. ........................ 45,674 1,624,282
Commercial Intertech Corp. ...................... 17,400 361,050
Commercial Metals Co. ........................... 21,433 676,479
Commercial Net Lease Realty Inc. ................ 29,500 527,312
Commonwealth Bancorp Inc. ....................... 22,355 444,306
Commonwealth Energy Systems ..................... 23,800 791,350
Commonwealth Inds Incorporated Delaware ......... 18,000 261,000
Commonwealth Telephone Enterprises .............. 18,000 465,750
Community Bank Systems Inc. ..................... 9,600 300,600
Community First Bankshares Inc. ................. 27,200 1,448,400
Community Trust Bancorp Inc. .................... 10,965 341,286
Comnet Cellular Inc. ............................ 23,200 825,050
Compdent Corp. .................................. 12,900 261,628
Complete Business Solutions Inc. ................ 8,700 378,450
Compucom Systems Inc. ........................... 28,300 233,475
Compuserve Inc. ................................. 23,600 286,150
Computer Horizons Corp. ......................... 39,650 1,784,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-139
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Computer Learning Centers Inc. .................... 6,500 $ 398,125
Computer Management Sciences Inc. ................. 1,300 24,863
Computer Products Inc. ............................ 44,407 1,004,708
Computer Task Group Inc. .......................... 22,700 807,269
ComputerVision Corp. .............................. 81,900 312,244
Comsat Corp. ...................................... 69,200 1,678,100
Comstock Resources Inc. ........................... 31,600 377,225
Comverse Technology Inc. .......................... 37,000 1,443,000
Concentra Managed Care Inc. ....................... 46,758 1,578,082
Cone Mills Corp. .................................. 31,600 244,900
Conmed Corp. ...................................... 18,600 488,250
Connecticut Energy Corp. .......................... 11,900 358,488
Consolidated Cigar Holdings Inc., Class A ......... 10,000 275,625
Consolidated Freightways Corp. .................... 28,800 392,400
Consolidated Graphics Inc. ........................ 13,600 634,100
Consolidated Products Inc. ........................ 32,704 535,524
Converse Inc. ..................................... 23,400 140,400
Cooper Cos Inc. ................................... 19,100 780,712
Copart Inc. ....................................... 8,200 146,575
Copytele Inc. ..................................... 62,200 217,700
Corecomm Inc. ..................................... 16,100 163,013
Corestaff Inc. .................................... 41,000 1,086,500
Cornerstone Properties Inc. ....................... 71,300 1,368,069
Cornerstone Realty Income Trust Inc. .............. 40,500 488,531
Corporate Therapeutics Inc. ....................... 30,100 677,250
Cort Business Services Corp. ...................... 20,200 804,212
Corus Bankshares Inc. ............................. 10,300 407,494
Cost Plus Inc. .................................... 16,500 478,500
Cousins Properties Inc. ........................... 33,900 993,694
Covance Inc. ...................................... 81,000 1,609,875
Covenant Transport Inc., Class A .................. 13,500 205,875
Coventry Corp. .................................... 43,300 660,325
Cox Radio Inc., Class A ........................... 11,100 446,775
CPB Inc. .......................................... 12,200 250,863
CPI Corp. ......................................... 15,300 346,163
Crawford & Co., Class B ........................... 51,600 1,054,575
Creative Biomolecules Inc. ........................ 43,200 318,600
Credence Systems Corp. ............................ 30,750 910,969
Credit Acceptance Corp. ........................... 25,700 199,175
Criimi Mae Inc. ................................... 60,100 901,500
Cross Continent Auto Retailers .................... 4,400 36,850
Cross Timbers Oil Co. ............................. 29,250 729,422
Crown America Realty Trust ........................ 36,100 336,181
CSG Systems International Inc. .................... 36,200 1,448,000
CSS Industries Inc. ............................... 7,500 239,063
CTG Resources Inc. ................................ 17,288 450,569
CTS Corp. ......................................... 24,696 788,728
Cubic Corp. ....................................... 6,900 225,975
Cullen/Frost Bankers Inc. ......................... 31,740 1,926,221
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-140
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Culligan Water Technologies Inc. ............ 35,365 $ 1,777,091
Culp Inc. ................................... 9,500 190,000
Cuno Inc. ................................... 20,100 306,525
Curative Health Services Inc. ............... 18,600 564,975
Curtiss Wright Corp. ........................ 6,400 232,400
CVB Financial Corp. ......................... 8,400 311,850
Cybermedia Inc. ............................. 10,800 162,675
Cygnus Inc. ................................. 23,900 475,013
Cylink Corp. ................................ 21,200 206,700
Cymer Inc. .................................. 40,900 613,500
Cytogen Corp. ............................... 61,700 100,263
Cytyc Corp. ................................. 25,600 636,800
D.R. Horton Inc. ............................ 33,355 579,543
Daisytek International Corp. ................ 5,800 201,550
Dal-Tile International Inc. ................. 47,900 586,775
Dames & Moore Inc. .......................... 16,700 221,275
Daniel Industries Inc. ...................... 19,500 375,375
Dart Group Corp., Class A ................... 2,300 266,800
Data Dimensions Inc. ........................ 11,800 203,550
Data General Corp. .......................... 56,500 985,219
Data Processing Corp. ....................... 11,900 303,450
Data Transmission Network Corp. ............. 12,100 338,800
Datascope Corp. ............................. 17,800 460,575
Davox Corp. ................................. 9,650 314,831
Day Runner Inc. ............................. 6,800 275,400
DBT Online Inc. ............................. 8,600 214,463
Dekalb Genetics Corp., Class A .............. 41,900 1,644,575
Delaware Labs Inc. .......................... 4,200 168,000
Delias Inc. ................................. 2,400 53,400
Delmarva Power & Light Co. .................. 86,100 1,985,681
Delphi Financial Group Inc. ................. 19,206 864,270
Delta & Pine Land Co. ....................... 52,826 1,611,193
Delta Financial Corp. ....................... 3,600 48,150
Deltek Systems Inc. ......................... 8,200 129,663
Deltic Timber Corp. ......................... 16,100 440,738
Department 56 Inc. .......................... 25,400 730,250
Detroit Diesel Corp. ........................ 11,100 263,625
Developers Diversified Realty Corp. ......... 34,600 1,323,450
Devon Energy Corp. .......................... 32,600 1,255,100
Devon Group Inc. ............................ 8,300 381,800
Devry Inc. .................................. 40,300 1,284,562
Dexter Corp. ................................ 33,800 1,459,737
Diagnostic Products Corp. ................... 13,800 382,950
Dialogic Corp. .............................. 13,300 581,875
Diamond Multimedia Systems Inc. ............. 52,400 465,050
Digital Lightwave Inc. ...................... 8,200 107,625
Digital Link Corp. .......................... 5,600 53,900
Digital Microwave Corp. ..................... 48,600 704,700
DII Inc. .................................... 37,300 1,016,425
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-141
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Dime Community Bancorp Inc. .................... 16,400 $ 389,500
Dimon Inc. ..................................... 57,600 1,512,000
Dionex Corp. ................................... 15,600 783,900
Discount Auto Parts Inc. ....................... 11,200 214,200
DLB Oil & Gas Inc. ............................. 2,800 29,400
Documentum Inc. ................................ 12,600 530,775
Dominick's Supermarkets Inc. ................... 18,500 675,250
Donaldson Co., Inc. ............................ 28,500 1,284,281
Donna Karan International Incorporated ......... 17,000 218,875
Doral Financial Corp. .......................... 18,000 456,750
Dover Downs Entertainment Inc. ................. 3,200 73,400
Downey Financial Corp. ......................... 29,123 828,185
Dress Barn Inc. ................................ 24,300 689,512
Dreyers Grand Ice Cream Inc. ................... 33,300 803,362
DSP Communications Inc. ........................ 58,200 698,400
DT Inductries Inc. ............................. 9,200 312,800
Ducommun Inc. .................................. 7,700 269,019
Dupont Photomasks Inc. ......................... 5,500 191,813
Dynatech Corp. ................................. 20,600 965,625
Dynex Capital Inc. ............................. 65,000 865,312
E Trade Group Inc. ............................. 48,500 1,115,500
E'Town Corp. ................................... 10,000 401,875
E.W. Blanch Holdings Inc. ...................... 13,500 464,906
Eagle Hardware & Garden Inc. ................... 30,200 585,125
Eagle USA Airfreight Inc. ...................... 9,800 279,300
Earthgrains Co. ................................ 29,800 1,400,600
Eastern Enterprises ............................ 28,200 1,269,000
Eastern Utilities Associates ................... 27,500 721,875
Eastgroup Pptys Incorporated ................... 21,200 458,450
Eaton Vance Corp. .............................. 20,600 777,650
Echostar Communications Corp., Class A ......... 15,500 259,625
Edify Corp. .................................... 15,500 290,625
Education Management Corp. ..................... 15,700 486,700
EG&G Inc. ...................................... 66,900 1,392,356
Einstein Noah Bagel Corp. ...................... 41,500 230,844
El Paso Electric Co. ........................... 76,100 556,481
Elcor Chemical Corp. ........................... 18,500 444,000
Electro Rent Corp. ............................. 11,400 407,550
Electro Scientific Industries Inc. ............. 15,300 581,400
Electroglas Inc. ............................... 23,800 367,413
Eltron International Inc. ...................... 8,400 254,100
Emisphere Technologies Inc. .................... 12,300 229,088
Emmis Broadcasting Corp., Class A .............. 10,400 474,500
Empire District Electric Co. ................... 21,600 423,900
Employee Solutions Inc. ........................ 33,600 144,900
Encad Inc. ..................................... 18,800 517,000
Encore Wire Corp. .............................. 10,600 325,288
Energen Corp. .................................. 16,550 657,862
Enhance Financial Services Group Inc. .......... 17,100 1,017,450
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-142
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Envoy Corp. .......................................... 24,200 $ 704,825
Enzo Biochem Inc. .................................... 25,627 374,795
Equitable Resources Inc. ............................. 53,200 1,881,950
Equity Corp. International ........................... 17,450 403,531
Equity Inns Inc. ..................................... 48,100 709,475
Equity Residential Properties Trust .................. 14,950 755,909
ESS Technology Inc. .................................. 19,400 147,319
Essex International Inc. ............................. 13,900 413,525
Essex Property Trust ................................. 16,300 570,500
Esterline Technologies Corp. ......................... 11,200 403,200
Etec Systems Inc. .................................... 30,200 1,404,300
Ethan Allen Interiors Inc. ........................... 38,500 1,484,656
Evans & Sutherland Computer Co. ...................... 11,800 342,200
Everen Capital Corp. ................................. 7,600 361,000
Exabyte Corp. ........................................ 26,500 170,594
Exar Corp. ........................................... 12,100 199,650
Excel Industries Inc. ................................ 12,500 225,781
Excel Realty Trust Inc. .............................. 27,300 859,950
Executive Risk Inc. .................................. 15,700 1,096,056
Exide Corp. .......................................... 20,800 538,200
Expeditores International of Washington Inc. ......... 32,600 1,255,100
Express Scripts Inc., Class A ........................ 11,700 702,000
F New Brunswick Corp. ................................ 18,372 691,246
F&M National Corp. ................................... 26,302 902,487
FAB Industries ....................................... 4,500 140,063
Fabri Centres America Inc., Class A .................. 20,550 458,522
Factset Research Systems Inc. ........................ 6,800 209,100
Fairchild Corp., Class A ............................. 18,200 452,725
Fairfield Communities Inc. ........................... 22,750 1,003,844
Falcon Building Prods Inc., Class A .................. 5,818 103,270
Family Golf Ctrs Inc. ................................ 11,700 367,088
Farmer Brothers Co. .................................. 930 168,795
FBL Financial Group Inc., Class A .................... 21,900 878,737
Fedders USA Inc. ..................................... 39,700 248,125
Federal Home Loan Mortgage Corp. ..................... 57,500 2,328,750
Federal Realty Investment Trust ...................... 55,300 1,423,975
FEI Co. .............................................. 18,800 233,825
Felcor Suite Hotels Inc. ............................. 43,900 1,558,450
Ferro Corp. .......................................... 55,650 1,352,991
Fidelity National Financial Inc. ..................... 22,108 688,105
Figgie International Holdings Inc., Class A .......... 24,100 316,313
Filenet Corp. ........................................ 19,900 599,487
Financial Federal Corp. .............................. 12,650 298,856
Financial Security Assured Holdings Ltd. ............. 43,353 2,091,782
Fine Host Corp. ...................................... 12,400 125,550
Fingerhut Cos., Inc. ................................. 65,300 1,395,787
Finish Line Inc., Class A ............................ 20,100 263,813
Firearms Training Systems Inc., Class A .............. 4,800 24,900
First American Financial Corp. ....................... 13,580 1,003,222
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-143
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
First Brands Corp. ............................................ 57,800 $ 1,556,987
First Citizens Bancshares Inc. ................................ 14,000 1,456,437
First Commerce Bancshares Inc., Class B ....................... 14,000 455,000
First Commonwealth Financial Corp. ............................ 28,900 1,013,306
First Company Bancorporation Inc. ............................. 20,978 498,228
First Federal Capital Corp. ................................... 13,300 450,538
First Financial Bancorp ....................................... 23,678 1,142,463
First Financial Bankshares Inc. ............................... 12,918 553,859
First Financial Corp. -- Indiana .............................. 8,660 523,930
First Financial Holdings Inc. ................................. 8,300 440,938
First Industrial Realty Trust Inc. ............................ 50,800 1,835,150
First Industries Corp. ........................................ 8,673 262,358
First Midwest Bancorp Inc. .................................... 19,025 832,344
First Republic Bank San Francisco California .................. 12,200 389,638
First Savings Bank Inc. ....................................... 16,700 459,250
First Savings Bank SLA Perth Amboy ............................ 9,570 521,565
First Union Real Estate Equity + Mortgage Investments ......... 35,500 576,875
First United Bancshares Inc. .................................. 12,900 541,800
First Western Bancorp Inc. .................................... 14,550 414,675
Firstbank (Puerto Rico) ....................................... 17,200 585,875
Firstbank of Illinois Co. ..................................... 20,275 746,373
Firstfed Financial Corp. (Ohio) ............................... 5,600 246,400
Firstfed Financial Corp. -- Wisconsin ......................... 12,975 502,781
Firstplus Financial Group Inc. ................................ 32,300 1,239,512
Fisher Scientific International Inc. .......................... 28,700 1,370,425
Flagstar Bancorp Incorporated ................................. 6,500 128,680
Fleetwood Enterprises Inc. .................................... 41,200 1,748,425
Fleming Cos., Inc. ............................................ 49,400 663,812
Florida East Coast Industries Inc. ............................ 3,300 317,213
Florida Panthers Holdings Inc., Class A ....................... 49,300 850,425
Florida Rock Industries Inc. .................................. 18,400 418,600
Flowserve Corp. ............................................... 57,426 1,604,339
Fluke Corp. ................................................... 18,400 479,550
FM BanCorporation Inc. ........................................ 10,872 437,598
Foamex International Inc. ..................................... 16,600 180,525
Fonix Corp. ................................................... 16,700 52,188
Foodmaker Inc. ................................................ 52,300 787,769
Footstar Inc. ................................................. 39,900 1,072,312
Forcenergy Inc. ............................................... 18,700 489,706
Foremost Corp. ................................................ 11,100 774,225
Forest City Enterprises Inc. .................................. 8,250 479,531
Forest Oil Corp. .............................................. 36,300 598,950
Forrester Research Inc. ....................................... 9,100 207,025
Fort Wayne National Corp. ..................................... 25,025 1,151,150
Forte Software Inc. ........................................... 25,500 194,438
Fossil Inc. ................................................... 7,000 175,000
FPA Medical Management Inc. ................................... 41,300 769,212
Franchise Finance Corp. ....................................... 57,400 1,549,800
Franklin Covey Co. ............................................ 33,100 728,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-144
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Franklin Electric Co., Inc. ................... 5,400 $ 346,950
Freeport Mcmoran Sulphur Incorporated ......... 7,480 87,894
Fremont General Corp. ......................... 35,697 1,954,411
Friedmans Inc., Class A ....................... 13,500 183,938
Fritz Cos., Inc. .............................. 27,300 380,494
Frontier Insurance Group Inc. ................. 43,360 991,860
FSI International Inc. ........................ 34,100 400,675
FTP Software Inc. ............................. 32,200 72,450
Fuisz Technologies Ltd. ....................... 14,000 119,000
Fulton Financial Corp. ........................ 55,770 1,812,525
Furniture Brands International Inc. ........... 73,500 1,506,750
Furon Co. ..................................... 23,200 484,300
G&K Services Inc., Class A .................... 28,000 1,176,000
Gables Residential Trust ...................... 25,400 701,675
Gadzooks Inc. ................................. 11,200 235,200
Gainsco Inc. .................................. 19,86 3168,836
Galey + Lord Inc. ............................. 15,200 271,700
Galoob (Lewis) Toys Inc. ...................... 22,800 232,275
Garden Ridge Corp. ............................ 23,400 333,450
Gardner Denver Machinery Inc. ................. 18,300 463,219
Gaylord Container Corp., Class A .............. 66,400 381,800
GBC Bancorp ................................... 8,800 561,000
GC Cos., Inc. ................................. 7,100 336,363
Geltex Pharmaceuticals Inc. ................... 17,000 450,500
Gencorp Inc. .................................. 48,000 1,200,000
General Binding Corp. ......................... 5,900 177,000
General Cable Corp. ........................... 22,400 810,600
General Chemical Group Incorporated ........... 14,200 379,850
General Cigar Holdings Inc., Class A .......... 29,212 622,581
General Communication Inc. .................... 17,200 113,950
General Datacomm Industries Inc. .............. 23,600 110,625
General Growth Properties Inc. ................ 48,900 1,766,512
Genesco Inc. .................................. 32,800 418,200
Genovese Drug Stores Inc., Class A ............ 9,461 162,021
Genrad Inc. ................................... 40,300 1,216,556
Gensia Inc. ................................... 93,300 542,306
Gentex Corp. .................................. 51,400 1,381,375
Geon Co. ...................................... 34,000 794,750
Georgia Gulf Corp. ............................ 47,900 1,466,937
Geotek Communications Inc. .................... 76,600 117,294
Geotel Communications Corp. ................... 12,000 187,500
Gerber Scientific Inc. ........................ 31,100 618,112
Getchell Gold Corp. ........................... 39,635 951,240
Getty Petroleum Corp. ......................... 10,518 232,711
Giant Cement Holding Inc. ..................... 12,400 286,750
Gibraltor Steel Corp. ......................... 5,600 110,600
Gibson Greetings Inc. ......................... 21,300 465,938
Gilead Sciences Inc. .......................... 41,400 1,583,550
Gleason Corp. ................................. 14,600 393,288
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-145
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Glenayre Technologies Inc. ..................... 78,800 $ 778,150
Glenborough Realty Trust Inc. .................. 27,100 802,837
Glimcher Realty Trust .......................... 32,400 731,025
Global Directmail Corp. ........................ 19,400 335,863
Global Industrial Technologies Inc. ............ 28,200 477,638
Global Industries Ltd. ......................... 77,900 1,324,300
Golden Books Family Entertainment Inc. ......... 34,500 355,781
Goodys Family Clothing Inc. .................... 8,400 228,375
Graco Inc. ..................................... 18,400 686,550
Graham Field Health Products Inc. .............. 25,000 417,188
Grand Casinos Inc. ............................. 41,200 561,350
Grand Premier Financial Inc. ................... 10,900 155,325
Granite Construction Inc. ...................... 15,950 366,850
Great Atlantic & Pacific Tea Co., Inc. ......... 23,000 682,812
Great Financial Corp. .......................... 18,400 938,400
Great Lakes REIT Inc. .......................... 16,600 322,663
Greif Brothers Corp., Class A .................. 20,700 693,450
Grey Advertising Inc. .......................... 1,1303 70,640
Grey Wolf Inc. ................................. 92,600 497,725
Greyhound Lines Inc. ........................... 58,100 214,244
Griffon Corp. .................................. 44,900 656,662
Grubb & Ellis Co. .............................. 24,700 338,081
GT Interactive Software Corp. .................. 32,600 207,825
Guarantee Life Cos., Inc. ...................... 12,000 342,000
Guess Inc. ..................................... 5,400 37,125
Guilford Mills Inc. ............................ 28,125 769,922
Guilford Pharmaceuticals Inc. .................. 24,000 483,000
Guitar Center Inc. ............................. 23,300 535,900
Gulf South Medical Supply Inc. ................. 19,200 715,200
Gymboree Corp. ................................. 32,500 889,687
H S Resources Inc. ............................. 19,000 262,438
H.B. Fuller Co. ................................ 20,300 1,004,850
Ha Lo Industries Inc. .......................... 21,200 551,200
Hach Co. ....................................... 4,000 50,500
Hadco Corp. .................................... 16,500 746,625
Haemonetics Corp. .............................. 28,700 401,800
Halter Marine Group Inc. ....................... 6,849 197,765
Hambrecht & Quist Group Inc. ................... 25,400 927,100
Hamilton Bancorp Inc. (Florida) ................ 9,200 267,950
Hancock Fabrics Inc. ........................... 27,400 397,300
Hancock Holding Co. ............................ 11,215 678,507
Handleman Co. .................................. 39,200 271,950
Handy & Harman ................................. 15,600 538,200
Hanna (M.A.) Co. ............................... 63,200 1,595,800
Harbinger Corp. ................................ 25,150 707,344
Harbor Florida Bancorp Inc. .................... 6,500 430,625
Harken Energy Corp. ............................ 132,700 928,900
Harleysville Group Inc. ........................ 16,900 405,600
Harleysville National Corp. .................... 8,861 372,162
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-146
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Harman International Industries Inc. .................. 26,215 $ 1,112,499
Harris Financial Inc. ................................. 10,500 208,688
Hartford Life Inc., Class A ........................... 37,800 1,712,812
Hartmarx Corp. ........................................ 31,100 237,138
Hawaiian Electric Industries Inc. ..................... 43,500 1,778,062
Hayes Lemmerz International Inc. ...................... 38,600 1,080,800
HBO & Co. ............................................. 14,160 679,680
HCC Insurance Holdings Inc. ........................... 55,100 1,170,875
HCIA Inc. ............................................. 15,000 178,125
Health Care Property Investors Inc. ................... 40,500 1,531,406
Health Care REIT Inc. ................................. 35,800 1,006,875
Healthcare Realty Trust ............................... 22,100 639,519
Healthdyne Technologies Inc. .......................... 16,300 332,113
Healthplan Services Corp. ............................. 15,596 327,516
Heartland Express Inc. ................................ 19,535 525,003
Heartport Inc. ........................................ 19,500 397,313
Hecla Mining Co. ...................................... 69,800 344,638
Heftel Broadcasting Corp., Class A .................... 29,800 1,393,150
Heilig Meyers Co. ..................................... 84,000 1,008,000
Helix Technology Corp. ................................ 26,800 522,600
Henry Schein Inc. ..................................... 13,300 465,500
Herbalife International Incorporated, Class A ......... 5,300 111,300
Herbalife International Incorporated, Class B ......... 10,600 227,900
Heritage Financial Services Inc. ...................... 13,750 398,750
Hexcel Corp. .......................................... 27,200 678,300
HFNC Financial Corp. .................................. 21,900 317,550
Highlands Insurance Group ............................. 18,500 524,937
Highwaymaster Communications Inc. ..................... 27,100 154,131
Highwoods Properties Inc. ............................. 63,600 2,365,125
Hilb Rogal & Hamilton Co. ............................. 17,162 331,441
Hirsch International Group, Class A ................... 5,700 125,400
HMT Technology Corp. .................................. 53,700 698,100
HNC Software Inc. ..................................... 25,000 1,075,000
Holly Corp. ........................................... 6,000 165,750
Hollywood Entertainment Corp. ......................... 32,100 341,063
Hollywood Park Inc. ................................... 30,400 668,800
Hologic Inc. .......................................... 14,300 295,831
Holophane Corp. ....................................... 14,400 356,400
Home Pptys New York Incorporated ...................... 10,600 288,188
Homebase Incorporated ................................. 42,200 332,325
Homeside Inc. ......................................... 29,800 821,362
Homestead Village Properties Inc. ..................... 16,200 244,013
Horizon Group Inc. .................................... 27,292 298,506
Hospitality Properties Trust .......................... 33,300 1,094,737
Host Marriott Services Corp. .......................... 45,400 675,325
Houghton Mifflin Co. .................................. 42,300 1,623,262
House Of Fabrics Incorporated New -- Wts .............. 37 7
Houston Exploration Company ........................... 13,300 244,388
HSB Group Inc. ........................................ 28,000 1,545,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-147
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Hubco Inc. ..................................... 32,715 $ 1,279,974
Hudson Foods Inc., Class A ..................... 27,300 561,356
Huffy Corp. .................................... 16,700 225,450
Hughes Supply Inc. ............................. 20,650 721,459
Hugoton Capital Ltd. Partnership ............... 8,600 79,013
Human Genome Sciences Inc. ..................... 32,400 1,287,900
Hunt Corp. ..................................... 11,600 274,775
Hutchinson Technology Inc. ..................... 25,600 560,000
Hvide Marine Inc., Class A ..................... 15,400 396,550
Hyperion Software Corp. ........................ 27,400 979,550
I-Stat Corp. ................................... 18,300 289,369
I2 Technologies Inc. ........................... 6,400 337,600
IBS Financial Corp. ............................ 14,400 254,700
ICN Pharmaceuticals Inc. ....................... 52,294 2,552,601
ICOS Corp. ..................................... 43,800 802,087
IDEC Pharmaceuticals Corp. ..................... 26,100 897,187
Identix Inc. ................................... 24,800 238,700
Idex Corp. ..................................... 42,525 1,483,059
IDEXX Laboratories Inc. ........................ 45,400 723,562
IDX Systems Corp. .............................. 10,900 403,300
IES Industries Inc. ............................ 42,900 1,579,256
IHOP Corp. ..................................... 11,600 377,000
IKOS Systems Inc. .............................. 8,400 51,450
Imation Corp. .................................. 55,400 886,400
Imatron Inc. ................................... 99,800 230,788
IMC Fertilizer Group Inc. ...................... 31,860 1,043,415
Imc Global Incorporated -- Wts ................. 11,800 45,725
IMC Mortgage Co. ............................... 32,200 382,375
Imco Recycling Inc. ............................ 22,200 356,588
Immunomedics Inc. .............................. 29,400 106,575
Imnet Systems Inc. ............................. 12,800 208,000
Imperial Bancorp ............................... 32,122 1,584,016
Imperial Credit Industries Inc. ................ 34,572 708,726
Imperial Credit Mortgage Holdings Inc. ......... 16,950 302,981
In Focus Systems Inc. .......................... 14,200 431,325
Inacom Corp. ................................... 20,700 580,894
Incyte Pharmacuticals Inc. ..................... 28,600 1,287,000
Indiana Energy Inc. ............................ 29,500 971,656
Indus International Inc. ....................... 18,700 135,575
Industri Matematik International Corp. ......... 32,700 964,650
Information Management Resources Inc. .......... 16,700 626,250
Information Resources Inc. ..................... 36,900 493,538
Ingles Markets Inc. ............................ 7,700 109,725
Inhale Therapeutic Systems ..................... 23,300 605,800
INMC Mortgage Holdings Incorporated ............ 72,300 1,694,531
Innkeepers USA Trust ........................... 41,400 641,700
Innovex Inc. ................................... 21,900 502,331
Input/Output Inc. .............................. 57,200 1,698,125
Insignia Financial Group Inc., Class A ......... 32,300 742,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-148
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Inso Corp. ...................................... 12,400 $ 143,375
Integrated Circuit Systems Inc. ................. 18,100 515,850
Integrated Device Technology .................... 117,500 1,108,906
Integrated Health Services Inc. ................. 56,540 1,763,341
Integrated Process Equipment Corp. .............. 23,900 376,425
Integrated Systems Inc., Class A ................ 19,100 262,625
Inter-Tel Inc. .................................. 31,900 618,062
Interdigital Communications Corp. ............... 63,000 192,938
Interface Inc., Class A ......................... 31,900 925,100
Intergraph Corp. ................................ 54,200 542,000
Interim Services Inc. ........................... 56,100 1,451,587
Intermedia Commerce of Florida .................. 24,000 1,458,000
Intermet Corp. .................................. 23,800 416,500
International Alliance Services ................. 35,500 612,375
International Dairy Queen Inc., Class A ......... 15,200 407,075
International Multifoods Corp. .................. 24,600 696,487
International Network Services .................. 28,900 668,312
International Rectifier Corp. ................... 73,300 865,856
Interneuron Pharmaceuticals, Inc. ............... 36,600 347,700
Interpool Inc. .................................. 17,450 258,478
Interra Financial Inc. .......................... 18,300 1,262,700
Intersolv Inc. .................................. 26,200 530,550
Interstate Hotels Co. ........................... 32,000 1,122,000
Interstate Power Co. ............................ 12,300 460,481
Intervoice Inc. ................................. 17,400 130,500
Interwest Bancorp Inc. .......................... 9,900 373,725
Intevac Inc. .................................... 2,800 27,300
Invacare Corp. .................................. 36,800 800,400
Investment Technology Group Inc. ................ 4,300 120,400
Investors Financial Services Corp. .............. 7,800 358,800
Ionics Inc. ..................................... 20,800 813,800
Iron Inc. ....................................... 10,600 381,600
IRT Property Co. ................................ 39,300 464,231
Irvine Apartment Communities Inc. ............... 23,100 734,869
Irwin Financial Corp. ........................... 7,800 326,625
Isaac Fair & Co., Inc. .......................... 14,300 476,369
Isis Pharmaceuticals Inc. ....................... 34,500 424,781
Itron Inc. ...................................... 15,000 270,000
ITT Educational Services Inc. ................... 4,950 110,447
IXC Communications Inc. ......................... 21,300 668,287
J&L Specialty Steel Inc. ........................ 23,000 231,438
J. B. Hunt Transport Services Inc. .............. 27,700 519,375
J.M. Smucker Co., Class A ....................... 29,800 704,025
Jack Henry & Associates Inc. .................... 14,950 407,388
Jacobs Engineering Group Inc. ................... 28,000 710,500
Jacor Communications Inc. ....................... 62,400 3,315,000
JDA Software Group Inc. ......................... 11,000 385,000
JDN Realty Corp. ................................ 27,700 896,787
Jefferies Group Inc. ............................ 28,400 1,162,625
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-149
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
JLG Industries Inc. ............................ 57,100 $ 806,537
John Alden Financial Corp. ..................... 33,300 799,200
John Harland Co. ............................... 44,800 940,800
John Nuveen & Co., Inc., Class A ............... 6,600 231,000
John Wiley & Sons Inc., Class A ................ 18,800 1,019,900
Johnson Watkins Co. ............................ 10,400 269,750
Jones Intercable Inc., Class A ................. 21,100 370,569
Jones Medical Industries Inc. .................. 33,300 1,273,725
Jostens Inc. ................................... 56,700 1,307,644
Journal Register Co. ........................... 71,000 1,491,000
JP Foodservice Inc. ............................ 52,620 1,943,651
JP Realty Inc. ................................. 19,400 503,188
JPM Co. ........................................ 10,500 223,125
JSB Financial Inc. ............................. 10,100 505,631
Juno Lighting Inc. ............................. 23,800 416,500
Just For Feet Inc. ............................. 34,650 454,781
Justin Industries Inc. ......................... 22,050 300,431
K V Pharmaceutical Co. ......................... 7,700 162,181
K2 Inc. ........................................ 18,083 411,388
Kaiser Aluminum Corp. .......................... 27,500 242,344
Kaman Corp., Class A ........................... 23,500 384,813
Kansas City Life Insurance Co. ................. 4,600 455,400
Kaufman & Broad Home Corp. ..................... 57,100 1,281,181
Kaydon Corp. ................................... 46,600 1,520,325
KCS Energy Inc. ................................ 34,700 720,025
Kelley Oil & Gas Corp. ......................... 128,500 281,094
Kellwood Co. ................................... 28,700 861,000
Kelly Services Inc., Class A ................... 21,200 636,000
KEMET Corp. .................................... 50,900 986,187
Kennametal Inc. ................................ 36,600 1,896,337
Kenneth Cole Productions Inc., Class A ......... 9,700 155,806
Kent Electronics Corp. ......................... 40,500 1,017,562
Key Energy Group Inc. .......................... 27,700 600,744
Keystone Financial Group Inc. .................. 72,135 2,903,434
Kilroy Realty Corp. ............................ 26,500 761,875
Kimball International Inc., Class B ............ 53,800 991,937
Kimberly-Clark Corp. ........................... 8,778 432,865
Kinetic Concepts Inc. (c) ...................... 5,00 095,000
Kirby Corp. .................................... 35,600 687,525
Kitty Hawk Inc. ................................ 3,700 71,225
Klamath First Bancorp Inc. ..................... 11,900 255,850
Knight Transportation Inc. ..................... 4,700 130,425
Knoll Inc. ..................................... 14,000 449,750
Koger Equity Inc. .............................. 24,300 533,081
Kos Pharmaceuticals Inc ........................ 6,500 100,344
Kronos Inc. .................................... 10,650 328,153
Kuhlman Corp. .................................. 24,700 966,387
Kulicke & Soffa Industries Inc. ................ 32,700 609,037
L.S. Starrett Co., Class A ..................... 9,100 332,719
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-150
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Labone Inc. ......................................... 2,300 $ 40,394
Laboratory Corp. America Holdings ................... 61,600 103,950
Laboratory Holdings Incorporated .................... 9,600 223,200
Laclede Gas Co. ..................................... 26,200 735,237
Laidlaw Environmental Services Incorporated ......... 75,500 368,063
Lamar Advertising Co., Class A ...................... 20,500 814,875
Lance Inc. .......................................... 26,300 692,019
Land's End Inc. ..................................... 22,500 788,906
Landauer Inc. ....................................... 10,900 305,200
Landry's Seafood Restaurants Inc. ................... 32,300 775,200
Landstar Systems Inc. ............................... 16,200 427,275
Lawson Products Inc. ................................ 8,400 249,900
Lawter International Inc. ........................... 39,500 429,563
Layne Christensen Co. ............................... 20,200 262,600
Lazy Boy Chair Co. .................................. 22,600 974,625
LCA Vision Inc. ..................................... 12,623 14,201
LCI International Inc. .............................. 14,925 458,935
Learning Co. Inc. ................................... 55,900 897,894
Learning Tree International Inc. .................... 12,900 372,488
LeaRonal Inc. ....................................... 12,150 285,525
Lecroy Corp. ........................................ 7,200 217,800
Legato Systems Inc. ................................. 25,800 1,135,200
Legg Mason Inc. ..................................... 30,233 1,691,158
Lennar Corp. ........................................ 63,194 1,362,621
Level One Communications Inc. ....................... 28,350 800,887
LHS Group Inc. ...................................... 8,200 489,950
Libbey Inc. ......................................... 22,600 855,975
Liberty Corp. ....................................... 15,500 724,625
Liberty Property .................................... 72,700 2,076,494
Life Bancorp Inc. ................................... 12,900 472,463
Life Re Corp. ....................................... 12,800 834,400
Life Technologies Inc. .............................. 13,500 448,875
Life USA Holding Inc. ............................... 22,700 383,063
Ligand Pharmaceuticals Inc., Class B ................ 36,035 463,951
Lilly Industries Inc., Class A ...................... 34,988 721,627
Lincoln Electric Co., Class A ....................... 35,900 1,292,400
Lindsay Manufacturing Co. ........................... 12,375 536,766
Linens N Things Inc. ................................ 21,000 916,125
Liposome Co., Inc. .................................. 47,700 220,613
Liqui-Box Corp. ..................................... 5,600 225,400
Littelfuse Inc. ..................................... 24,300 604,462
LNR Property Corp. .................................. 38,000 897,750
LoJack Corp. ........................................ 24,800 365,800
Lomak Petroleum Inc. ................................ 30,900 502,125
Lone Star Industries Inc. ........................... 15,000 796,875
Lone Star Steakhouse and Saloon Inc. ................ 46,600 815,500
Lone Star Technologies Inc. ......................... 27,100 768,962
Long Beach Financial Corp. .......................... 28,400 330,150
Long Islands Bancorp Inc. ........................... 33,800 1,677,325
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-151
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Longs Drug Stores Corp. .......................... 44,500 $ 1,429,562
Longview Fibre Co. ............................... 75,800 1,151,212
Louis Dreyfus Natural Gas Holdings Corp. ......... 29,308 547,693
LTC Properties ................................... 33,600 697,200
LTX Corp. ........................................ 45,400 201,463
Luby's Cafeterias Inc. ........................... 34,700 609,419
Lukens Inc. ...................................... 19,500 556,969
Lunar Corp. ...................................... 5,700 116,850
Lycos Inc. ....................................... 20,612 852,821
Lydall Inc. ...................................... 21,100 411,450
M.S. Carriers Inc. ............................... 11,700 291,038
Mac Frugals Bargains Inc. ........................ 34,900 1,435,262
MacDermid Inc. ................................... 9,300 789,337
Macerich Co. ..................................... 30,700 874,950
Mack California Reality Corporation .............. 68,900 2,824,900
Macromedia Inc. .................................. 50,800 422,275
Madison Gas & Electric Co. ....................... 20,650 474,950
MAF Bancorp Inc. ................................. 20,521 725,930
Magellan Health Services, Inc. ................... 42,800 920,200
Magna Group Inc. ................................. 46,177 2,112,598
MagneTek Inc. .................................... 38,500 750,750
Mail Well Holdings Inc. .......................... 22,300 903,150
Mainstreet Bankgroup Inc. ........................ 14,900 415,338
Malibu Entertainment Worldwide Inc. .............. 63,400 202,088
Manitowoc Co., Inc. .............................. 22,525 732,062
Manufactured Home Communities Inc. ............... 29,700 801,900
Manugistics Group Inc. ........................... 21,300 950,512
Marcus Corp. ..................................... 23,362 430,737
Marine Drilling Cos., Inc. ....................... 72,000 1,494,000
Mariner Health Group Inc. ........................ 29,900 485,875
Markel Corp. ..................................... 6,340 989,832
Marquette Medical Systems Inc. ................... 18,000 479,250
Marshall Industries .............................. 21,700 651,000
Martek Biosciences Corp. ......................... 17,800 146,850
Marvel Entertainment Group Inc. .................. 19,100 9,550
MascoTech Inc. ................................... 39,700 729,487
Mastec Inc. ...................................... 13,849 316,796
Mastech Corp. .................................... 7,200 228,600
Material Sciences Corp. .......................... 20,000 243,750
Mathews International Corp., Class A ............. 8,500 374,000
Maverick Tube Corp. .............................. 11,500 291,094
Maxicare Health Plans Inc. ....................... 28,300 307,763
MAXXAM Inc. ...................................... 7,200 314,100
May & Speh Inc. .................................. 17,100 230,850
McClatchy Newspapers Inc., Class A ............... 20,650 561,422
McDonald & Co. Investments Inc. .................. 27,440 778,610
McGrath RentCorp ................................. 13,400 328,300
McLeod Inc. ...................................... 53,300 1,705,600
McWhorter Technologies Inc. ...................... 7,300 187,975
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-152
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
MDU Resources Group Inc. ....................... 42,100 $ 1,331,412
Meadowbrook Insurance Group Inc. ............... 5,600 145,950
Medaphis Corp. ................................. 94,700 615,550
Media General Inc., Class A .................... 17,400 727,537
Medical Assurance Inc. ......................... 26,702 750,994
Medical Manager Corp. .......................... 11,400 205,200
Medical Resources Inc. ......................... 14,000 131,250
Medicis Pharmaceutical Corp., Class A .......... 19,500 996,937
Medimmune Inc. ................................. 31,400 1,346,275
Mediq Inc. ..................................... 16,600 184,675
Medquist Inc. .................................. 17,850 620,287
Medusa Corp. ................................... 24,300 1,016,044
Memberworks Inc. ............................... 12,300 258,300
Men's Wearhouse Inc. ........................... 20,450 710,637
Mentor Corp. ................................... 36,500 1,332,250
Mentor Graphics Corp. .......................... 77,900 754,656
Merchants New York Bancorp Inc. ................ 9,700 407,400
Mercury Finance Co. ............................ 190,200 118,875
Mercury Interactive Corp. ...................... 21,200 567,100
Meridian Industrial Trust Inc. ................. 44,300 1,129,650
Meridian Resource Corp. ........................ 58,548 559,865
Merrill Corp. .................................. 16,000 372,000
Merry Land & Investment Co., Inc. .............. 56,400 1,290,150
Mesaba Holdings Inc. ........................... 11,000 286,000
Mestek Inc. .................................... 2,300 43,125
Methode Electronics Inc., Class A .............. 41,500 674,375
Metris Cos Inc. ................................ 7,900 270,575
Metro Information Services Inc. ................ 6,600 183,150
Metro Networks Inc. ............................ 9,500 311,125
Metromail Corp. ................................ 17,100 305,663
Metromedia Inter. Group Inc. ................... 56,584 537,548
Metzler Group Inc. ............................. 8,600 345,075
MGI Properties ................................. 17,400 417,600
Michael Foods Incorporated New ................. 17,500 426,563
Michael's Stores Inc. .......................... 35,500 1,038,375
Micrel Inc. .................................... 18,600 520,800
Micro Linear Corp. ............................. 12,900 101,588
Micro Warehouse Inc. ........................... 50,700 706,631
MicroAge Inc. .................................. 23,300 350,956
Microprose Inc. ................................ 30,700 67,156
Micros Systems Inc. ............................ 10,500 472,500
Microtouch Systems Inc. ........................ 10,100 159,075
Mid Am Inc. .................................... 32,519 837,364
Mid Atlantic Medical Services Inc. ............. 63,500 809,625
Mid-America Apartment Communities Inc. ......... 16,600 474,138
Mid-America Bancorp ............................ 10,094 339,411
Midway Games Inc. .............................. 5,600 101,850
Midwest Express Holdings Inc. .................. 12,400 481,275
Mikasa Inc., Class B ........................... 9,700 141,256
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-153
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Millennium Pharmaceuticals ........................... 37,300 $ 708,700
Miller Industries Inc. ............................... 36,950 397,213
Mills Co. ............................................ 34,100 835,450
Mine Safety Appliances Co. ........................... 4,600 301,300
Minerals Technologies Inc. ........................... 32,800 1,490,350
Minimed Inc. ......................................... 12,300 478,163
Minnesota Power & Light Co. .......................... 46,600 2,030,012
Miravant Medical Technologies ........................ 7,450 298,000
Mississippi Chemical Corp. ........................... 36,352 663,424
Mississippi Valley Bankshares Inc. ................... 10,800 348,300
ML Bancorp Inc. ...................................... 14,800 444,000
MMI Cos., Inc. ....................................... 13,900 349,238
Mobile Telecommunications Technologies Corp. ......... 73,200 1,610,400
Modine Manufacturing Co. ............................. 32,600 1,112,475
Mohawk Industries Inc. ............................... 48,565 1,065,395
Moneygram Payment Systems Inc. ....................... 18,900 203,175
Moog Incorporated, Class A ........................... 9,200 321,425
Morgan Keegan Inc. ................................... 30,926 782,814
Morrison Health Care Inc. ............................ 13,733 274,660
Morrison Knudsen Corp. ............................... 17,200 167,700
Motivepower Inds Incorporated ........................ 23,000 534,750
MRV Communications Inc. .............................. 25,000 596,875
MTS Systems Corp. .................................... 12,900 483,750
Mueller Industries Inc. .............................. 25,700 1,516,300
Mycogen Corp. ........................................ 19,800 371,250
Myers Industries Inc. ................................ 15,351 261,926
Mylex Corp. .......................................... 27,100 243,900
Myriad Genetics Inc. ................................. 12,000 291,000
NABI Inc. ............................................ 41,900 142,722
NAC Reinsurance Corp. ................................ 19,000 927,437
NACCO Industries Inc., Class A ....................... 9,700 1,039,719
Nash Finch Co. ....................................... 14,900 283,100
National Auto Credit Inc. ............................ 14,030 74,534
National Bancorp of Alaska Inc. ...................... 5,800 733,700
National Beverage Corp. .............................. 5,700 56,644
National City Bancshares Inc. ........................ 12,331 551,812
National Computer Systems Inc. ....................... 17,800 627,450
National Golf Properties Inc. ........................ 15,600 511,875
National Health Investors Inc. ....................... 33,400 1,398,625
National Instruments Corp. ........................... 17,450 506,050
National Media Corp. ................................. 21,000 68,250
National Oilwell Inc. ................................ 51,700 1,767,494
National Penn Bancshares Inc. ........................ 11,769 388,377
National Presto Industries Inc. ...................... 6,700 265,069
National Processing Inc. ............................. 5,000 49,375
National Steel Corp., Class B ........................ 26,800 309,875
National Surgery Centers Inc. ........................ 26,050 683,812
National Techteam Inc. ............................... 20,700 186,300
National Western Life Insurance Co., Class A ......... 2,700 274,050
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-154
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Nationwide Financial Services Inc., Class A ......... 3,800 $ 137,275
Nationwide Health Properties Inc. ................... 59,300 1,512,150
Natural Microsystems Corp. .......................... 15,400 716,100
Nature's Sunshine Products Inc. ..................... 17,979 467,454
Nautica Enterprises Inc. ............................ 50,000 1,162,500
NBT Bancorp Inc. .................................... 13,020 351,540
NBTY Inc. ........................................... 19,800 660,825
NCH Corp. ........................................... 4,200 275,100
NCI Building Systems Inc. ........................... 8,300 294,650
NCO Group Inc. ...................................... 13,350 343,763
NCS Healthcare Inc., Class A ........................ 28,400 749,050
Neomagic Corp. ...................................... 12,600 160,650
Neopath Inc. ........................................ 18,300 237,900
Neoprobe Corp. ...................................... 29,800 178,800
Network Appliance Inc. .............................. 37,000 1,313,500
Network Computing Devices Inc. ...................... 20,200 189,375
Network Equipment Technologies Inc. ................. 26,700 390,488
Networks Assocs Inc. ................................ 23,293 1,231,617
Neurex Corp. ........................................ 22,600 313,575
Neurogen Corp. ...................................... 15,400 207,900
Neuromedical Systems Inc. ........................... 40,400 113,625
Nevada Power Co. .................................... 70,300 1,867,344
New England Business Service Inc. ................... 15,000 506,250
New Jersey Resources Corp. .......................... 23,400 937,462
New York Bancorp Inc. ............................... 22,038 874,633
Newfield Exploration Co. ............................ 47,300 1,102,681
Newpark Resources Inc. .............................. 89,160 1,560,300
Newport News Shipbuilding Inc. ...................... 51,200 1,302,400
Nexstar Pharmaceuticals Inc. ........................ 40,100 456,138
NFO Worldwide Inc. .................................. 26,850 562,172
NHP Inc. (c) ........................................ 9,200 253,184
Nichols Research Corp. .............................. 12,500 312,500
Nimbus CD International Inc. ........................ 17,700 190,275
NL Industries Inc. .................................. 32,300 440,088
NN Ball & Roller Inc. ............................... 12,625 112,047
Nordson Corp. ....................................... 20,900 958,787
Norrell Corp. ....................................... 18,200 361,725
Nortek Inc. ......................................... 11,900 316,094
North Carolina Natural Gas Corp. .................... 9,050 314,488
North Face Inc. ..................................... 20,900 459,800
North Pittsburgh Systems Inc. ....................... 23,700 434,006
Northwest Natural Gas Co. ........................... 29,650 919,150
Northwestern Public Service Co. ..................... 22,600 519,800
Nova Corp. .......................................... 28,900 722,500
Novacare Inc. ....................................... 90,100 1,176,931
NPC International Inc. .............................. 11,900 144,288
NTL Inc. ............................................ 42,233 1,177,245
Nu Skin Asia Pacific Inc., Class A .................. 15,300 279,225
Nuevo Energy Co. .................................... 28,800 1,173,600
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-155
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
NUI Corp. ................................... 12,900 $ 370,069
NVR Inc. .................................... 11,900 260,313
NYMAGIC Inc. ................................ 5,100 140,569
O'Reilly Automotive Inc. .................... 15,900 417,375
Oak Industries Inc. ......................... 26,260 779,594
Oak Technology .............................. 57,600 374,400
Oakley Inc. ................................. 25,500 231,094
Oakwood Homes Corp. ......................... 64,700 2,147,231
Oasis Residential Inc. ...................... 20,100 448,481
Object Design Inc. .......................... 29,700 248,738
Objective Systems Integrators Inc. .......... 12,400 103,850
Ocean Energy Inc. ........................... 19,400 956,662
Ocean Financial Corp. ....................... 10,700 398,575
Oceaneering International Inc. .............. 33,500 661,625
Ocwen Asset Investment Corp. ................ 29,000 594,500
Ocwen Financial Corp. ....................... 39,200 997,150
ODS Networks Inc. ........................... 10,300 66,306
OEA Inc. .................................... 21,500 622,156
OEC Medical Systems Inc. .................... 17,100 340,931
Offshore Logistics Inc. ..................... 27,800 594,225
Ogden Corp. ................................. 70,200 1,978,762
OHM Corp. ................................... 15,300 116,663
OIS Optical Imaging Systems Inc. ............ 17,200 20,963
Old National Bancorp ........................ 37,109 1,795,148
OM Group Inc. ............................... 32,250 1,181,156
Omega Environmental Inc. .................... 4,895 153
Omega Financial Corp. ....................... 14,200 475,700
Omega Healthcare Investors Inc. ............. 25,809 996,873
OMI Corp. ................................... 50,500 463,969
Omnipoint Corp. ............................. 38,800 902,100
Omniquip International Inc. ................. 18,600 370,838
On Assignment Inc. .......................... 17,400 461,100
On Command Corporation ...................... 15,200 193,800
ONBANCorp Inc. .............................. 18,696 1,318,068
One Valley Bancorp Inc. ..................... 38,575 1,494,781
Oneida Ltd. ................................. 17,775 474,370
Oneok Inc. .................................. 34,800 1,405,050
Open Market Inc. ............................ 23,200 223,300
Optical Cable Corp. ......................... 4,000 32,750
Orange & Rockland Utilities Inc. ............ 20,200 940,562
Orbital Sciences Corp. ...................... 47,200 1,404,200
Oregon Metallurgical Corp. .................. 21,300 710,887
Oregon Steel Mills Inc. ..................... 33,700 718,231
Organogenesis Inc. .......................... 29,522 778,643
Oriental Financial Group Inc. ............... 16,225 479,652
Orion Capital Corp. ......................... 38,736 1,798,803
Orthodontic Centres of America Inc. ......... 48,700 809,637
Oshkosh B Gosh Inc., Class A ................ 11,700 386,100
Osmonics Inc. ............................... 13,200 208,725
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-156
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
O'Sullivan Industries Inc. .............................. 19,100 $ 191,000
Otter Tail Power Co. .................................... 17,500 662,812
Outdoor Systems Inc. .................................... 24,200 928,675
Overseas Shipholding Group Inc. ......................... 35,200 767,800
Owens & Minor Inc. ...................................... 31,400 455,300
Oxford Industries Inc. .................................. 8,700 282,750
Oxigene Inc. ............................................ 7,600 133,000
P Common Inc. ........................................... 54,900 947,025
P.H. Glatfelter Co. ..................................... 37,300 694,712
Pacific Gateway Exchange Inc. ........................... 10,300 554,269
Pacific Gulf Pptys Inc. ................................. 24,300 577,125
Pacific Sunwear California .............................. 17,599 520,270
Pagemart Wireless Inc., Class A ......................... 44,500 350,438
Paging Network Inc. ..................................... 144,000 1,548,000
Palm Harbor Homes Inc. .................................. 21,937 619,720
Panavision Inc. ......................................... 26,900 694,356
Papa John's International Inc. .......................... 24,575 857,053
Paracelsus Healthcare Corp. ............................. 32,800 110,700
Paragon Health Network Inc. ............................. 109,839 2,148,725
Paragon Trade Brands Inc. ............................... 13,700 176,388
Parexel International Corp. ............................. 29,800 1,102,600
Park Electrochemical Corp. .............................. 13,200 374,550
Park National Corp. ..................................... 8,700 766,687
Parker Drilling Co. ..................................... 96,700 1,178,531
PathoGenesis Corp. ...................................... 21,000 779,625
Patterson Dental Co. .................................... 17,650 798,662
Patterson Energy Inc. ................................... 14,400 557,100
Paul Harris Stores Inc. ................................. 14,400 144,900
PAXAR Corp. ............................................. 39,593 586,471
Paxson Communications Corp. ............................. 21,500 158,563
Payment Services Inc. ................................... 54,900 761,737
PEC Israel Economic Corp. ............................... 6,000 129,750
Pediatrix Medical Group ................................. 15,600 666,900
Pegasystems Inc. ........................................ 6,400 129,200
Penn Engineering & Manufacturing Corp., Class A ......... 5,400 134,325
Penn National Gaming Inc. ............................... 18,100 176,475
Penn Treaty American Corp. .............................. 7,100 225,425
PennCorp Financial Group Inc. ........................... 39,800 1,420,362
Pennsylvania Enterprises Inc. ........................... 12,600 318,150
Pennsylvania REIT ....................................... 9,900 243,169
Penske Motorsports Inc. ................................. 12,200 303,475
Peoples First Corp. ..................................... 12,680 492,935
Peoples Heritage Financial Group Inc. ................... 38,751 1,782,546
Perceptron Inc. ......................................... 11,300 244,363
Perclose Inc. ........................................... 7,700 148,225
Performance Food Group Inc. ............................. 15,850 376,438
Periphonics Corp. ....................................... 13,900 121,625
Perrigo Co. ............................................. 94,400 1,262,600
Personal Group of America Inc. .......................... 15,800 521,400
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-157
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Petco Animal Supplies Inc. ...................... 24,400 $ 585,600
PFF Bancorp Inc. ................................ 28,300 562,462
Pharmaceutical Product Development Inc. ......... 29,104 447,474
Pharmerica Inc. ................................. 31,700 328,888
Philadelphia Consolidated Holding Corp. ......... 8,600 152,650
Philadelphia Suburban Corp. ..................... 21,050 619,659
Phillips-Van Heusen Corp. ....................... 30,600 436,050
Phoenix Duff & Phelps Corp. ..................... 55,800 446,400
Phoenix Technology Ltd. ......................... 21,000 254,625
Photronics Inc. ................................. 27,900 676,575
PHP Healthcare Corp. ............................ 8,100 122,006
Phymatrix Corp. ................................. 25,600 403,200
Physician Reliance Network Inc. ................. 31,300 326,694
Physician Sales & Service Inc. .................. 55,900 1,201,850
Physicians Computer Network Inc. ................ 38,800 155,200
Physicians Resource Group Inc. .................. 41,600 182,000
Physio Control International Corp. .............. 22,700 360,363
PictureTel Corp. ................................ 43,800 284,700
Piedmont Natural Gas Co., Inc. .................. 43,700 1,570,469
Pier 1 Imports Inc. ............................. 94,499 2,138,040
Pilgrim's Pride Corp. ........................... 3,800 59,138
Pillowtex Corp. ................................. 6,200 216,225
Pinkerton's Inc. ................................ 9,850 231,475
Pioneer Group Inc. .............................. 32,300 908,437
Pioneer-Standard Electronics Inc. ............... 34,075 519,644
Piper Jaffray Cos., Inc. ........................ 14,500 528,344
Pittston Bulington Group ........................ 26,900 706,125
Pixar ........................................... 11,800 255,175
Plains Resources Inc. ........................... 21,000 360,938
Plantronics Inc. ................................ 23,200 928,000
PLATINUM Technology Inc. ........................ 86,294 2,437,805
Playboy Enterprises Inc., Class B ............... 21,700 340,419
Playtex Family Products Corp. ................... 34,700 355,675
Plexus Corp. .................................... 23,400 348,075
PMC Sierra Inc. ................................. 41,700 1,292,700
Poe & Brown Inc. ................................ 11,300 504,263
Polaris Industries Inc. ......................... 38,700 1,182,769
Policy Management Systems Corp. ................. 21,900 1,523,419
Polymer Group Inc. .............................. 35,800 340,100
Pool Energy Services Co. ........................ 25,100 558,475
Pope & Talbot Inc. .............................. 17,600 265,100
Possis Medical Inc. ............................. 15,900 174,900
Post Properties Inc. ............................ 44,370 1,802,531
Powertel Incorporated ........................... 18,600 311,550
Powerwave Technologies Inc. ..................... 9,800 164,763
Pre-Paid Legal Services Inc. .................... 29,100 994,856
Precision Drilling Corp. ........................ 13,200 321,750
Precision Response Corp. ........................ 6,400 65,200
Premier Parks Inc. .............................. 14,200 575,100
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-158
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Premiere Technologies Inc. ........................ 31,000 $ 856,375
Premisys Communications Inc. ...................... 37,600 982,300
Prentiss Pptys Trust .............................. 29,700 829,744
Presidential Life Corp. ........................... 32,400 656,100
PRI Automation Inc. ............................... 18,300 528,412
Price Enterprises Inc. ............................ 16,000 292,000
Price REIT Inc. ................................... 16,000 655,000
Pricellular Corp., Class A ........................ 18,693 195,108
Pride International Inc. .......................... 60,500 1,527,625
Primadonna Resorts Inc. ........................... 7,300 121,819
Primark Corp. ..................................... 37,900 1,542,056
Prime Hospitality Corp. ........................... 59,700 1,216,387
Prime Medical Services Inc. ....................... 20,900 288,681
Prime Retail Inc. ................................. 33,700 478,119
Primus Telecomm Group Inc. ........................ 22,800 367,650
Proffitt's Inc. ................................... 63,600 1,808,625
Profit Recovery Group International Inc. .......... 8,700 154,425
Progress Software Corp. ........................... 15,000 324,375
Project Software & Development Inc. ............... 12,600 296,100
Protein Design Inc. ............................... 20,000 800,000
Provident Bankshares Corp. ........................ 11,875 758,516
Proxim Inc. ....................................... 13,100 148,194
Psinet Inc. ....................................... 43,400 222,425
Psychemedics Corp. ................................ 16,300 97,800
Public Service Co. of New Mexico .................. 61,100 1,447,306
Public Service Co. of North Carolina Inc. ......... 24,800 567,300
Puerto Rican Cement Inc. .......................... 5,800 291,088
Pulitzer Publishing Co. ........................... 13,682 859,401
Pulte Corp. ....................................... 21,800 911,512
Pxre Corp. ........................................ 18,396 610,517
Quaker State Corp. ................................ 46,000 655,500
Quality Food Centers Inc. ......................... 18,261 1,223,487
Quanex Corp. ...................................... 17,600 495,000
Queens County Bancorp., Inc. ...................... 16,597 672,178
Quest Diagnostics Inc. ............................ 43,800 739,125
Quick & Reilly Group Inc. ......................... 29,687 1,276,541
Quickresponse Services Inc. ....................... 9,300 344,100
Quiksilver Inc. ................................... 8,500 243,313
Quintel Entertainment Inc. ........................ 4,300 23,381
Radiant Systems Inc. .............................. 7,600 216,600
Radisys Corp. ..................................... 7,800 290,550
Rainforest Cafe Inc. .............................. 19,150 631,950
Ralcorp Holdings Inc. ............................. 43,200 731,700
Rambus Inc. ....................................... 17,800 814,350
Ramtron International Corp. ....................... 38,700 215,269
Raptor Systems Inc. ............................... 7,600 100,700
Rare Hospitality International Inc. ............... 8,100 72,900
Rational Software Corp. ........................... 110,545 1,257,449
Raymond James Financial Inc. ...................... 32,230 1,279,128
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-159
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
RCN Corp. ....................................... 20,600 $ 705,550
Read-Rite Corp. ................................. 64,800 1,020,600
Realty Income Corp. ............................. 33,600 854,700
Reckson Associates Realty Corp. ................. 43,900 1,113,962
Red Roof Inns Inc. .............................. 37,200 569,625
Redwood Trust Inc. .............................. 22,300 454,363
Regal Beloit Corp. .............................. 27,200 804,100
Regency Realty Corp. ............................ 34,700 960,756
Regeneron Pharmaceuticals Inc. .................. 28,200 241,463
Regis Corp. ..................................... 23,800 597,975
Registry Inc. ................................... 12,439 570,639
Reinsurance Group of America Inc. ............... 53,050 2,257,941
Reliance Bancorp Inc. ........................... 15,300 560,362
Reliance Steel & Aluminum Co. ................... 16,350 486,413
Remec Inc. ...................................... 23,500 528,750
Remedy Corp. .................................... 29,200 613,200
Renal Care Group Inc. ........................... 31,750 1,016,000
Renal Treatment Centers Inc. .................... 31,500 1,137,937
Rental Service Corp. ............................ 17,800 437,213
Renters Choice Inc. ............................. 19,300 395,650
Republic Bancorp Inc. ........................... 21,586 461,401
Republic Gypsum Co. ............................. 12,400 203,050
Resource Bancshares Mortgage Group Inc. ......... 16,750 273,228
Resources Care Inc. ............................. 9,900 287,100
Respironics Inc. ................................ 25,800 577,275
Rexall Sundown Inc. ............................. 46,100 1,391,644
RFS Hotel Investors Inc. ........................ 26,700 532,331
Richfood Holdings Inc. .......................... 66,700 1,884,275
Riggs National Corp. ............................ 25,850 694,719
Rightchoice Managed Care Inc., Class A .......... 3,500 33,688
Rio Hotel & Casino Inc. ......................... 20,800 436,800
Risk Capital Holding Inc. ....................... 25,700 571,825
Riviana Foods Inc. .............................. 8,900 185,788
RLI Corp. ....................................... 9,099 453,244
RMI Titanium Co. ................................ 18,200 364,000
Roadway Express Inc. ............................ 15,900 351,788
Robbins & Myers Inc. ............................ 10,200 404,175
Robert Mondavi Corp., Class A ................... 4,700 229,125
Roberts Pharmaceutical Corp. .................... 33,600 321,300
Robotic Vision Systems Inc. ..................... 25,100 288,650
Rochester Gas & Electric Corp. .................. 55,000 1,870,000
Rock-Tenn Co., Class A .......................... 50,890 1,043,245
Rockshox Inc. ................................... 9,800 90,650
Rofin Sinar Technologies Inc. ................... 15,000 181,875
Rogers Corp. .................................... 9,800 400,575
Rohn Inds Incorporated .......................... 21,800 112,406
Rollins Inc. .................................... 25,400 515,938
Rollins Truck Leasing Corp. ..................... 46,175 825,378
Romac International Inc. ........................ 27,600 674,475
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-160
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Roper Industries Inc. ............................. 45,300 $ 1,279,725
Roslyn Bancorp Inc. ............................... 63,500 1,476,375
Rouge Inds Incorporated Delaware, Class A ......... 8,000 97,000
Royal Appliance Manufacturing Co. ................. 30,700 203,388
RPC Energy Services Inc. .......................... 15,000 177,188
Ruby Tuesday Inc. ................................. 23,950 616,712
Ruddick Corp. ..................................... 41,300 720,169
Rural/Metro Corp. ................................. 20,700 690,862
Russ Berrie & Co., Inc. ........................... 13,300 349,125
Rutherford Moran Oil Corp. ........................ 8,000 143,000
Ryan's Family Steak Houses Inc. ................... 61,800 529,162
Ryerson Tull Incorporated, Class A ................ 4,000 55,500
Ryland Group Inc. ................................. 19,100 448,850
S&T Bancorp Inc. .................................. 16,000 692,000
S3 Inc. ........................................... 64,900 324,500
Sabratek Corp. .................................... 16,100 462,875
Sabre Group Holdings Inc., Class A ................ 30,600 883,575
Safeguard Scientifics Inc. ........................ 40,000 1,255,000
Safeskin Corp. .................................... 24,800 1,407,400
Safety-Kleen Corp. ................................ 81,400 2,233,412
Saga Communications, Class A ...................... 17,950 381,438
Samsonite Corp. ................................... 23,200 733,700
Sanderson Farms Inc. .............................. 5,400 78,300
Sandisk Corp. ..................................... 28,400 576,875
Sangstat Medical Corp. ............................ 20,800 842,400
Sanmina Corp. ..................................... 24,900 1,686,975
Santa Barbara Bancorp (California) ................ 8,700 409,988
Santa Cruz Operation Inc. ......................... 21,600 89,100
Sapient Corp. ..................................... 3,800 232,750
Saul Centers Inc. ................................. 12,800 232,800
Savannah Foods & Industries Inc. (c) .............. 35,406 663,862
Sawtek Inc. ....................................... 8,800 232,100
Sbarro Inc. ....................................... 16,300 428,894
SC/PIE Holdings Inc. .............................. 16,000 463,000
Scholastic Corp. .................................. 16,600 622,500
Schweitzer-Mauduit International Inc. ............. 21,000 782,250
Scientific Games Holdings Corp. ................... 12,200 247,050
Scios Nova Inc. ................................... 46,4564 64,560
Scopus Technology ................................. 25,400 304,800
Scotsman Industries Inc. .......................... 13,800 337,238
Scotts Co., Class A ............................... 24,400 738,100
SDL Inc. .......................................... 22,450 325,525
Seaboard Corp. .................................... 520 228,800
Seachange International Inc. ...................... 6,100 43,463
Seacor Holdings Inc. .............................. 20,300 1,223,075
Seattle Filmworks Inc. ............................ 19,500 216,938
Security Capital Atlantic Incorporated ............ 26,100 551,362
SEI Investments Corp. ............................. 15,200 638,400
Seitel Inc. ....................................... 32,800 561,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-161
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Selective Insurance Group Inc. ................. 43,200 $ 1,166,400
Semco Energy Inc. .............................. 16,685 302,416
Semtech Corp. .................................. 5,900 230,838
Sepracor Inc. .................................. 38,900 1,558,431
Sequa Corp., Class A ........................... 10,600 689,662
Sequent Computer Systems Inc. .................. 58,600 1,172,000
Sequus Pharmaceuticals Inc. .................... 39,800 296,013
Serologicals Corp. ............................. 18,150 471,900
Service Experts Inc. ........................... 12,500 357,813
Service Merchandise Co., Inc. .................. 125,800 267,325
SFX Broadcasting Inc., Class A ................. 9,100 730,275
Sheldahl Co. ................................... 11,400 159,600
Shiloh Inds Inc. ............................... 3,800 72,200
Shiva Corp. .................................... 36,200 309,963
Shoneys Inc. ................................... 56,000 178,500
ShopKo Stores Inc. ............................. 17,800 387,150
Shorewood Packaging Corp. ...................... 18,500 494,875
Showbiz Pizza Time Inc. ........................ 19,000 437,000
Showboat Inc. .................................. 20,400 599,250
Shurgard Storage Centres Inc., Class A ......... 37,100 1,075,900
Siebel Systems Inc. ............................ 29,500 1,233,469
Sierra Health Services Inc. .................... 20,000 672,500
Sierra Pacific Resources ....................... 44,900 1,683,750
SIG Corp., Inc. ................................ 30,850 906,219
Signature Resorts Inc. ......................... 24,650 539,219
Silgan Holdings Inc. ........................... 24,700 802,750
Silicon Valley Bancshares ...................... 12,700 714,375
Silicon Valley Group Inc. ...................... 45,700 1,033,962
Siliconix Inc. ................................. 13,000 559,000
Simpson Industries Inc. ........................ 21,075 247,631
Simpson Manufacturing Inc. ..................... 6,200 206,538
Sinclair Broadcast Group Inc., Class A ......... 14,800 690,050
Sipex Corp. .................................... 11,600 350,900
Sitel Corp. .................................... 69,300 632,362
Skyline Corp. .................................. 11,000 302,500
Smart & Final Inc. ............................. 13,700 246,600
Smart Modular Technologies Inc. ................ 34,600 795,800
Smartalk Teleservices Inc. ..................... 12,600 286,650
Smithfield Foods Inc. .......................... 43,700 1,442,100
Snyder Communications Inc. ..................... 19,800 722,700
Snyder Oil Corp. ............................... 38,500 702,625
Sodak Gaming Inc. .............................. 9,900 63,113
Sola International Inc. ........................ 35,900 1,166,750
Sonic Corp. .................................... 14,950 420,469
Sonus Pharmaceuticals Inc. ..................... 8,900 294,813
Sotheby's Holdings Inc., Class A ............... 59,200 1,095,200
Source Services Corp. .......................... 17,100 369,788
South Jersey Industries Inc. ................... 10,120 306,763
Southdown Inc. ................................. 31,100 1,834,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-162
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Southern California Water Co. ................. 11,500 $ 288,938
Southern Pacific Funding Corp. ................ 8,900 116,813
Southern Union Co. ............................ 11,537 275,449
Southwest Bancorporation Texas ................ 17,500 544,687
Southwest Gas Corp. ........................... 40,100 749,369
Southwestern Energy Co. ....................... 31,400 404,275
Sovereign Bancorp Inc. ........................ 123,935 2,571,651
Sovran Self Storage Inc. ...................... 9,900 321,131
Spacelabs Medical Inc. ........................ 12,500 237,500
Spartech Corp. ................................ 17,500 264,688
Special Metals Corp. .......................... 2,900 52,200
Specialty Equipment Cos., Inc. ................ 14,800 247,900
Spectrian Corp. ............................... 12,300 236,775
Speedfam International Inc. ................... 8,500 225,250
Speedway Motorsport ........................... 15,900 394,519
Spelling Entertainment Group Inc. ............. 28,100 196,700
Spiegel Inc., Class A ......................... 21,200 104,675
Spine Tech Inc. ............................... 15,500 797,281
Splash Technology Holdings Inc. ............... 18,000 405,000
Sports Authority Inc. ......................... 41,150 606,962
Springs Industries Inc. ....................... 18,400 956,800
SPS Technologies Inc. ......................... 13,200 575,850
SPS Transaction Services Inc. ................. 8,900 200,806
SPSS Inc. ..................................... 14,600 281,050
SPX Corp. ..................................... 19,700 1,359,300
St Francis Capital Corp. ...................... 8,000 404,000
St Mary Land + Exploration Co. ................ 14,400 504,000
St. John Knits Inc. ........................... 21,700 868,000
St. Paul Bancorp Inc. ......................... 49,927 1,310,584
Staar Surgical Co. ............................ 15,800 271,563
Staffmark Inc. ................................ 17,500 553,437
Stage Stores Inc. ............................. 38,200 1,427,725
Standard Motor Products Inc., Class A ......... 10,500 236,906
Standard Pacific Corp. ........................ 37,400 589,050
Standard Products Co. ......................... 25,075 642,547
Standard Register Co. ......................... 19,600 681,100
Standex International Corp. ................... 15,100 532,275
Stanford Telecommunications Inc. .............. 13,400 226,963
Stanhome Inc. ................................. 25,900 665,306
State Auto Financial Corp. .................... 7,550 243,488
Station Casinos Inc. .......................... 39,400 401,388
Steck Vaughn Publishing Corp. ................. 3,400 50,150
Steel Dynamics Inc. ........................... 52,600 841,600
Stein Mart Inc. ............................... 11,700 312,975
Stepan Co. .................................... 10,798 319,891
Sterling Bancshares Inc. ...................... 22,100 447,525
Stewart & Stevenson Services Inc. ............. 45,900 1,170,450
Stillwater Mining Co. ......................... 23,000 385,250
Stone & Webster Inc. .......................... 9,900 464,063
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-163
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Stone Energy Corp. ................................ 14,100 $ 472,350
Storage Trust Realty .............................. 19,300 507,831
Storage USA Inc. .................................. 38,700 1,545,581
Stratus Computer Inc. ............................. 39,700 1,501,156
Strayer Education Inc. ............................ 11,700 386,100
Stride Rite Corp. ................................. 63,300 759,600
Structural Dynamics Research Corp. ................ 43,800 985,500
Student Loan Corp. ................................ 5,200 256,750
Sturm Ruger & Co., Inc. ........................... 25,400 468,313
Suburban Lodges America Inc. ...................... 13,200 175,725
Suiza Foods Corp. ................................. 27,750 1,652,859
Sumitomo Bank of California ....................... 3,200 174,800
Summit Properties Inc. ............................ 26,800 566,150
Summit Technology Inc. ............................ 43,900 198,922
Sun Communities Inc. .............................. 21,300 765,469
Sun Healthcare Group Inc. ......................... 62,520 1,211,325
Sunburst Hospitality Corp. ........................ 23,333 230,413
Sungard Data Systems Inc. ......................... 9,656 299,336
Sunglass Hut International Inc. ................... 81,800 516,363
Sunquest Information Systems Inc. ................. 3,300 32,175
Sunrise Assisted Living Inc. ...................... 12,000 517,500
Sunrise Medical Inc. .............................. 22,100 341,169
Sunstone Hotel Invs Inc. .......................... 51,500 888,375
Superior Consultant Inc. .......................... 4,400 132,000
Superior Industries International Inc. ............ 26,800 718,575
Superior Services Inc. ............................ 30,200 872,025
Superior Telecom Inc. ............................. 8,400 290,325
Supertex Inc. ..................................... 16,200 176,175
Susquehanna Bancshares Inc. ....................... 32,475 1,242,169
Swift Energy Co. .................................. 21,059 443,555
Swift Transportation Co., Inc. .................... 20,100 650,737
Sykes Enterprises Inc. ............................ 12,200 237,900
Sylvan Learning Systems Inc. ...................... 28,050 1,093,950
Symantec Corp. .................................... 78,200 1,715,512
Symmetricom Inc. .................................. 20,100 233,663
Syms Corp. ........................................ 8,100 96,188
Synetic Inc. ...................................... 26,100 952,650
Synopsys Inc. ..................................... 16,628 594,451
Synthetic Inds Inc. ............................... 11,300 279,675
System Software Associates Inc. ................... 37,500 328,125
Systems & Computer Technology Corp. ............... 24,000 1,191,000
Systemsoft Corp. .................................. 28,200 179,775
Talbot's Inc. ..................................... 15,500 280,938
Tanger Factory Outlet Centers Inc. ................ 4,900 149,756
Taubman Centers Inc. .............................. 45,800 595,400
TBC Corp. ......................................... 30,662 293,205
TCA Cable TV Inc. ................................. 24,800 1,140,800
TCI Satellite Entertainment Inc., Class A ......... 67,200 462,000
Tech Sym Corp. .................................... 7,800 198,413
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-164
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Techne Corp. .................................... 23,200 $ 406,000
Technitrol Inc. ................................. 21,000 630,000
Technology Solutions Co. ........................ 34,425 907,959
Tejas Gas Corp. ................................. 23,885 1,462,956
Tejon Ranch Co. ................................. 11,200 272,300
Tekelec Inc. .................................... 12,200 372,100
Tel-Save Holdings Inc. .......................... 49,800 989,775
Telespectrum Worldwide Inc. ..................... 25,900 93,888
Telxon Corp. .................................... 20,400 487,050
Tennant Co. ..................................... 11,400 414,675
Terex Corp. ..................................... 14,600 343,100
Terra Industries Inc. ........................... 59,700 779,831
Tesoro Petroleum Corp. .......................... 35,000 542,500
Tetra Technologies Inc. ......................... 17,200 362,275
Tetra Technologies Inc. ......................... 31,093 621,860
Texas Industries Inc. ........................... 29,556 1,330,020
Texas Regional Bancshares Inc., Class A ......... 16,449 501,695
The Shaw Group Inc. ............................. 12,300 282,900
Theragenics Corp. ............................... 16,800 604,800
Theratech Inc. .................................. 20,350 162,800
Thermadyne Holdings Corp. ....................... 10,000 295,000
Thermedics Detection Inc. ....................... 4,300 44,075
Thermedics Inc. ................................. 22,700 371,713
Thermo Cardiosystems Inc. ....................... 23,500 628,625
Thermo Ecotek Corp. ............................. 3,700 67,525
Thermo Fibertek Inc. ............................ 12,700 154,781
Thermo Optek Corporation ........................ 2,600 39,975
Thermo Terratech Inc. ........................... 3,300 26,813
Thermo Vision Corporation ....................... 364 2,958
Thermolase ...................................... 18,200 191,100
Thermoquest Corporation ......................... 3,300 59,813
Thermospectra Corp. ............................. 3,300 33,000
Thermotrex Corp. ................................ 12,400 274,350
Thomas Industries Inc. .......................... 20,100 396,975
Thomas Nelson Inc. .............................. 14,149 163,598
Thor Industries Inc. ............................ 5,800 199,013
Thornburg Mortgage Asset Corp. .................. 25,300 417,450
Ticketmaster Group Inc. ......................... 12,800 294,400
Timberland Co., Class A ......................... 6,800 394,825
Titan Exploration Incorporated .................. 42,200 400,900
Titan Holdings Incorporated (c) ................. 12,900 280,575
Titan International Inc. ........................ 23,100 463,444
Titanium Metals Corp. ........................... 21,700 626,587
TJ International Inc. ........................... 20,500 507,375
TMP Worldwide Inc. .............................. 9,700 223,100
TNP Enterprises Inc. ............................ 13,300 442,225
Toll Brothers Inc. .............................. 32,700 874,725
Tom Brown Inc. .................................. 34,400 662,200
Topps Co., Inc. ................................. 60,700 134,678
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-165
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Toro Co. .................................... 17,700 $ 754,462
Toronto Dominion Bank ....................... 4,779 179,669
Total Renal Care Holdings Inc. .............. 55,366 1,522,565
Tower Automotive Inc. ....................... 23,600 992,675
Town & Country Trust ........................ 20,000 353,750
Toy Biz Inc., Class A ....................... 13,700 106,175
TR Financial Corp. .......................... 20,300 674,975
Tracor Inc. ................................. 21,400 650,025
Tractor Supply Co. .......................... 5,100 75,225
Trans Financial Inc. ........................ 17,300 672,537
Trans World Airlines Inc. ................... 64,400 652,050
Transaction Network Services Inc. ........... 9,500 163,875
Transition Systems Inc. ..................... 22,600 500,025
Transkaryotic Therapies Inc. ................ 26,800 941,350
Transmontaigne Oil Co. ...................... 27,700 415,500
Tredegar Industries Inc. .................... 10,750 708,156
Tremont Corp. ............................... 5,800 303,050
Trenwick Group Inc. ......................... 15,650 588,831
Trex Med Corp. .............................. 7,900 110,106
Triad Guaranty Inc. ......................... 16,800 487,200
Triangle Bancorp Inc. ....................... 13,300 470,554
Triangle Pacific Corp. ...................... 21,800 738,475
Triangle Pharmaceuticals Inc. ............... 18,000 263,250
Triarc Cos., Inc., Class A .................. 23,520 640,920
Trico Marine Services Inc. .................. 20,500 602,187
Trident Microsystems Inc. ................... 16,200 146,813
Trigen Energy Corp. ......................... 5,500 109,656
Trigon Healthcare Inc. ...................... 59,800 1,562,275
Trimas Corp. ................................ 23,300 800,937
Trimble Navigation Ltd. ..................... 29,000 632,562
Trinet Corp. Realty Trust Inc. .............. 26,400 1,021,350
Triquint Semiconductor Inc. ................. 14,200 287,550
Triumph Group Inc. .......................... 18,300 608,475
True North Communications Inc. .............. 29,700 735,075
Trump Hotels & Casino Resorts ............... 29,400 196,613
Trust Co. of New Jersey ..................... 21,200 530,000
Trustco Bank Corp. .......................... 30,622 834,449
Trustmark Corp. ............................. 45,800 2,118,250
Tuboscope Vetco International Corp. ......... 61,400 1,477,437
Tultex Corp. ................................ 39,100 158,844
Turbochef Inc. .............................. 4,300 31,175
Tuscon Electric Power Co. ................... 42,020 761,612
Twinlab Corp. ............................... 23,700 586,575
UGI Corp. ................................... 48,000 1,407,000
Ugly Duckling Corp. ......................... 9,300 79,050
Ultratech Stepper Inc. ...................... 27,100 538,612
UMB Financial Corp. ......................... 24,507 1,335,631
Unifirst Corp. .............................. 11,300 317,106
Uniphase Corp. .............................. 47,500 1,965,312
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-166
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Unit Corp. .......................................... 30,600 $ 294,525
United Auto Group Inc. .............................. 19,000 344,375
United Bankshares Inc. .............................. 22,100 1,055,275
United Companies Financial Corp. .................... 36,196 561,038
United Fire & Casualty Co. .......................... 11,375 503,344
United Illuminating Co. ............................. 18,400 845,250
United International Holdings Inc., Class A ......... 33,500 385,250
United Natural Foods Inc. ........................... 7,500 195,000
United States Rentals Inc. .......................... 13,100 307,850
United Stationers Inc. .............................. 22,900 1,102,062
United Television Inc. .............................. 5,100 529,762
United Video Satellite Group Inc., Class A .......... 14,300 411,125
United Water Resources Inc. ......................... 34,400 672,950
United Wisconsin Services Inc. ...................... 10,900 280,675
Unitog Co. .......................................... 11,550 256,988
Unitrode Corp. ...................................... 30,800 662,200
Universal First Products Inc. ....................... 16,600 226,175
Universal Foods Corp. ............................... 36,300 1,533,675
Universal Health Realty Income Trust ................ 11,700 255,938
Universal Outdoor Holdings Inc. ..................... 23,600 1,227,200
Urban Outfitters Inc. ............................... 18,200 332,150
Urban Shopping Centers Inc. ......................... 22,300 777,712
US Bancorp Inc. ..................................... 7,400 540,200
US Bioscience Inc. .................................. 30,700 278,219
US Can Co. .......................................... 14,800 249,750
US Freightways Corp. ................................ 38,100 1,238,250
US Home Corp. ....................................... 14,600 573,050
US Office Products Co. .............................. 176,754 3,468,797
US Satellite Broadcasting, Class A .................. 61,300 486,569
US Trust Corp. ...................................... 27,200 1,703,400
USA Detergents Inc. ................................. 5,400 43,875
USCS International Inc. ............................. 28,800 489,600
UST Corp. ........................................... 36,600 1,015,650
Vail Resorts Inc. ................................... 38,600 1,001,187
Valence Technology Inc. ............................. 25,600 129,600
Valhi Inc. .......................................... 11,800 111,363
Valmont Industries Inc. ............................. 26,500 516,750
Value City Department Stores Inc. ................... 11,000 97,625
Value Line Inc. ..................................... 1,500 59,250
Vanguard Cellular Systems Inc., Class A ............. 47,400 604,350
Vanstar Corp. ....................................... 56,100 634,631
Vantive Corp. ....................................... 12,100 305,525
Varco International Inc. ............................ 49,400 1,059,012
Veeco Instruments Inc. .............................. 12,600 277,200
Veritas DGC Inc. .................................... 32,100 1,267,950
Veritas Software Co. ................................ 37,300 1,902,300
Vermont Financial Services .......................... 17,500 485,625
Vertex Pharmaceuticals Inc. ......................... 36,100 1,191,300
Vesta Insurance Group Inc. .......................... 18,050 1,071,719
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-167
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Veterinary Centers America Inc. ............ 25,500 $ 342,656
Viasoft Inc. ............................... 27,900 1,178,775
Vical Inc. ................................. 19,100 229,200
Vicor Corp. ................................ 46,400 1,258,600
Videoserver Inc. ........................... 16,900 268,288
Vincam Group Inc. .......................... 5,400 143,775
Vintage Petroleum Inc. ..................... 42,400 805,600
Visio Corp. ................................ 34,000 1,304,750
Vistana Inc. ............................... 7,600 174,800
VISX Inc. .................................. 14,000 309,750
Vital Signs Inc. ........................... 5,700 111,150
Vitalink Pharmacy Services Inc. ............ 18,272 440,812
Vivus Inc. ................................. 48,900 519,563
Volt Information Sciences Inc. ............. 11,800 635,725
VWR Corp. .................................. 22,500 635,625
W.H. Brady Co. ............................. 26,400 818,400
W.R. Berkley Corp. ......................... 33,100 1,452,262
Wabash National Corp. ...................... 26,100 742,219
Wachovia Corp. ............................. 62 5,030
Wackenhut Corp. ............................ 16,200 375,638
Wackenhut Corrections Corp. ................ 17,500 470,313
Walbro Corp. ............................... 11,300 151,844
Walden Residential Properties Inc. ......... 19,200 489,600
Walker Interactive Systems ................. 17,300 237,875
Wall Data Inc. ............................. 12,100 164,863
Walter Industries Inc. ..................... 53,400 1,101,375
Wang Laboratories Inc. ..................... 55,800 1,234,575
Warnaco Group Inc., Class A ................ 13,219 414,746
Washington Gas Light Co. ................... 61,600 1,905,750
Washington REIT ............................ 46,550 779,712
Washington Water Power Co. ................. 78,800 1,915,825
Waters Corp. ............................... 35,900 1,350,737
Watsco Inc. ................................ 22,600 557,937
Watts Industries Inc., Class A ............. 27,700 784,256
Wausau Mosinee Paper Corporation ........... 61,584 1,239,378
Waverly Inc. ............................... 2,400 112,800
WD40 Co. ................................... 20,700 600,300
Webb Corp. ................................. 18,900 491,400
Webster Financial Corp. .................... 20,000 1,330,000
Weeks Corp. ................................ 23,100 739,200
Wellman Inc. ............................... 36,000 702,000
Werner Enterprises Inc. .................... 28,050 575,025
Wesbanco Inc. .............................. 24,450 733,500
Wesley Jessen Visioncare Inc. .............. 4,300 167,700
West Co., Inc. ............................. 19,900 592,025
West Coast Bancorp (Oregon) ................ 18,600 469,650
West Marine Inc. ........................... 10,700 239,413
West Teleservices Corp. .................... 22,800 273,600
WestAmerica BanCorporation ................. 20,205 2,065,961
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-168
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Westcorp ..................................... 12,995 $ 219,291
Westell Technologies, Class A ................ 19,400 247,350
Western Gas Resources Inc. ................... 26,900 595,162
Western Investment Real Estate Trust ......... 21,900 301,125
Western Wireless Corp., Class A .............. 98,300 1,707,962
Westernbank .................................. 27,600 655,500
Westinghouse Air Brake Co. ................... 22,400 574,000
Westwood One Inc. ............................ 34,200 1,269,675
Wet Seal Inc. ................................ 13,900 410,050
WFS Financial Inc. ........................... 6,600 74,250
White River Corp. ............................ 5,300 421,350
Whitney Holding Corp. ........................ 29,300 1,670,100
Whittman Hart Inc. ........................... 12,100 414,425
Whole Foods Market Inc. ...................... 28,700 1,467,287
Wicor Inc. ................................... 24,600 1,142,362
Williams Sonoma Inc. ......................... 28,737 1,203,362
Wilmar Industries Inc. ....................... 14,000 334,250
Wind River Systems Inc. ...................... 28,900 1,146,969
Windmere Corp. ............................... 22,200 500,888
Winnebago Industries Inc. .................... 16,300 144,663
Winstar Communications Inc. .................. 48,400 1,206,975
Winston Hotels ............................... 20,300 266,438
Wireless Telecom Group Inc. .................. 16,900 104,569
WMF Group Limited ............................ 3,066 38,325
WMS Industries Inc. .......................... 30,700 648,537
Wolverine Tube Inc. .......................... 21,500 666,500
Wonderware Corp. ............................. 18,400 259,900
Woodhead Industries .......................... 13,500 253,125
Woodward Governor Co. ........................ 11,900 385,263
World Access Inc. ............................ 24,500 584,937
World Color Press Inc. ....................... 54,900 1,458,281
Worthington Foods Inc. ....................... 12,800 179,200
WPL Holdings Inc. ............................ 44,900 1,487,312
WPS Resources Corp. .......................... 35,300 1,193,581
WSFS Financial Corporation ................... 13,700 274,000
Wyman-Gordon Co. ............................. 25,400 498,475
Wyndham Hotel Corp. .......................... 12,900 520,837
Wynn's International Inc. .................... 16,650 530,719
X-Rite Inc. .................................. 18,700 341,275
Xircom Inc. .................................. 28,600 287,788
Xtra Corp. ................................... 22,400 1,313,200
Xylan Corp. .................................. 42,400 641,300
Yahoo Inc. ................................... 31,899 2,209,006
Yankee Energy Systems Inc. ................... 13,650 364,284
Yellow Corp. ................................. 39,400 989,925
Young Broadcasting Inc., Class A ............. 17,600 682,000
Yurie Systems Inc. ........................... 7,200 145,350
Zale Corp. ................................... 51,600 1,186,800
Zebra Technologies Corp., Class A ............ 23,000 684,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-169
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
RUSSELL 2000 FUND
RUSSELL 2000 NON-LENDING FUND
Combined Schedule of Investments (Concluded)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------------- -----------------
<S> <C> <C>
Zeigler Coal Holding Co. ............................................ 20,700 $ 337,669
Zenith Electronics Corp. ............................................ 35,900 195,206
Zenith National Insurance Corp. ..................................... 13,300 342,475
Zero Corp. .......................................................... 15,550 460,669
Zila Inc. ........................................................... 37,800 224,438
Zilog Inc. .......................................................... 25,450 485,141
Zitel Corp. ......................................................... 18,900 179,550
Zoltek Cos., Inc. ................................................... 13,900 387,463
Zoran Corp. ......................................................... 12,700 153,194
Zurn Industries Inc. ................................................ 16,200 509,288
Zygo Corp. .......................................................... 11,700 219,375
--------------
Total Common Stock
(Cost $1,099,982,732)................................................ 1,210,023,357
--------------
PRINCIPAL
----------
SHORT TERM US GOVERNMENT OBLIGATIONS--0.2%
US Treasury Bills 5.14% 05-Mar-98 (a) ............................... $ 2,500,000 2,477,513
US Treasury Bills 5.08% 19-Mar-98 (a) ............................... 300,000 296,740
--------------
TOTAL SHORT TERM US GOVERNMENT OBLIGATIONS (Cost $2,774,253)......... 2,774,253
--------------
STATE STREET BANK AND TRUST COMPANY INVESTMENT FUNDS
FOR TAX EXEMPT RETIREMENT PLANS--6.1% UNITS
-----------
SHORT TERM INVESTMENT FUND (D) ...................................... 78,604,335 78,604,335
- ---------------------------------------------------------------------- ----------- --------------
TOTAL INVESTMENTS--100%
(Cost $1,181,361,320)............................................... $1,291,401,945
====================================================================== ==============
</TABLE>
(a) At December 31, 1997, US Treasury Bills were pledged to cover margin
requirements for open futures contracts. The following futures
contracts were open at December 31, 1997:
<TABLE>
<CAPTION>
FUTURES NUMBER OF MATURITY UNREALIZED
CONTRACTS CONTRACTS DATE GAIN (LOSS)
- ------------------------------- ----------- ------------- ------------
<S> <C> <C> <C>
Russell 2000 ............... 378 March, 1998 $628,233
========
(Notional Amount $82,786,917)
</TABLE>
(b) Issuer filed for bankruptcy.
(c) At December 31, 1997, the company was part of a corporate
reorganization for which its allocation of stock and/or cash had not
been finalized. The Fund received its allocation of stock and/or
cash subsequent to year end.
(d) Collective investment fund advised by State Street Global Advisors.
The accompanying notes are an integral part of these financial statements.
SAI-170
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Trustee of
State Street Bank and Trust Company
Daily EAFE Fund
and State Street Bank and Trust Company
Daily EAFE Fund Non-Lending
In our opinion, the accompanying combined statement of assets and liabilities,
including the combined schedule of investments, and the related combined
statements of operations and of changes in net assets and the selected per unit
data present fairly, in all material respects, the financial position of State
Street Bank and Trust Company Daily EAFE Fund and State Street Bank and Trust
Company Daily EAFE Fund Non-Lending at December 31, 1997, the results of their
operations for the year then ended, and the changes in their net assets and the
selected per unit data for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and selected per
unit data (hereafter referred to as "financial statements") are the
responsibility of the Trustee; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
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 the Trustee, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 27, 1998
SAI-171
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $580,085,424) .................................. $ 605,577,709
Cash ..................................................................................... 764,000
Cash, segregated ......................................................................... 11,846,182
Foreign currency ......................................................................... 6,612,921
Investment in State Street Bank and Trust Company Quality A Short-Term Investment Fund, 56,980,771
at value
Receivable for investments sold .......................................................... 374,798
Dividends, interest and other receivables ................................................ 994,035
- ------------------------------------------------------------------------------------------- -------------
Total assets .......................................................................... 683,150,416
- ------------------------------------------------------------------------------------------- -------------
LIABILITIES
Collateral on securities loaned .......................................................... 56,980,771
Payable for investments purchased ........................................................ 225,985
Payable for open forward foreign currency contracts ...................................... 730,829
Payable for fund units redeemed .......................................................... 14,507,534
Variation margin payable ................................................................. 420,710
Accrued expenses ......................................................................... 190,806
- ------------------------------------------------------------------------------------------- -------------
Total liabilities ..................................................................... 73,056,635
- ------------------------------------------------------------------------------------------- -------------
NET ASSETS ............................................................................... $ 610,093,781
=========================================================================================== =============
Daily EAFE Fund
(26,079,041 units outstanding, at $12.77 per unit net asset value) ...................... $ 333,013,333
Daily EAFE Fund Non-Lending
(21,698,808 units outstanding, at $12.77 per unit net asset value) ...................... 277,080,448
- ------------------------------------------------------------------------------------------- -------------
$ 610,093,781
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-172
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of taxes withheld of $858,484)............................................ $ 7,468,255
Interest ................................................................................ 3,544,411
Securities lending fee income (net of related expenses), allocated to Daily EAFE Fund ... 148,952
- ------------------------------------------------------------------------------------------- -------------
Total investment income .............................................................. 11,161,618
- ------------------------------------------------------------------------------------------- -------------
EXPENSES ................................................................................. 534,643
- ------------------------------------------------------------------------------------------- -------------
Net investment income ................................................................ 10,626,975
- ------------------------------------------------------------------------------------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCY
TRANSACTIONS
Net realized gain (loss):
Investments ........................................................................... 2,177,225
Futures contracts ..................................................................... (4,300,868)
Foreign currency and related forward contracts ........................................ (5,433,268)
- ------------------------------------------------------------------------------------------- -------------
Net realized gain (loss) on investments, futures contracts and foreign currency ...... (7,556,911)
- ------------------------------------------------------------------------------------------- -------------
Net change in unrealized appreciation (depreciation):
Investments ............................................................................. (10,051,821)
Futures contracts ....................................................................... (207,450)
Foreign currency and related forward contracts .......................................... 209,179
- ------------------------------------------------------------------------------------------- -------------
Net change in unrealized appreciation (depreciation) on investments, futures contracts
and foreign
currency .............................................................................. (10,050,092)
- ------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments, futures contracts and foreign (17,607,003)
- ------------------------------------------------------------------------------------------- -------------
currency
- -------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .......................... $ (6,980,028)
=========================================================================================== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-173
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................................................... $ 10,626,975 $ 7,976,527
Net realized gain (loss) on investments, futures contracts and foreign currency ......... (7,556,911) (927,938)
Net change in unrealized appreciation (depreciation) on investments, futures contracts
and foreign currency ................................................................... (10,050,092) 12,134,120
- ------------------------------------------------------------------------------------------ ------------- ------------
Net increase (decrease) in net assets resulting from operations ......................... (6,980,028) 19,182,709
- ------------------------------------------------------------------------------------------ ------------- ------------
Distributions of securities lending fee income to Daily EAFE Fund participants .......... (148,952) (62,368)
- ------------------------------------------------------------------------------------------ ------------- ------------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participant transactions ........... 199,970,259 168,362,362
- ------------------------------------------------------------------------------------------ ------------- ------------
Net increase (decrease) in net assets ................................................... 192,841,279 187,482,703
NET ASSETS
Beginning of year ...................................................................... 417,252,502 229,769,799
- ------------------------------------------------------------------------------------------ ------------- ------------
End of year ............................................................................ $ 610,093,781 $417,252,502
========================================================================================== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-174
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993**
------------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net investment income (loss)* ............................. $ 0.29 $ 0.29 $ 0.25 $ 0.19 $ (0.01)
Distribution of securities lending fee income (a) ......... (0.01) (0.01) (0.01) 0.00 0.00
Net realized and unrealized gain (loss) ................... (0.10) 0.44 0.99 0.59 (0.13)
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
Net increase (decrease) ................................... 0.18 0.72 1.23 0.78 (0.14)
NET ASSET VALUE
Beginning of period ...................................... 12.59 11.87 10.64 9.86 10.00
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
End of period ............................................ $ 12.77 $ 12.59 $ 11.87 $ 10.64 $ 9.86
=========================================================== ========== ========== ======= ======= =======
Total return*** ........................................... 1.51% 6.15% 11.64% 7.91% (1.40)%
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
Ratio of expenses to average net assets (b) ............... 0.11% 0.19% 0.20% 0.19% 0.57%
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
Ratio of net investment income to average net assets (b) 2.23% 2.38% 2.22% 1.88% (0.14)%
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
Portfolio turnover ........................................ 9% 5% 9% 47% 28%
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
Average broker commission per share (c) ................... $ 0.0179 $ 0.0149 N/A N/A N/A
- ----------------------------------------------------------- ---------- ---------- ------- ------- -------
Net assets, end of period (000s) .......................... $ 333,013 $ 99,048 $75,760 $139,678 $229,612
=========================================================== ========== ========== ======= ======== ========
</TABLE>
* Net investment income (loss) per unit has been calculated based upon an
average of monthly units outstanding.
** The Daily EAFE Fund commenced operations on September 30, 1993.
*** Total return is based on the value of a single unit of participation
outstanding throughout the entire period. It represents the percentage
change in the net asset value per unit between the beginning and end of
each period and assumes reinvestment of any distributions. The
calculation includes only those expenses charged directly to the Daily
EAFE Fund. This result may be reduced by any administrative or other fees
which are incurred in the management or maintenance of individual
participant accounts.
(a) Zero amounts represent those which are less than $.005 per unit.
(b) 1993 data annualized.
(c) Represents total commission paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of these financial statements.
SAI-175
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE NON-LENDING FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994**
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net investment income* ............................... $ 0.28 $ 0.28 $ 0.24 $ 0.19
Net realized and unrealized gain (loss) .............. (0.10) 0.44 0.99 0.59
- ------------------------------------------------------ --------- ---------- ------- -------
Net increase (decrease) .............................. 0.18 0.72 1.23 0.78
NET ASSET VALUE
Beginning of year ................................... 12.59 11.87 10.64 9.86
- ------------------------------------------------------ --------- ---------- ------- -------
End of year ......................................... $ 12.77 $ 12.59 $ 11.87 $ 10.64
====================================================== ========= ========== ======= =======
Total return*** ...................................... 1.43% 6.07% 11.56% 7.91%
- ------------------------------------------------------ --------- ---------- ------- --------
Ratio of expenses to average net assets .............. 0.11% 0.19% 0.20% 0.19%
- ------------------------------------------------------ --------- ---------- ------- --------
Ratio of net investment income to average net assets . 2.17% 2.31% 2.15% 1.85%
- ------------------------------------------------------ --------- ---------- ------- --------
Portfolio turnover ................................... 9% 5% 9% 47%
- ------------------------------------------------------ --------- ---------- ------- --------
Average broker commission per share (a) .............. $ 0.0179 $ 0.0149 N/A N/A
- ------------------------------------------------------ --------- ---------- ------- --------
Net assets, end of year (000s) ....................... $ 277,080 $ 318,204 $154,010 $103,242
====================================================== ========= ========== ======== ========
</TABLE>
* Net investment income per unit has been calculated using an average of
monthly units outstanding.
** The Daily EAFE Fund Non-Lending commenced operations on January 3, 1994.
*** Total return is based on the value of a single unit of participation
outstanding throughout the entire year. It represents the percentage
change in the net asset value per unit between the beginning and end of
each year. The calculation includes only those expenses charged directly
to the Daily EAFE Fund Non-Lending. This result may be reduced by any
administrative or other fees which are incurred in the management or
maintenance of individual participant accounts.
(a) Represents total commissions paid on portfolio securities divided by
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of these financial statements.
SAI-176
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") Daily EAFE
Fund and the State Street Bank Daily EAFE Fund Non-Lending (collectively, the
"Fund") were formed by State Street Bank under a Declaration of Trust. The
investment objective of the Fund is to closely match the performance of the
MSCI EAFE Index, while providing daily liquidity. The Fund may invest in equity
securities, equity-based derivatives, swaps, short-term instruments and foreign
exchange contracts, as well as in commingled funds or mutual funds maintained
by the Trustee. State Street Bank is Trustee and custodian of the Fund. State
Street Global Advisors, a division of State Street Bank, is the Fund's
investment manager.
2. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
A. SECURITY VALUATION
Investments for which market quotations are readily available are valued
at the last reported sale price on the valuation date or, if no sales are
reported for that day, the more recent of the last published sale price or the
mean between the last reported bid and asked prices, or at fair value as
determined in good faith by the Trustee. Short-term investments are stated at
amortized cost, which approximates market value. Foreign currencies and foreign
securities quoted in foreign currencies are translated into U.S. dollars at the
current exchange rate.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Fund in connection with the issuance and redemption of its units of
participation are based on the valuations of those securities determined as
described above. The cost of securities delivered and the net gain or loss on
securities sold are determined using the average cost method. Dividend income
is recorded net of applicable withholding taxes on the ex-dividend date or as
soon as the Fund is informed of the dividend. Interest income earned on
securities is recorded net of applicable withholding taxes on the accrual
basis; interest earned on foreign currency transaction accounts is recorded
when the Trustee is first notified of the amount credited by the depository
bank.
C. FOREIGN CURRENCY AND FORWARD FOREIGN CURRENCY CONTRACTS
The accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the prevailing rates of exchange
at period end. Purchases and sales of securities, income and expenses are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of the transactions.
Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of net investment income
accrued and the U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are not segregated
in the Statement of Operations from the effects of changes in market prices of
those securities, but are included with the net realized and unrealized gain or
loss on investments in securities.
SAI-177
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
The Fund may use forward foreign currency contracts to facilitate
transactions in foreign securities or as a hedge against either specific
transactions or portfolio positions. Such contracts are valued based upon the
applicable forward exchange rates and any resulting unrealized gains or losses
are recorded in the Fund's financial statements. The Fund records realized
gains or losses at the time the forward contract is extinguished by entry into
a closing transaction or by delivery of the currency. Risks in foreign currency
contracts arise from the possible inability of counterparties to meet the
contracts' terms and from movements in currency values.
D. INCOME TAXES
It is the Fund's policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Fund is exempt from federal income taxes and no
federal income tax provision is required.
E. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
The net asset value of the Fund is determined as of each business day
("valuation date"). Issuances and redemptions of Fund units are made on the
basis of the value of the Fund as of the valuation date last preceding the
receipt of such order to issue or redeem.
F. EXPENSES
Under the Declaration of Trust, the Fund may pay certain expenses for
services received during the year, including custody, stamp duty, registration
and audit fees. The Fund also pays an annual fee of $50,000 for daily pricing
services to the Trustee in its capacity as custodian.
G. DISTRIBUTIONS TO PARTICIPANTS
All net investment income (excluding securities lending fee income, if
any) and net realized gains are retained by the Fund. Income generated by
securities lending, if any, is distributed monthly.
H. USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit the Trustee to make certain
estimates and assumptions at the date of the financial statements.
3. SECURITIES LENDING PROGRAM: PRINCIPLES OF COMBINATION
The participants in the Daily EAFE Fund (the "Lending Fund") have
authorized the Lending Fund to participate in the Securities Lending Program
maintained by State Street Bank. The investment objective, techniques and
results of operations of the Lending Fund are identical to those of the Daily
EAFE Fund Non-Lending (the "Non-Lending Fund"), except that the Lending Fund
engages in securities lending activities. Accordingly, the financial statements
of the Lending Fund and the Non-Lending Fund (collectively, the "Fund") have
been prepared on a combined basis, with separate disclosure of the participant
transactions and per unit data of the Lending Fund and the Non-Lending
SAI-178
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Fund. The Lending Fund and the Non-Lending Fund each maintain a divided
pro-rata interest in the combined assets and liabilities (including each
investment security position but excluding assets and liabilities related to
securities lending activities) proportionate to the net asset value of the
outstanding combined units of the Fund. All interfund transactions have been
eliminated in the combined financial statements.
Under the Securities Lending Program, securities held by the Lending Fund
are loaned by State Street Bank, as agent, to certain brokers and other
financial institutions (the "Borrowers"). The Borrowers provide cash,
securities, or letters of credit as collateral against loans in an amount at
least equal to 100% of the market value of the loaned securities. The Borrowers
are required to maintain the collateral at not less than 100% of the market
value of the loaned securities. At December 31, 1997, the market value of
securities loaned by the Lending Fund was $59,915,333 against which was held
cash collateral of $56,980,771, securities of $5,967,104, and letters of credit
of $360,304. Cash collateral provided by the Borrowers is invested in State
Street Bank and Trust Company Quality A Short-Term Investment Fund. A portion
of the income generated upon investment of the collateral is remitted to the
Borrowers, and the remainder is allocated between the Lending Fund and State
Street Bank in its capacity as lending agent. Negotiated lenders' fees are
received for those loans collateralized by securities or letters of credit, if
any. Income earned from lending activities is distributed to Lending Fund
participants monthly.
State Street Bank, as lending agent, indemnifies the Lending Fund for
replacement of any loaned securities (or, in certain circumstances, return of
equivalent cash value) due to Borrower default on a security loan. Lending Fund
participants, however, bear the risk of loss with respect to the investment of
collateral.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments and
including in-kind contributions and redemptions, if any, during the year ended
December 31, 1997 were $253,150,404 and $42,956,659, respectively, resulting in
a net realized gain (loss) of $2,177,225. This gain (loss) is prior to the
recognition of the transaction costs, if any, associated with contributions and
redemptions. Net realized gain (loss) from foreign currency transactions
amounted to $(5,433,268) for the year ended December 31, 1997.
SAI-179
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. UNITS OF PARTICIPATION
Participant transactions for the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996
--------------------------------- ------------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
DAILY EAFE FUND
Units issued .................................. 15,192,231 $ 198,010,280 260,114 $ 3,283,151
Interfund transfers (net) ..................... 7,178,794 90,359,477 1,332,149 15,595,684
Units redeemed ................................ (4,161,097) (54,590,100) (105,475) (1,328,475)
Paid in capital from transaction fees ......... -- 0 -- 406
---------- ------------- --------- ------------
Total ....................................... 18,209,928 $ 233,779,657 1,486,788 $ 17,550,766
========== ============= ========= ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996
----------------------------------- ---------------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
DAILY EAFE FUND NON-LENDING
Units issued .................................. 23,074,314 $ 300,530,137 20,560,785 $ 249,590,583
Interfund transfers (net) ..................... (7,178,794) (90,359,477) (1,332,149) (15,595,684)
Units redeemed ................................ (19,477,225) (244,208,430) (6,922,598) (84,485,013)
Paid in capital from transaction fees ......... -- 228,372 -- 1,301,710
----------- -------------- ---------- -------------
Total ....................................... (3,581,705) $ (33,909,398) 12,306,038 $ 150,811,596
----------- -------------- ---------- -------------
Net increase (decrease) ....................... 14,628,223 $ 199,970,259 13,792,826 $ 168,362,362
=========== ============== ========== =============
</TABLE>
DAILY EAFE FUND
Units in excess of 10% of the Lending Fund units outstanding at December
31, 1997 held by 4 of the Lending Fund's 15 unitholders aggregated 85% of the
Lending Fund's total units outstanding.
DAILY EAFE FUND NON-LENDING
Units in excess of 10% of the Non-Lending Fund units outstanding at
December 31, 1997 held by 2 of the Non-Lending Fund's 30 unitholders aggregated
36% of the Non-Lending Fund's total units outstanding.
Participants in each of the Lending Fund or the Non-Lending Fund may
exchange their units for units of the other fund on any valuation date.
From the Fund's inception through October 31, 1996, a transaction fee of
.5% was charged on contributions and withdrawals. Effective November 1, 1996, a
transaction fee of .5% is charged on any contribution or withdrawal
SAI-180
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
greater than 5% of the net asset value of the Fund. However, such fees are
waived if the Fund's net participant activity on any day is less than 5% of the
net asset value of the Fund.
6. FUTURES CONTRACTS
The Fund may use futures contracts to manage exposure to certain equity
markets. Buying futures tends to increase a fund's exposure to the underlying
instrument. Selling futures tends to decrease a fund's exposure to the
underlying instrument, or hedge other investments. Futures contracts involve,
to varying degrees, credit and market risks.
The Fund enters into futures contracts only on exchanges or boards of
trade where the exchange or board of trade acts as the counterparty to the
transaction. Thus, credit risk on such transactions is limited to the failure
of the exchange or board of trade. Losses in value may arise from changes in
the value of the underlying instruments or if there is an illiquid secondary
market for the contracts. In addition, there is the risk that there may not be
an exact correlation between a futures contract and the underlying index. The
maximum potential loss on a long futures contract is the U.S. dollar value of
the notional amount at the time the contract is opened. The potential loss on a
short futures contract is unlimited.
Upon entering into a futures contract, the Fund is required to deposit
either in cash or securities an amount ("initial margin") equal to a certain
percentage of the nominal value of the contract. Subsequent payments are made
or received by the Fund periodically, depending on the daily fluctuation in the
value of the underlying securities, and are recorded as unrealized gains or
losses by the Fund. A gain or loss is realized when the contract is closed or
expires.
SAI-181
<PAGE>
- -------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
COMMON STOCK 93.2% (unless otherwise noted)
AUSTRALIA 1.7%
Aberfoyle Ltd. AUD0.50 ............................... 4,875 $ 7,941
Amcor Ltd. Ord AUD1 .................................. 46,363 203,908
Ashton Mining Ltd. AUD0.50 ........................... 14,439 12,691
Australian Gas Light Co. Ord AUD1 .................... 21,300 148,498
Australian National Industries Ltd. AUD0.30 .......... 57,574 52,894
Boral Ltd. Ord AUD0.50 ............................... 84,082 212,566
Brambles Industries Ltd. AUD0.50 ..................... 16,192 321,252
Broken Hill Proprietary Co., Ltd. Ord AUD1 ........... 146,981 1,364,691
Burns, Philip & Co., Ltd. AUD0.50 .................... 38,750 6,060
Coca Cola Amatil Ltd. AUD0.50 ........................ 60,519 452,129
Coles Myer Ltd. AUD0.50 .............................. 80,597 387,030
CRA Ltd. AUD2.00 ..................................... 24,027 280,275
Crown Ltd AUD0.50 Nil Pd 4Feb98 ...................... 19,334 1,638
Crown Ltd. AUD0.50 ................................... 53,167 23,556
CSR Ltd. AUD1 ........................................ 73,838 250,174
David Jones Ltd. AUD0.30 ............................. 28,699 32,350
Delta Gold Nl AUD0.25 ................................ 10,400 10,950
Email Ltd. AUD0.50 ................................... 22,230 52,491
Faulding FH & Co., Ltd. AUD0.50 ...................... 10,448 52,282
Fosters Brewing Group AUD1 ........................... 123,414 234,804
Futuris Corp., Ltd. AUD0.20 .......................... 32,910 36,024
General Property Trust AUD1 .......................... 84,001 148,872
Gio Australia Holding AUD1 ........................... 44,712 114,288
Goodman Fielder Wattie Ltd. AUD0.50 .................. 90,798 144,353
Great Central Mines NL AUD0.20 ....................... 18,886 20,304
Howard Smith Ltd. AUD1 ............................... 13,586 112,777
ICI Australia Ltd. AUD1 .............................. 19,213 134,574
James Hardie Industries Ltd. AUD1.00 ................. 29,380 85,627
Leighton Holdings Ltd. Ord AUD0.50 ................... 19,000 66,355
Lend Lease Corp., Ltd. AUD0.50 ....................... 18,347 358,628
Metal Manufacturers Ltd. AUD0.50 ..................... 13,900 20,921
MIM Holdings Ltd. AUD0.50 ............................ 120,359 73,717
National Australia Bank Ltd. AUD1.00 ................. 103,447 1,444,437
Newcrest Mining Ltd. AUD0.50 ......................... 14,965 16,284
News Corp., Ltd. AUD0.50 Pfd ......................... 143,711 793,107
Normandy Mining Ltd. AUD0.20 ......................... 119,126 115,651
North Ltd. AUD0.50 ................................... 53,004 139,593
Pacific Dunlop Ltd. AUD0.50 .......................... 75,037 158,898
Pioneer International Ltd. AUD0.50 ................... 64,922 177,241
Plutonic Resources Ltd. AUD0.50 ...................... 13,800 38,484
QBE Insurance Group AUD1 ............................. 26,976 121,402
QCT Resources Ltd. AUD0.50 ........................... 41,319 33,383
Renison Goldfields Consolidated Ltd. AUD0.50 ......... 15,536 23,687
Rothmans Holdings Ltd. AUD0.50 ....................... 8,900 46,971
Samantha Gold NL Resolute Ltd. AUD0.20 ............... 15,700 11,457
Santos Ltd. AUD0.25 .................................. 44,176 181,912
Schroders Property Fund AUD1.00 ...................... 30,224 46,712
Sons of Gwalia Ltd. AUD0.25 .......................... 5,200 11,858
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-182
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Southcorp Holdings Ltd. Ord AUD0.50 .......................... 44,677 $ 147,879
Stockland Trust Gp New AUD1.10 Rfd 01Jan98 ................... 761 1,711
Stockland Trust Group AUD1.10 ................................ 25,248 58,515
Tab Corp. Holdings Ltd. AUD1.00 .............................. 22,100 103,677
Western Mining Corp. AUD0.50 ................................. 81,864 285,368
Westfield Trust Units AUD1 Rfd 1/1/98 ........................ 3,371 6,282
Westfield Trust Units AUD1 ................................... 85,544 163,311
Westpac Banking Corp. AUD1 ................................... 127,376 814,668
------------
10,367,108
------------
AUSTRIA 0.3%
Austria Mikros Systeme International AG ATS100 ............... 300 15,177
Austrian Airlines ATS100 ..................................... 2,200 46,780
Bank Austria AG ATS100 ....................................... 4,320 218,547
Bank Austria AG ATS100 Rfd 01Dec97 ........................... 1,764 87,148
Bau Holdings AG ATS100 Rfd 01Apr93 ........................... 400 24,979
Bohler Uddeholm ATS100 ....................................... 1,000 58,534
BWT AG ATS100 ................................................ 100 15,493
EA Generali AG ATS100 ........................................ 600 157,412
Flughafen Wien AG ATS100 ..................................... 1,900 75,394
Lenzing AG ATS100 ............................................ 300 17,762
Mayr Melnhof Karto ATS100 .................................... 1,100 59,135
Oesterreichische Brau Beteiligungs AG ATS100 ................. 800 39,903
Oesterreichische Elektrizitaetswirtschafts AG ATS100 ......... 2,800 296,581
OMV AG ATS100 ................................................ 2,426 335,590
Radex Heraklith Industriebeteiligungs AG ATS100 .............. 1,250 42,981
Steyr-Daimler Puch AG ATS100 ................................. 900 24,117
Universale-Bau AG ATS100 ..................................... 400 14,070
Virg Technologie AG ATS100 Bearer ............................ 1,400 212,255
Wienerberger Baustoff Industrie ATS100 ....................... 800 153,349
Z Landerbank Bank Austria AG ATS100 Ptg Certs ................ 600 16,125
------------
1,911,332
------------
BELGIUM 1.3%
Barco NV NPV ................................................. 1,255 230,338
Bekaert SA NPV ............................................... 230 136,883
Cementbedrijven Cimenteries NPV .............................. 2,300 206,721
Delhaize Le Lion SA NPV ...................................... 5,245 266,144
Electrabel SA NPV ............................................ 5,485 1,268,734
Electrabel SA NPV Vvpr Strip ................................. 585 189
Fortis AG NPV ................................................ 4,240 884,623
Generale de Banque Put Wts 15Nov99 Tractebel ................. 24 61
Generale de Banque NPV ....................................... 1,665 724,648
Glaverbel SA NPV ............................................. 662 103,633
Groupe Bruxelles Lambert NPV ................................. 2,450 354,441
Kredietbank NV NPV AFV ....................................... 213 89,397
Kredietbank NV NPV ........................................... 1,320 554,010
Petrofina SA NPV ............................................. 2,360 871,069
Royale Belge NPV ............................................. 1,600 455,602
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-183
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ----------------
<S> <C> <C>
Solvay SA NPV ............................................... 8,420 $ 529,518
Tractebel Capital NPV ....................................... 8,475 738,848
Union Miniere SA NPV ........................................ 2,555 177,230
-------------
7,592,089
-------------
DENMARK 1.1%
Aarhus Oliefabrik A/S A DKK100 .............................. 222 9,889
Aarhus Oliefabrik A/S B DKK100 .............................. 47 2,093
Bang & Olufsen Holding DKK10 Series B ....................... 1,280 76,270
Carlsberg Brewery A/S A DKK20 ............................... 3,553 192,184
Carlsberg Brewery A/S B DKK20 ............................... 2,887 155,160
D/S AF 1912 B DKK1000 ....................................... 22 1,015,304
D/S Svendborg B DKK1000 ..................................... 16 1,051,523
Danisco A/S DKK20 ........................................... 6,055 336,035
Den Danske Bank A/S DKK100 .................................. 5,331 710,830
FLS Industries Ser B DKK20 .................................. 4,645 110,847
GN Store Nord DKK20 ......................................... 3,580 60,127
ISS International Service System A/S Series B DKK20 ......... 2,997 110,300
Korn Og Foderstof DKK20 ..................................... 1,000 27,749
Lauritzen Holdings A/S B DKK20 .............................. 226 18,979
NKT Holding A/S DKK100 ...................................... 756 60,234
Novo Nordisk AS Dkk10 Ser B ................................. 7,559 1,081,874
Ostasiatiske Kompagni DKK100 ................................ 1,772 16,045
Radiometer A/S B Shares DKK20 ............................... 851 34,551
SAS Danmark A/S DKK10 ....................................... 4,734 69,138
Sophus Berendsen A/S A Shares DKK20 ......................... 664 109,690
Sophus Berendsen A/S B DKK20 ................................ 2,002 330,391
Superfos A/S DKK20 .......................................... 3,110 78,667
Tele Danmark A/S Series B DKK10 ............................. 13,196 819,064
Unidanmark A/S A DKK100 Regd ................................ 5,361 393,822
-------------
6,870,766
-------------
FINLAND 0.8%
Ameri Group A FIM20 ......................................... 2,525 48,455
Cultor Ltd. Series 2 FIM12 .................................. 800 43,339
Cultor Ltd. Series 1 Ord FIM12 .............................. 1,600 86,971
Instrumentarium Corp. Series A FIM10 ........................ 1,600 55,826
Instrumentarium Corp. Series B FIM10 ........................ 400 13,957
Kemira Oy Ord FIM10 ......................................... 13,300 125,783
Kesko Oy FIM10 .............................................. 9,300 147,216
Kone Corp. B FIM50 .......................................... 700 84,841
Metra Oy A FIM20 ............................................ 1,400 33,165
Metra Oy B FIM20 ............................................ 4,100 96,373
Nokia AB Oy FIM5 Series K ................................... 8,600 615,923
Nokia AB Oy FIM5 Series A ................................... 22,200 1,577,711
Outokumpu Oy A FIM10 ........................................ 12,800 156,313
Pohjola Ord Series A FIM5 ................................... 2,100 79,442
Pohjola Series B FIM5 ....................................... 2,100 77,899
Sampo Ser A Fim5 ............................................ 6,300 204,775
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-184
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Stockmann AB B FIM20 .................................... 650 $ 40,584
Stockmann AB A FIM20 .................................... 900 58,673
Unitas Ltd. Series A FIM10 .............................. 85,520 468,002
UPM Kymmene Oy FIM10 .................................... 27,695 554,359
------------
4,569,607
------------
FRANCE 7.2%
Accor SA FRF100 ......................................... 3,316 616,803
Air Liquide FRF70 ....................................... 4,582 717,477
Air Liquide FRF70 Prime Fidelite Regd ................... 2,135 334,311
Alcatel Alsthom CGE FRF40 ............................... 15,185 1,930,983
AXA FRF60 ............................................... 30,829 2,386,535
Banque Nationale de Paris FRF25 ......................... 19,882 1,057,247
Bic FRF25 ............................................... 3,900 284,792
Bongrain Group FRF50 .................................... 110 46,444
Bouygues SA FRF50 ....................................... 2,328 263,918
Canal Plus FRF20 ........................................ 2,948 548,352
Carrefour SA FRF100 ..................................... 3,588 1,872,769
Chargeurs International FRF100 .......................... 400 23,937
Club Mediterranee SA FRF25 .............................. 981 69,321
Compagnie de St. Gobain FRF100 .......................... 8,320 1,182,474
Compagnie Financiere Paribas FRF50 A Shares ............. 16,024 1,393,076
Compagnie Generale de Geophysique FRF10 ................. 375 47,998
Compagnie Generale des Eaux FRF100 ...................... 12,510 1,746,782
Compagnie Par Reesco FRF50 .............................. 1,004 81,777
Comptoirs Modernes FRF100 ............................... 475 243,190
Credit National SA FRF100 ............................... 1,395 81,392
Dollfus-Mieg & Cie FRF75 ................................ 250 4,447
Eaux (Cie General) Wts 02May01 Eaux C.G. FRF900 ......... 6,876 4,675
Eridania Beghin-Say FRF65 ............................... 2,424 379,162
Essilor International Compagnie Generale FRF20 .......... 910 272,280
Etab Eco Casino Guich Perr & Co. FRF10 .................. 5,946 331,110
Europe 1 Communication FRF100 Regd ...................... 64 14,032
France Telecom FRF25 .................................... 74,650 2,708,855
Groupe Danone FRF10 ..................................... 6,801 1,215,300
GTM Entrepose FRF50 ..................................... 1,036 69,746
Havas SA FRF15 .......................................... 7,621 548,532
Imetal SA FRF50 ......................................... 1,375 170,965
L'Oreal SA FRF10 ........................................ 6,309 2,469,753
Lafarge Coppee FRF25 Br ................................. 8,813 578,513
Lagardere Groupe FRF40 Regd ............................. 11,115 367,675
Legrand SA FRF10 Post Sub ............................... 2,600 518,197
Louis Vuitton Moet Hennessy FRF10 ....................... 8,171 1,356,884
Lyonnaise des Eaux-Dumer FRF60 .......................... 11,732 1,298,818
Michelin FRF12 Regd Class B ............................. 12,794 644,393
Moulinex SA FRF10 ....................................... 2,374 58,680
Nord Est FRF50 .......................................... 750 14,960
Pathe FRF100 ............................................ 700 135,907
Pernod Ricard SA FRF20 .................................. 5,267 309,934
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-185
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Peugeot SA FRF35 ......................................... 4,679 $ 590,333
Pinault Printemps FRF100 ................................. 2,088 1,114,482
Primagaz FRF10 ........................................... 1,900 158,863
Promodes SA FRF20 ........................................ 1,800 747,125
Rhone Poulenc SA FRF25 Ord A Shares ...................... 31,206 1,398,492
SAGEM FRF50 .............................................. 300 133,647
Salomon SA FRF10 Post Sub ................................ 1,450 124,853
Sanofi SA FRF25 .......................................... 9,867 1,098,910
Sefimeg FRF100 Regd ...................................... 998 49,768
Seita FRF50 .............................................. 4,850 174,140
Sidel FRF15 .............................................. 2,600 172,444
Simco FRF100 Regd ........................................ 1,101 74,122
Skis Rossignol FRF25 Post Sub ............................ 600 10,712
Societe Eurafrance FRF200 ................................ 345 140,504
Societe Generale Bank FRF30 .............................. 8,911 1,214,626
Societe National Elf Aquitaine FRF50 ..................... 25,555 2,973,556
Sodexho Alliance FRF100 Rfd 1Sep97 ....................... 58 30,321
Sodexho SA FRF100 ........................................ 683 365,917
Sommer Allibert FRF5 ..................................... 1,500 52,087
Spie Batignolles FRF50 ................................... 13,695 743,954
Technip FRF20 ............................................ 1,550 163,609
Thomson CSF FRF20 ........................................ 11,205 353,331
TOTAL SA FRF50 B Shares .................................. 22,739 2,475,796
Unibail SA FRF100 Regd ................................... 650 64,937
Union Immobiliere France FRF100 .......................... 412 29,928
Usinor Sacilor FRF20 ..................................... 22,700 327,905
Valeo FRF20 .............................................. 6,550 444,443
------------
43,631,201
------------
GERMANY 9.1%
Aachener & Muenchener Beteiligungs DEM5 .................. 500 54,226
Aachener & Muenchener Beteiligungs Reg DEM5 Vink ......... 4,120 450,256
Adidas AG DEM5 ........................................... 4,500 592,144
AGIV AG DEM5 ............................................. 2,850 53,892
Allianz AG DEM5 Regd ..................................... 22,870 5,927,233
BASF AG DEM5 ............................................. 60,750 2,153,904
Bayer AG DEM5 ............................................ 72,250 2,700,269
Bayer Vereinsbank DEM5 ................................... 28,300 1,852,520
Bayerische Hypothe & Weschel Bank DEM5 ................... 25,630 1,251,535
Beiersdorf AG Ser A B C DEM5 Var ......................... 8,400 364,396
Bilfinger & Berger DEM5 .................................. 2,550 79,136
Brau & Brunnen AG DEM50 .................................. 221 22,124
Buderus AG DEM50 ......................................... 250 112,066
CKAG Colonia Konzern DEM5 ................................ 2,640 252,541
Continental AG DEM5 ...................................... 9,400 207,548
Daimler Benz AG DEM5 ..................................... 51,430 3,609,739
Degussa AG DEM5 .......................................... 9,200 460,501
Deutsche Bank AG DEM5 .................................... 52,980 3,742,102
Deutsche Telekom DEM5 .................................... 218,950 4,121,958
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-186
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Didier Werke AG DEM50 ........................................ 100 $ 8,131
DLW AG DEM50 ................................................. 50 5,701
Douglas Holding AG DEM5 ...................................... 3,200 96,638
Dresdner Bank AG DEM5 ........................................ 48,950 2,259,596
Dyckerhoff AG DEM50 .......................................... 71 20,040
Escada AG DEM50 .............................................. 50 6,785
FAG Kugelfischer DEM5 ........................................ 6,050 79,913
Heidelberg Zement DEM5 ....................................... 4,811 342,488
Herlitz AG DEM50 ............................................. 105 6,657
Hochtief AG DEM5 ............................................. 7,000 276,412
Holsten Brauerei AG DEM50 .................................... 62 12,586
IWKA AG DEM50 ................................................ 100 23,526
Karstadt AG DEM50 ............................................ 833 284,501
Klockner Humboldt Deutz DEM5 ................................. 2,250 16,518
Linde AG DEM50 ............................................... 838 511,736
Lufthansa AG DEM5 Regd Vink .................................. 38,050 730,085
MAN AG DEM50 ................................................. 1,078 312,361
Mannesmann AG DEM50 .......................................... 3,670 1,855,367
Merck KGAA DEM5 .............................................. 17,150 557,982
Metro AG DEM5 ................................................ 22,400 803,540
Munich Reinsurance DEM5 ...................................... 300 67,991
Munich Reinsurance DEM10 Vink DEM5 Pd Regd ................... 7,950 2,997,759
Preussag AG DEM50 ............................................ 1,500 457,998
PWA Papierwerke Waldhof Aschaffenberg AG DEM50 ............... 500 85,510
Rheinmetall AG DEM5 .......................................... 1,000 19,493
RWE AG DEM5 .................................................. 33,680 1,807,587
Salamander AG DEM50 .......................................... 100 15,851
SAP AG DEM5 .................................................. 6,100 1,854,043
Schering AG DEM5 ............................................. 6,800 656,158
SGL Carbon DEM5 .............................................. 2,050 264,510
Siemens AG DEM5 .............................................. 56,100 3,322,863
Strabag AG DEM50 ............................................. 100 6,952
Thyssen AG DEM50 ............................................. 3,400 728,014
VEBA AG DEM5 ................................................. 49,250 3,355,384
VIAG AG DEM50 ................................................ 2,655 1,430,831
Volkswagen AG DEM50 .......................................... 2,755 1,550,608
------------
54,840,205
------------
HONG KONG 2.7%
Bank of East Asia Ltd. HKD2.50 ............................... 132,586 310,577
Cathay Pacific Airways Ltd. HKD0.20 .......................... 340,000 276,449
Cheung Kong (Holdings) Ltd. HKD0.50 .......................... 228,000 1,493,366
China Light & Power Co., Ltd. HKD5 ........................... 246,207 1,366,357
Chinese Estates Holdings Ord HKD0.10 ......................... 191,294 84,559
Dickson Concept Inc. HKD0.30 ................................. 26,600 38,793
Electric & Eltek International Holdings Ltd. HKD0.10 ......... 49,000 12,142
Giordano International HKD0.1 ................................ 39,000 13,464
Hang Lung Development Co., Ltd. HKD1 ......................... 133,000 187,100
Hang Seng Bank Ltd. HKD5 ..................................... 191,312 1,845,648
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-187
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------------ ---------------
<S> <C> <C>
Hong Kong & China Gas Co., Ltd. HKD0.25 ...................... 363,182 $ 703,090
Hong Kong & Shanghai Hotels Wts 10Dec98 To Sub Ord ........... 7 0
Hong Kong & Shanghai Hotels Ltd. HKD0.50 ..................... 116,000 95,815
Hong Kong Aircraft Engineering Co. HKD1 ...................... 18,400 46,307
Hong Kong Telecommunications Ltd. HKD0.50 .................... 1,177,281 2,423,462
Hopewell Holdings Ltd. HKD0.50 ............................... 434,000 108,104
Hutchison Whampoa Ltd. HKD0.25 ............................... 384,000 2,408,590
Hysan Development Co., Ltd. HKD5 ............................. 102,000 203,387
Johnson Electric Holdings HKD0.10 ............................ 45,580 131,182
Kumagai Gumi Ltd. HKD1 ....................................... 23,000 17,514
Miramar Hotel & Investment HKD0.70 ........................... 57,350 96,962
New World Development Co., Ltd. HKD1 ......................... 188,708 652,710
Oriental Press Group HKD0.25 ................................. 81,000 24,567
Peregrine Investment Holdings HKD0.60 ........................ 45,000 31,943
Regal Hotel International HKD0.10 ............................ 282,400 53,577
Shangri-La Asia Ltd. HKD1 .................................... 157,000 132,720
Shun Tak Holdings Ltd. HKD0.25 ............................... 81,000 21,692
Sino Land Co., Ltd. HKD1 ..................................... 309,866 186,961
South China Morning Post HKD0.10 ............................. 171,000 120,278
Stelux Holdings Wts 28Feb98 To Sub Ord ....................... 84 0
Sun Hung Kai Properties Ltd. HKD0.50 ......................... 236,320 1,646,985
Swire Pacific Ltd. A HKD0.60 ................................. 156,000 855,675
Tai Cheung Holdings Ltd. HKD0.10 ............................. 34,600 13,731
Television Broadcasting Ltd. HKD0.05 ......................... 42,000 119,795
Varitronix International Ltd. HKD0.25 ........................ 28,000 48,062
Wharf Holdings Ltd. HKD1 ..................................... 228,400 501,118
Wing Lung Bank Ltd. HKD5 ..................................... 23,010 110,176
------------
16,382,858
------------
IRELAND 0.3%
Allied Irish Banks PLC Ord IEP0.25 ........................... 72,411 701,825
Crean (James) PLC Units ...................................... 3,223 6,569
CRH PLC Ord IEP0.25 .......................................... 32,578 381,691
Fyffes PLC Ord IEP0.05 ....................................... 25,141 37,626
Greencore Group Ord IEP0.50 .................................. 15,848 74,543
Independent Newspapers PLC Ord IEP0.25 ....................... 21,220 116,445
Irish Life PLC Ord IEP0.10 ................................... 26,770 153,769
Jefferson Smurfit Group PLC Ord IEP0.25 ...................... 92,855 262,051
Kerry Group PLC Ord IEP0.10 .................................. 13,900 148,789
Waterford Wedgewood PLC Ord IEP0.05 .......................... 61,563 83,360
------------
1,966,668
------------
ITALY 3.7%
Arnoldo Mondadori Editore SpA ITL1000 Ord. ................... 12,000 94,344
Assicurazioni Generali ITL2000 ............................... 83,585 2,054,172
Banca Commerciale Italiana SpA ITL1000 ....................... 172,350 599,522
Banca Populare di Milano ITL1000 ............................. 22,200 139,378
Banco Ambrosiano Veneto New ITL1000 Ww S/R 2Jan98 ............ 49,100 208,981
Banco Ambrosiano Veneto New Risp ITL1000Ww S/R2Jan98 ......... 21,500 26,644
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-188
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ----------------
<S> <C> <C>
Banco Ambrosiano Veneto SpA Ord ITL1000 ..................... 49,100 $ 188,014
Banco Ambrosiano Veneto SpA ITL1000 non conv ................ 21,500 41,954
Benetton Group SpA ITL500 ................................... 17,024 278,759
Bulgari SpA ITL125 .......................................... 28,000 142,534
Burgo Cartiere SpA ITL5000 .................................. 12,400 74,169
Cementir SpA ITL1000 ........................................ 13,100 12,448
Cogefar Impresit SpA ITL1000 ................................ 57,300 43,720
Credito Italiano SA ITL500 .................................. 214,500 661,821
Danieli & Cofficine Meccaniebe SpA ITL2000 .................. 2,100 14,432
Danieli & Cofficine Meccaniebe SpA ITL2000 non conv ......... 2,100 7,554
Edison SpA ITL1000 .......................................... 60,600 366,754
ENI SpA ITL1000 Regd ........................................ 844,200 4,789,221
Falck, Accia & Ferr Lombarde ITL2500 ........................ 7,880 36,057
Fiat SpA ITL1000 ............................................ 349,623 1,017,429
Fiat SpA ITL1000 non conv ................................... 76,869 127,173
Gilardini Industriale SpA ITL1000 ........................... 41,500 71,006
IMI ITL5000 ................................................. 58,200 691,291
INA Ist Nazionale Assoc ITL1000 ............................. 385,500 781,686
IST Bancario S.Paolo(to) ITL10000 ........................... 76,740 733,546
Italcementi SpA ITL2000 ..................................... 15,910 110,957
Italcementi SpA ITL2000 non conv ............................ 5,200 15,588
Italgas ITL1000 ............................................. 67,660 279,366
La Previdente ITL1000 ....................................... 5,100 39,952
La Rinascente SpA ITL1000 ................................... 19,372 144,633
La Rinascente SpA ITL1000 non conv .......................... 2,100 7,839
Marzotto & Figli SpA Di Risp ITL1000 ........................ 1,200 14,559
Marzotto & Figli SpA ITL1000 ................................ 5,200 65,000
Mediaset ITL1000 ............................................ 112,400 552,465
Mediobanca SpA ITL1000 ...................................... 45,366 356,411
Montedison SpA ITL1000 non conv ............................. 42,500 27,909
Montedison SpA New ITL1000 Post Cons ........................ 474,727 426,664
Olivetti Spa ITL1000 ........................................ 225,278 136,212
Parmalat Finanziaria SpA ITL1000 ............................ 139,500 199,624
Pirelli SpA ITL1000 ......................................... 158,083 422,926
Pirelli SpA ITL1000 non conv ................................ 4,200 7,626
RAS SpA ITL1000 ............................................. 31,576 309,867
RAS SpA ITL1000 non conv .................................... 11,913 80,858
Reno De Medici Spa ITL1000 .................................. 3,100 8,223
S.A.I. ITL1000 non conv ..................................... 3,100 13,677
S.A.I. ITL1000 .............................................. 11,500 128,139
Sirti SpA ITL1000 ........................................... 20,732 125,471
Snia BPD SpA ITL1000 non conv ............................... 200 159
Snia BPD SpA ITL1000 ........................................ 63,500 65,368
Telecom Italia Mobilia ITL50 Di Risp ........................ 148,989 423,878
Telecom Italia Mobilia ITL50 ................................ 630,365 2,911,166
Telecom Italia Spa Di Risp ITL1000 .......................... 86,819 383,026
Telecom Italia Spa ITL1000 .................................. 351,535 2,246,806
-------------
22,706,978
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-189
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
JAPAN 23.9%
77 Bank JPY50 .......................................... 37,000 $ 264,649
Acom Co. JPY50 ......................................... 14,300 791,872
Advantest Corp. JPY50 .................................. 8,810 501,411
Ajinomoto Co., Inc. JPY50 .............................. 63,000 615,362
Alps Electric Co. JPY50 ................................ 17,000 160,820
Amada Co., Ltd. JPY50 .................................. 28,000 104,445
Amano Corp. JPY50 ...................................... 7,000 53,837
Aoki Corp. JPY50 ....................................... 21,000 6,784
Aoyama Trading Co. JPY50 ............................... 7,100 127,233
Arabian Oil Co. JPY500 ................................. 5,200 79,187
Asahi Bank Ltd. JPY50 .................................. 226,000 921,235
Asahi Breweries Ltd. JPY50 ............................. 46,000 672,199
Asahi Chemical Industry JPY50 .......................... 140,000 475,923
Asahi Glass Co., Ltd. JPY50 ............................ 114,000 543,604
Ashikaga Bank Ltd. JPY50 ............................... 60,000 96,907
Autobacs Seven JPY50 ................................... 3,700 106,713
Bank of Tokyo JPY50 .................................... 453,400 6,276,828
Bank of Yokohama Ltd. JPY50 ............................ 111,000 293,675
Bridgestone Corp. JPY50 ................................ 80,000 1,741,256
Brother Industries Ltd. JPY50 .......................... 19,000 43,547
Canon, Inc. JPY50 ...................................... 84,000 1,963,989
Casio Computer Co. JPY50 ............................... 27,000 194,368
Chiba Bank Ltd. JPY50 .................................. 76,000 236,731
Chiyoda Corp. JPY50 .................................... 14,000 15,074
Chugai Pharmaceutical Co. JPY50 ........................ 24,000 123,672
Citizen Watch Co., Ltd. JPY50 .......................... 32,000 215,350
Cosmo Oil Co. Ltd JPY50 ................................ 61,000 92,893
Credit Saison Co., Ltd. JPY50 .......................... 16,125 399,339
CSK Corp. JPY50 ........................................ 6,200 159,266
Dai Ichi Pharmaceutical Co. JPY50 ...................... 27,000 305,258
Dai Nippon Printing Co., Ltd. JPY50 .................... 74,000 1,394,389
Daicel Chemical Industries Ltd. JPY50 .................. 36,000 47,069
Daido Steel Co., Ltd. JPY50 ............................ 31,000 39,101
Daiei Inc. JPY50 ....................................... 69,000 286,569
Daifuku Co., Ltd. JPY50 ................................ 8,000 39,071
Daikin Industries, Ltd. JPY50 .......................... 26,000 98,384
Daikyo Inc. JPY50 ...................................... 13,000 9,998
Daimaru Inc. JPY50 ..................................... 26,000 61,590
Dainippon Ink & Chemicals Inc. JPY50 ................... 77,000 195,430
Dainippon Screen Manufacturing Co., Ltd. JPY50 ......... 17,000 78,449
Daito Trust Construction JPY50 ......................... 13,800 84,591
Daiwa House Industry JPY50 ............................. 51,000 270,648
Daiwa Kosho Lease Co., Ltd. JPY50 ...................... 11,000 44,839
Daiwa Securities Co., Ltd. JPY50 ....................... 131,000 453,388
Denki Kagaku Kogyo KK JPY50 ............................ 34,000 51,515
East Japan Railway Co. JPY50000 ........................ 389 1,762,183
Ebara Corp. JPY50 ...................................... 28,000 297,183
Eisai Co., Ltd. JPY50 .................................. 27,450 420,128
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-190
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Ezaki Glico Co., Ltd. JPY50 .................... 10,800 $ 70,022
Fanuc Ltd. JPY50 ............................... 23,300 885,256
Fuji Bank Ltd. JPY50 ........................... 282,000 1,145,168
Fuji Photo Film Co., Ltd. JPY50 ................ 50,000 1,922,765
Fujikura Ltd. JPY50 ............................ 34,000 225,933
Fujita Corp. JPY50 ............................. 31,000 11,206
Fujita Kanko Inc. JPY50 ........................ 12,000 129,210
Fujitsu Ltd. JPY50 ............................. 181,000 1,948,915
Furukawa Electric Ltd. JPY50 ................... 64,000 275,155
Gakken JPY50 ................................... 7,000 9,852
Gunma Bank Ltd. JPY50 .......................... 50,000 326,870
Gunze Ltd. JPY50 ............................... 17,000 28,242
Hankyu Corp. JPY50 ............................. 83,000 390,037
Hankyu Department Store JPY50 .................. 18,000 100,368
Haseko Corp. JPY50 ............................. 31,000 15,974
Hazama Corp. JPY50 ............................. 20,000 9,845
Higo Bank JPY50 ................................ 25,000 126,902
Hirose Electric Co., Ltd. JPY50 ................ 3,900 200,068
Hitachi Ltd. JPY50 ............................. 324,000 2,317,470
Hitachi Zosen Corp. JPY50 ...................... 97,000 155,921
Hokuriku Bank Ltd. JPY50 ....................... 67,000 87,601
Honda Motor Co., Ltd. JPY50 .................... 95,000 3,499,817
House Food Industrial Co., Ltd. JPY50 .......... 11,000 143,823
Hoya Corp. JPY50 ............................... 11,000 346,867
Inax Corp. JPY50 ............................... 23,000 67,043
Industrial Bank of Japan Ltd. JPY50 ............ 246,440 1,762,708
Isetan Co., Ltd. JPY50 ......................... 21,000 88,024
Ishihara Sangyo Kaisha JPY50 ................... 23,000 25,650
Ito Yokado Co., Ltd. JPY50 ..................... 40,000 2,045,822
ITOCHU Corp. JPY50 ............................. 139,000 219,157
Itoham Foods JPY50 ............................. 22,000 104,568
Iwatani International Corp. JPY50 .............. 18,000 31,979
Jaccs Co., Ltd. JPY50 .......................... 11,000 67,681
Japan Airlines Co., Ltd. JPY50 ................. 173,000 472,346
Japan Energy Corp. JPY50 ....................... 106,000 100,276
Japan Metals & Chemicals JPY50 ................. 7,000 5,868
Japan Steel Works Ltd. JPY50 ................... 26,000 19,797
JGC Corp. JPY50 ................................ 13,000 27,496
Joyo Bank Ltd. JPY50 ........................... 86,000 304,258
Jusco Co., Ltd. JPY50 .......................... 31,000 438,698
Kajima Corp. JPY50 ............................. 93,000 235,323
Kaken Pharmaceutical JPY50 ..................... 7,000 13,836
Kamigumi Co., Ltd. JPY50 ....................... 27,000 80,156
Kandenko Co. Ltd. JPY50 ........................ 19,900 101,933
Kanebo Ltd. JPY50 .............................. 36,000 26,303
Kaneka Corp. JPY50 ............................. 34,000 154,021
Kansai Electric Power Co., Inc. JPY500 ......... 95,100 1,616,438
Kansai Paint Co., Ltd. JPY50 ................... 20,000 48,454
Kao Corp. JPY50 ................................ 59,000 853,092
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-191
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Katokichi Co. JPY50 ........................................... 4,000 $ 49,530
Kawasaki Heavy Industries Ltd. JPY50 .......................... 135,000 209,735
Kawasaki Kisen Kaisha Ltd. JPY50 .............................. 42,000 51,038
Kawasaki Steel JPY50 .......................................... 316,000 432,607
Keihin Electric Express Railway JPY50 ......................... 49,480 173,152
Kikkoman Corp. JPY50 .......................................... 19,000 96,592
Kinden Corp. JPY50 ............................................ 26,200 280,093
Kinki Nippon Railway JPY50 .................................... 157,370 843,608
Kirin Brewery Co., Ltd. JPY50 ................................. 102,000 745,264
Kissei Pharmaceutical Co., Ltd. JPY50 ......................... 4,300 62,175
Kokuyo Co., Ltd. JPY50 ........................................ 13,000 224,964
Komatsu Ltd. JPY50 ............................................ 96,000 483,614
Komori Corp. JPY50 ............................................ 8,000 119,365
Konami Co., Ltd. JPY50 ........................................ 3,500 86,409
Konica Corp. JPY50 ............................................ 35,000 161,512
Koyo Seiko Co., Ltd. JPY50 .................................... 19,000 76,280
Kubota Corp. JPY50 ............................................ 137,000 362,464
Kumagai Gumi Co., Ltd. JPY50 .................................. 48,000 26,211
Kurabo Industries JPY50 ....................................... 19,000 20,458
Kuraray Co., Ltd. JPY50 ....................................... 33,000 274,109
Kureha Chemical Industry Co., Ltd. JPY50 ...................... 16,000 32,979
Kurita Water Industries Ltd. JPY50 ............................ 12,600 128,887
Kyocera Corp. JPY50 ........................................... 18,000 819,559
Kyowa Hakko Kogyo Co., Ltd. JPY50 ............................. 43,000 186,854
Kyudenko Co., Ltd. JPY50 ...................................... 6,000 30,410
Lion Corp. JPY50 .............................................. 30,000 89,062
Maeda Road Construction Co., Ltd. JPY50 ....................... 7,000 27,995
Makino Milling Machine Co., Ltd. JPY50 ........................ 7,000 44,416
Makita Corp. JPY50 ............................................ 16,000 153,821
Marubeni Corp. JPY50 .......................................... 145,000 255,382
Maruha Corp. JPY50 ............................................ 21,000 19,058
Marui Co., Ltd. JPY50 ......................................... 36,000 562,063
Matsushita Electric Industrial Co., Ltd. JPY50 ................ 205,000 3,011,435
Meiji Milk Products JPY50 ..................................... 21,000 54,591
Meiji Seika Kaisha Ltd. JPY50 ................................. 38,000 126,841
Minebea Co. Ltd. JPY50 ........................................ 38,000 409,164
Misawa Homes Co., Ltd. JPY50 .................................. 9,000 24,988
Mitsubishi Corp. JPY50 ........................................ 152,000 1,204,112
Mitsubishi Electric Corp. JPY50 ............................... 209,000 536,882
Mitsubishi Estate Co., Ltd. JPY50 ............................. 126,000 1,376,084
Mitsubishi Gas & Chemical Co., Inc. JPY50 ..................... 48,000 126,626
Mitsubishi Heavy Industries Ltd. JPY50 ........................ 328,000 1,372,331
Mitsubishi Kasei Corp. JPY50 .................................. 213,000 306,343
Mitsubishi Material Corp. JPY50 ............................... 110,000 177,663
Mitsubishi Oil Co., Ltd. JPY50 ................................ 44,000 65,312
Mitsubishi Paper Mills Ltd. JPY50 ............................. 23,000 32,372
Mitsubishi Rayon Co., Ltd. JPY50 .............................. 61,000 150,129
Mitsubishi Trust & Banking Corp. JPY50 ........................ 127,000 1,279,562
Mitsubishi Warehouse & Transportation Co., Ltd. JPY50 ......... 16,000 167,357
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-192
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
--------- ---------------
<S> <C> <C>
Mitsui & Co., Ltd. JPY50 .................................. 154,000 $ 914,375
Mitsui Engineering & Shipbuilding Co., Ltd. JPY50 ......... 81,000 51,707
Mitsui Fudosan Co., Ltd. JPY50 ............................ 79,000 765,568
Mitsui Marine & Fire Insurance Co., Ltd. JPY50 ............ 71,000 363,679
Mitsui Mining & Smelting Co., Ltd. JPY50 .................. 49,000 197,476
Mitsui OSK Lines Ltd. JPY50 ............................... 108,000 150,345
Mitsui Soko Co. JPY50 ..................................... 10,000 25,150
Mitsui Trust & Banking Co., Ltd. JPY50 .................... 116,000 225,717
Mitsukoshi Ltd. JPY50 ..................................... 47,000 125,433
Mori Seiki Co., Ltd. JPY50 ................................ 9,000 93,446
Murata Manufacturing Co., Ltd. JPY50 ...................... 23,000 580,214
Nagase & Co., Ltd. JPY50 .................................. 11,000 32,149
Nagoya Railroad Co., Ltd. JPY50 ........................... 80,000 275,648
Namco JPY50 ............................................... 5,200 151,575
Nankai Electric Railway JPY50 ............................. 48,750 213,715
NEC Corp. JPY50 ........................................... 155,000 1,657,039
New Oji Paper Co., Ltd. JPY50 ............................. 100,166 399,829
NGK Insulators Ltd. JPY50 ................................. 36,000 321,179
NGK Spark Plug Co., Ltd. JPY50 ............................ 22,000 125,210
Nichido Fire & Marine Insurance Co., Ltd. JPY50 ........... 44,100 230,640
Nichii Co. Ltd. JPY50 ..................................... 31,000 259,881
Nichirei Corp. JPY50 ...................................... 30,000 64,605
Nihon Cement Co., Ltd. JPY50 .............................. 32,000 66,205
Niigata Engineering Co., Ltd. JPY50 ....................... 24,000 10,521
Nikon Corp. JPY50 ......................................... 36,000 357,173
Nippon Beet Sugar Manufacturing Co. JPY50 ................. 11,000 14,890
Nippon Comsys Corp. JPY50 ................................. 12,000 148,591
Nippon Express Co. Ltd. JPY50 ............................. 104,000 519,916
Nippon Fire & Marine Insurance Co., Ltd. JPY50 ............ 56,000 210,612
Nippon Light Metal Co. JPY50 .............................. 52,000 75,988
Nippon Meat Packers JPY50 ................................. 22,000 301,182
Nippon Oil Co., Ltd. JPY50 ................................ 120,000 311,026
Nippon Paper Industries JPY50 ............................. 92,000 362,280
Nippon Sharyo Ltd. JPY50 .................................. 10,000 27,919
Nippon Sheet Glass Co., Ltd. JPY50 ........................ 31,000 43,393
Nippon Shinpan Co., Ltd. JPY50 ............................ 22,000 24,873
Nippon Shokubai Co., Ltd. JPY50 ........................... 19,000 77,303
Nippon Steel Corp. JPY50 .................................. 670,000 994,531
Nippon Suisan Kaisha Ltd. JPY50 ........................... 21,000 26,650
Nippon Telegraph & Telephone Corp. JPY50000 ............... 1,237 10,655,502
Nippon Yusen KK JPY50 ..................................... 115,000 316,641
Nippondenso Co., Ltd. JPY50 ............................... 86,000 1,554,363
Nishimatsu Construction Co., Ltd. JPY50 ................... 27,000 85,140
Nissan Motor Co., Ltd. JPY50 .............................. 244,000 1,013,374
Nisshinbo Industries Inc. JPY50 ........................... 23,000 97,292
Nissin Food Products JPY50 ................................ 13,000 236,962
Nitto Denko Corp. JPY50 ................................... 15,000 259,573
NKK Corp. JPY50 ........................................... 342,000 273,556
NOF Corp. JPY50 ........................................... 16,000 26,949
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-193
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
--------- ---------------
<S> <C> <C>
Nomura Securities Co., Ltd. JPY50 ................... 191,000 $ 2,556,047
Noritake Co., Ltd. JPY50 ............................ 11,000 52,622
NSK Ltd. JPY50 ...................................... 55,000 137,478
NTN Toyo Bearing Co., Ltd. JPY50 .................... 45,000 104,522
Obayashi Corp. JPY50 ................................ 72,000 245,868
Odakyu Electric Railway JPY50 ....................... 71,080 308,328
Okamoto Industries Inc. JPY50 ....................... 11,000 19,458
Okuma Corp. JPY50 ................................... 10,000 35,687
Okumura Corp. JPY50 ................................. 24,000 57,221
Olympus Optical Co., Ltd. JPY50 ..................... 26,000 180,171
Omron Corp. JPY50 ................................... 25,000 392,244
Onoda Cement Co., Ltd. JPY50 ........................ 56,000 103,368
Onward Kashiyama Co., Ltd. JPY50 .................... 17,000 197,430
Orient Corp. JPY50 .................................. 24,000 38,948
Orix Corp. JPY50 .................................... 6,300 440,928
Osaka Gas Co., Ltd. JPY50 ........................... 246,000 563,816
Oyo Corp. JPY50 ..................................... 2,300 33,256
Penta Ocean Construction Co., Ltd. JPY50 ............ 25,000 35,187
Pioneer Electronic Corp. JPY50 ...................... 17,000 262,804
QP Corp. JPY50 ...................................... 16,000 97,830
Renown Inc. JPY50 ................................... 20,000 8,460
Rohm Co. JPY50 ...................................... 11,000 1,125,202
Sakura Bank Ltd. JPY50 .............................. 333,000 955,299
Sanden Corp. JPY50 .................................. 14,000 60,298
Sankyo Aluminium Industries Co., Ltd. JPY50 ......... 16,000 14,275
Sankyo Co., Ltd. JPY50 .............................. 45,000 1,020,988
Sanrio Co., Ltd. JPY50 .............................. 6,000 31,610
Sanwa Shutter Corp. JPY50 ........................... 23,000 116,043
Sanyo Electric Co., Ltd. JPY50 ...................... 190,000 496,842
Sapporo Breweries JPY50 ............................. 33,000 104,060
Sato Kogyo JPY50 .................................... 19,000 11,837
Secom Co., Ltd. JPY50 ............................... 11,000 705,578
Sega Enterprises Ltd. JPY50 ......................... 9,800 177,879
Seino Transportation JPY50 .......................... 15,000 75,103
Seiyu Ltd. JPY50 .................................... 22,000 69,712
Sekisui Chemical Co., Ltd. JPY50 .................... 54,000 275,355
Sekisui House Ltd. JPY50 ............................ 69,000 445,243
Sharp Corp. JPY50 ................................... 109,000 752,816
Shimachu JPY50 ...................................... 4,000 63,067
Shimano Inc. JPY50 .................................. 14,000 258,420
Shimizu Corp. JPY50 ................................. 77,000 178,848
Shin-Etsu Chemical Co., Ltd. JPY50 .................. 36,800 704,747
Shionogi & Co., Ltd. JPY50 .......................... 34,000 156,375
Shiseido Co., Ltd. JPY50 ............................ 41,000 561,294
Shizuoka Bank Ltd. JPY50 ............................ 78,000 839,864
Showa Denko KK JPY50 ................................ 101,000 88,555
Skylark Co., Ltd. JPY50 ............................. 10,000 96,138
SMC Corp. JPY50 ..................................... 6,300 557,217
Snow Brand Milk Products Co., Ltd. JPY50 ............ 32,000 86,386
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-194
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Sony Corp. JPY50 ......................................... 38,300 $ 3,416,984
Sumitomo Bank Ltd. JPY50 ................................. 305,000 3,495,202
Sumitomo Cement Co., Ltd. JPY50 .......................... 33,000 41,624
Sumitomo Chemical Co., Ltd. JPY50 ........................ 158,000 364,556
Sumitomo Corp. JPY50 ..................................... 103,000 578,291
Sumitomo Electric Industries JPY50 ....................... 71,000 971,996
Sumitomo Forestry Co., Ltd. JPY50 ........................ 17,000 83,548
Sumitomo Heavy Industries Ltd. JPY50 ..................... 57,000 174,918
Sumitomo Marine & Fire Insurance Co., Ltd. JPY50 ......... 66,000 350,251
Sumitomo Metal Industries JPY50 .......................... 306,000 393,029
Sumitomo Metal Mining Co. JPY50 .......................... 56,000 185,201
Taisei Corp. JPY50 ....................................... 99,000 162,943
Taisho Pharmaceutical Co., Ltd. JPY50 .................... 33,000 845,171
Taiyo Yuden Co. Ltd. JPY50 ............................... 11,000 76,564
Takara Shuzo Co., Ltd. JPY50 ............................. 21,000 78,333
Takara Standard JPY50 .................................... 11,000 54,145
Takashimaya Co. JPY50 .................................... 30,000 182,278
Takeda Chemical Industries Ltd. JPY50 .................... 85,000 2,431,913
Takuma Co., Ltd. JPY50 ................................... 6,000 41,532
Teijin Ltd. JPY50 ........................................ 95,000 199,468
Teikoku Oil Co., Ltd. JPY50 .............................. 26,000 67,989
Toa Corp. JPY50 .......................................... 12,000 15,782
Tobu Railway Co., Ltd. JPY50 ............................. 83,000 260,450
Toei JPY50 ............................................... 11,000 40,186
Toho Co. JPY500 .......................................... 1,810 193,499
Tohoku Electric Power Co., Inc. JPY500 ................... 48,900 744,664
Tokai Bank Ltd. JPY50 .................................... 197,000 921,204
Tokio Marine & Fire Insurance Co., Ltd. JPY50 ............ 151,000 1,718,798
Tokyo Broadcasting System Inc. JPY50 ..................... 17,000 215,734
Tokyo Dome Corp. JPY50 ................................... 16,000 106,813
Tokyo Electric Power Co., Inc. JPY500 .................... 131,500 2,407,071
Tokyo Electron Ltd. JPY50 ................................ 16,800 540,097
Tokyo Gas Co., Ltd. JPY50 ................................ 273,000 621,499
Tokyo Steel Manufacturing JPY50 .......................... 15,200 51,555
Tokyo Style JPY50 ........................................ 10,000 90,755
Tokyo Tatemono Co. Ltd. JPY50 ............................ 22,000 28,765
Tokyotokeiba JPY20 ....................................... 18,000 23,258
Tokyu Corp. JPY50 ........................................ 107,000 414,763
Toppan Printing Co. Ltd. JPY50 ........................... 68,000 889,087
Toray Industries Inc. JPY50 .............................. 136,000 611,901
Tosoh Corp. JPY50 ........................................ 58,000 97,692
Tostem Corp. JPY50 ....................................... 21,000 226,117
Toto Ltd. JPY50 .......................................... 35,800 229,634
Toyo Engineering Corp. JPY50 ............................. 12,000 8,676
Toyo Exterior Co. JPY50 .................................. 4,000 26,303
Toyo Seikan Kaisha Ltd. JPY50 ............................ 21,100 301,843
Toyobo Co., Ltd. JPY50 ................................... 67,000 81,418
Toyoda Auto Loom Works Ltd. JPY50 ........................ 28,000 516,839
Toyota Motor Corp. JPY50 ................................. 370,000 10,642,889
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-195
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
Trans Cosmos Inc. JPY50 ........................... 2,000 $ 35,225
Tsubakimoto Machinery & Engineering JPY50 ......... 14,000 50,607
UBE Industries Ltd. JPY50 ......................... 81,000 103,414
Uni-Charm JPY50 ................................... 7,000 248,729
Uniden Corp. JPY50 ................................ 4,000 32,302
Unitika Ltd. JPY50 ................................ 34,000 18,305
UNY Co., Ltd. JPY50 ............................... 18,000 247,806
Wacoal Corp. JPY50 ................................ 15,000 149,976
Yamaguchi Bank Ltd. JPY50 ......................... 19,000 233,808
Yamaha Corp. JPY50 ................................ 20,000 227,655
Yamaichi Securities Co. JPY50 ..................... 117,000 900
Yamanouchi Pharmaceutical Co., Ltd. JPY50 ......... 32,000 689,119
Yamato Transport Co., Ltd. JPY50 .................. 39,000 524,915
Yamazaki Baking Co. Ltd JPY50 ..................... 21,000 205,121
Yasuda Trust & Banking Co., Ltd. JPY50 ............ 107,000 106,983
Yokogawa Electric Corp. JPY50 ..................... 25,000 154,975
------------
144,524,401
------------
MALAYSIA 0.8%
Aluminium Co. of Malaysia Bhd MYR1 ................ 9,300 2,126
Amalgamated Steel Mills Bhd Ord MYR0.50 ........... 129,800 22,676
AMMB Holdings Bhd MYR1 ............................ 41,400 27,122
Antah Holdings Bhd Ord MYR0.50 .................... 17,220 5,265
Aokam Perdana Bhd MYR1 ............................ 14,000 1,529
Berjaya Group Bhd MYR1 ............................ 90,650 18,398
Berjaya Leisure Bhd MYR1 .......................... 63,900 39,072
Commerce Asset Holdings Bhd MYR1 .................. 80,680 38,554
DCB Holdings Bhd MYR1 ............................. 158,700 76,652
Edaran Otomobil Nasional Bhd MYR1 ................. 23,100 47,181
Ekran Bhd MYR1 .................................... 53,200 37,586
Golden Hope Plantations Bhd MYR1 .................. 104,200 120,467
Golden Plus Holdings Bhd MYR1 ..................... 11,300 2,555
Guinness Anchor Bhd MYR0.50 ....................... 31,700 39,092
Highlands & Lowlands Bhd Ord MYR0.50 .............. 62,300 63,703
Hong Leong Industries Bhd MYR0.50 ................. 22,880 23,278
Hong Leong Properties Bhd Ord MYR0.50 ............. 55,500 10,124
Hume Industries Bhd MYR1 .......................... 25,500 26,729
Idris Hydraulic (Malaysia) Bhd MYR0.50 ............ 44,200 6,700
IGB Corp. Bhd MYR0.50 ............................. 42,000 9,765
Industrials Oxygen Inc. Bhd MYR0.50 ............... 87,400 28,292
Jaya Tiasa Holdings MYR1 .......................... 26,000 47,760
Johan Holdings Bhd MYR0.50 ........................ 21,700 5,965
Kedah Cement Holdings Bhd MYR1 .................... 36,600 6,723
Kelanamas Industries Bhd MYR1 ..................... 6,800 847
Kemayan Corp. Bhd MYR0.50 ......................... 28,500 3,807
Kian Joo Can Factory Bhd MYR0.50 .................. 9,300 8,267
Kuala Lumpur Kepong Bhd Ord MYR1 .................. 73,500 157,674
Land & General Bhd MYR1 ........................... 42,900 7,936
Landmarks Bhd MYR1 ................................ 36,900 5,404
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-196
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Leader Universal Holdings Bhd MYR1 ................................... 34,000 $ 10,482
Magnum Corp. Bhd MYR0.50 ............................................. 154,700 93,002
Malayan Banking Bhd MYR1 ............................................. 117,900 342,278
Malayan Cement Bhd MYR0.50 ........................................... 32,125 21,871
Malayan United Industries Bhd MYR1 ................................... 187,320 32,725
Malayawata Steel Bhd MYR1 ............................................ 18,450 4,503
Malaysia Mining Corp. Bhd MYR1 ....................................... 86,800 34,119
Malaysian Airline System Bhd Ord MYR1 ................................ 79,500 63,725
Malaysian International Shipping Corp. Bhd MYR1 Alien Market ......... 100,833 147,660
Malaysian Mosaics Bhd MYR1 ........................................... 24,600 8,848
Malaysian Oxygen Bhd MYR0.50 ......................................... 14,800 33,080
Malaysian Pacific Industries Bhd. MYR0.50 ............................ 21,966 52,765
Malaysian Resources Corp. Bhd MYR1 ................................... 103,066 23,831
MBF Capital Bhd MYR1 ................................................. 81,000 18,833
Metroplex Bhd MYR0.50 ................................................ 85,600 21,882
Mulpha International Bhd MYR0.50 ..................................... 81,250 9,498
Multi Purpose Holdings MYR1 .......................................... 80,700 20,733
Mycom Bhd MYR1 ....................................................... 40,666 10,134
Nestle Malaysia Bhd MYR1 ............................................. 24,500 113,299
New Straits Times Press Bhd MYR1 ..................................... 20,400 25,262
Oriental Holdings Bhd MYR1 ........................................... 33,272 40,689
Palmco Holdings Bhd MYR1 ............................................. 15,400 2,611
Pan-Malaysia Cement Works Bhd MYR0.50 ................................ 76,400 29,442
Perlis Plantations Bhd MYR1 .......................................... 38,000 53,695
Perusahaan Otomobil Nasional Bhd MYR1 ................................ 56,300 54,964
Petaling Garden Bhd MYR0.50 .......................................... 13,400 10,328
Pilecon Engineering Bhd MYR0.50 ...................................... 14,500 3,446
Promet Bhd MYR1 ...................................................... 47,200 4,365
Public Bank Bhd MYR0.50 Alien Market ................................. 160,866 55,380
Public Bank Bhd A Shares Alien Market ................................ 32,173 11,076
Public Bank Bhd MYR0.50 Rts Alien Market ............................. 32,173 1,653
Rashid Hussain Bhd MYR1 .............................................. 39,600 30,725
Resorts World Bhd MYR0.50 ............................................ 112,800 189,818
RJ Reynolds Bhd MYR1 ................................................. 26,600 43,395
Rothmans of Pall Mall Bhd MYR0.50 .................................... 29,200 226,931
Selangor Properties Bhd MYR1 ......................................... 30,800 9,416
Shell Refining Co. MYR1 .............................................. 31,200 48,896
Silverstone Bhd Com .................................................. 4,543 0
Sime Darby Bhd MYR0.50 ............................................... 240,700 231,278
Sungei Way Holdings Bhd MYR1 ......................................... 31,400 10,165
Ta Enterprise Bhd MYR1 ............................................... 74,000 15,019
Tan Chong Motor Holdings Bhd MYR0.50 ................................. 69,500 30,354
Tech Resources Industries Bhd MYR1 ................................... 78,200 46,208
Telekom Malaysia Bhd MYR1 ............................................ 309,850 915,452
Tenaga Nasional Bhd MYR1 ............................................. 320,900 684,280
Time Engineering Bhd MYR1 ............................................ 77,000 19,782
UMW Holdings Bhd MYR1 ................................................ 27,300 20,690
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-197
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
United Engineers (Malaysia) Ltd. MYR0.50 ................ 82,000 $ 68,257
YTL Corp., Bhd Ord MYR0.50 .............................. 123,700 166,846
------------
5,004,940
------------
NETHERLANDS 5.8%
ABN Amro Holdings NV NLG1.25 ............................ 155,556 3,030,969
Ahold (Kon.) NV NLG0.50 ................................. 51,791 1,351,474
Akzo NV NLG20 ........................................... 7,462 1,286,839
Elsevier NV NLG0.10 ..................................... 66,818 1,081,098
Getronics NV NLG 0.25 ................................... 8,613 274,463
Heineken NV NLG25 ....................................... 5,031 876,045
Hollandsche Beton NLG2 .................................. 3,319 61,723
IHC Caland NV NLG2 ...................................... 3,248 168,550
ING Groep NV Cva NLG1 ................................... 88,701 3,736,664
KLM Royal Dutch Airlines NLG20 .......................... 7,385 273,218
Kon Hoogovens NV Cva NLG20 .............................. 3,707 151,957
Kon Pvc Nederlanden NLG10 ............................... 47,187 1,969,202
Koninklijke KNP Bt NV NLG2.5 ............................ 11,420 263,076
Koninklijke Pakhoed NV Cva NLG5 ......................... 4,032 116,352
Nedlloyd Groep NV NLG10 ................................. 2,184 49,557
Oce van der Grinten NV NLG4 ............................. 2,010 219,122
Philips Electronics NV NLG10 ............................ 43,787 2,626,494
Royal Dutch Petroleum NLG1.25 ........................... 227,600 12,495,828
Stad Rotterdam Cva NLG2.5 ............................... 3,518 191,412
Stork NV NLG10 .......................................... 3,776 130,385
Unilever NV Cva NLG1 .................................... 61,132 3,769,435
Wolters Kluwer NV Cva NLG1 .............................. 6,847 884,573
------------
35,008,436
------------
NEW ZEALAND 0.2%
Brierley Investment Ltd. NZD0.50 ........................ 222,540 158,939
Carter Holt Harvey Ltd. NZD0.50 ......................... 143,837 222,162
Ceramco Corp., Ltd. Ord NZD0.50 ......................... 1,900 1,600
Fisher & Paykel Industries NZD0.50 ...................... 9,627 30,745
Fletcher Challenge Forestry Ltd. NZD .................... 67,350 55,923
Fletcher Challenge Ltd. Paper Shares NZD0.40 ............ 55,200 72,117
Fletcher Challenge Ltd. Energy Shs NZD0.40 .............. 28,050 98,213
Fletcher Challenge Ltd. Building Shares NZD0.40 ......... 28,050 57,331
Lion Nathan Ltd. NZD0.25 ................................ 45,500 101,980
Telecom Corp. of New Zealand NZD1 ....................... 149,860 726,591
------------
1,525,601
------------
NORWAY 0.4%
Aker AS NOK20 B ......................................... 1,760 28,648
Aker AS NOK20 Series A .................................. 4,900 88,400
Bergesen DY A/S NOK2.5 A ................................ 4,700 110,930
Bergesen DY A/S NOK2.5 B (Non Vtg) ...................... 2,000 46,662
Christiania Bank NOK7 ................................... 48,500 196,048
Dyno Industrier A/S NOK20 ............................... 2,300 44,302
Elkem AS NOK20 A ........................................ 4,300 57,161
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-198
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Hafslund ASA NOK1 Ser A .......................................... 5,647 $ 34,470
Hafslund ASA NOK1 Ser B .......................................... 4,167 19,896
Helikopter Service A/S NOK11.5 ................................... 1,800 21,974
Kvaerner AS NOK12.5 B ............................................ 800 37,221
Kvaerner AS NOK12.50 ............................................. 3,000 153,007
Leif Hoegh & Co., A/S NOK2 ....................................... 2,600 52,902
Norsk Hydro AS NOK20 ............................................. 20,166 983,382
Norske Skogsindustrier AS NOK20 A ................................ 2,500 72,570
Norske Skogsindustrier AS NOK20 B ................................ 700 18,990
Orkla A/S NOK25 B ................................................ 800 62,288
Orkla AS NOK25 A ................................................. 3,500 301,471
Petroleum Geo Services A/S NOK5 .................................. 2,800 176,610
Unified Storebrand AS A NOK20 .................................... 24,400 172,106
Unitor Ships Service NOK12.5 ..................................... 1,600 19,533
Vard A/S NOK2 A .................................................. 16,427 58,825
------------
2,757,396
------------
PORTUGAL 0.6%
Banco Commerce Portugues SA Ord PTE1000 Regd ..................... 15,500 317,344
Banco Espirito Santo e Comercial de Lisboa PTE1000 Regd .......... 9,000 268,123
Banco Port de Invest PTE1000 Regd ................................ 8,000 194,730
Banco Totta E'Acores PTE1000 Regd ................................ 6,200 121,879
Cia Celulose Caima PTE1200 ....................................... 400 4,854
Cimpor Ciment Port PTE1000 ....................................... 8,700 228,284
Cin Corp. Indiana Norte PTE1000 .................................. 400 25,217
Cort Amorim SA PTE1000 ........................................... 1,500 17,950
EFACEC Empresea Fabril de Maquinas Electricas SA PTE1000 ......... 1,000 7,718
Elec De Portugal PTE1000 ......................................... 37,400 708,964
Emp Madeira Tabaco PTE1000 ....................................... 500 10,104
Engil Sgps PTE1000 ............................................... 1,500 14,662
Inapa Investor Participating Ges Ordinary PTE1000 ................ 1,800 21,050
Jeronimo Martins PTE1000 ......................................... 2,800 88,945
Jeronimo Martins New Shs ......................................... 4,200 133,417
Lusotur Society Finance Ord PTE1000 .............................. 500 4,626
Mague Gestao e Participacoes SA PTE1000 .......................... 500 11,352
Mundicenter Ord PTE1000 .......................................... 1,000 11,945
Portucel Industria PTE1000 ....................................... 9,000 54,976
Portugal Telecom PTE1000 ......................................... 19,600 910,466
Soares da Costa PTE1000 .......................................... 1,200 8,355
Sonae Investimento Ord PTE1000 ................................... 4,100 166,012
Tertir Ord PTE1000 ............................................... 700 2,536
Unicer (Uniao Cervejeira SA) PTE1000 Regd ........................ 2,000 28,285
------------
3,361,794
------------
SINGAPORE 0.9%
Asia Food & Props SGD1 ........................................... 23,556 3,651
Asia Food & Props Wts 07Dec2002 .................................. 1,766 159
Chuan Hup Holdings SGD1 .......................................... 19,000 5,751
City Developments Ltd. SGD0.50 ................................... 82,680 382,746
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-199
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Comfort Group SGD0.25 ................................................. 55,000 $ 23,829
Creative Technology Ord SGD0.25 ....................................... 9,000 182,677
Cycle & Carriage Ltd. SGD1 ............................................ 24,000 98,995
DBS Land Ltd. SGD1 .................................................... 105,000 160,777
Development Bank of Singapore Ltd. SGD1 Alien Market .................. 51,250 437,998
First Capital Corp. SGD1 .............................................. 30,000 27,776
Fraser & Neave Ltd. SGD1 .............................................. 30,800 133,441
Goldtron Ltd. SGD0.20 ................................................. 31,000 6,163
Hai Sun Hup Group Ltd. SGD0.20 ........................................ 45,000 18,161
Haw Par Brothers International Ltd. SGD1 .............................. 19,200 24,841
Hotel Properties SGD1 ................................................. 43,000 28,072
Inchcape Bhd SGD0.50 .................................................. 17,000 26,132
Inchcape Marketing Services SGD0.50 ................................... 17,000 0
IPC Corp. SGD0.05 ..................................................... 128,799 11,084
Keppel Corp., Ltd. SGD1 ............................................... 78,500 225,492
Lum Chang Holdings Ltd. SGD0.50 ....................................... 40,320 13,281
Metro Holdings SGD1 ................................................... 10,600 13,148
Natsteel Ltd. SGD0.50 ................................................. 34,000 46,008
Neptune Orient Lines Ltd. SGD1 ........................................ 75,000 29,600
Overseas Chinese Banking Corp. SGD1 Alien Market ...................... 109,288 635,644
Overseas Union Enterprise Ltd. SGD1 ................................... 13,000 31,170
Parkway Holdings Ltd. SGD0.50 ......................................... 33,000 74,424
Prima Ltd. SGD1 ....................................................... 4,000 7,359
Robinson & Co., Ltd. SGD1 ............................................. 6,000 21,366
Sembawang Corp. SGD1 .................................................. 23,000 49,141
Sembawang Maritime Ltd. SGD1 .......................................... 11,000 16,191
Shangri La Hotel Ltd. SGD1 ............................................ 17,000 31,075
Singapore Airlines Ltd. SGD1 Alien Market ............................. 95,000 620,200
Singapore Press Holdings Ltd. SGD1 Alien Market ....................... 25,800 323,086
Singapore Technical Industries SGD0.25 ................................ 71,000 67,842
Singapore Telecommunications SGD0.15 .................................. 633,000 1,179,638
Straits Trading Co., Ltd. SGD1 ........................................ 31,000 36,797
United Industrial Corp., Ltd. SGD1 .................................... 140,000 54,839
United Overseas Bank Ltd. SGD1 Alien Market ........................... 87,634 486,295
United Overseas Land Ltd. SGD1 ........................................ 61,000 51,408
Van Der Horst Ltd. SGD1 ............................................... 12,000 4,594
------------
5,590,851
------------
SPAIN 2.0%
Acerinox SA ESP1000 Regd .............................................. 884 130,905
Aguas De Barcelona New ESP500 Rfd 1Jan98 .............................. 41 1,689
Aguila SA ESP500 ...................................................... 1,507 5,913
Banco Bilbao Vizcaya ESP260 ........................................... 50,892 1,646,143
Banco Central Hispan ESP250 Regd ...................................... 24,756 602,595
Banco Santander ESP250 Regd ........................................... 36,162 1,207,651
Corporacion Financiera Alba SA ESP1000 ................................ 4,546 110,570
Corporacion Mapfre Compania Internacional de Reaseguros SA ESP500 Regd 120,499
Argentaria Corp Bancaria De Espana ESP500 ............................. 9,250 562,591
Autopistas Concesionaria Espanola SA ESP500 ........................... 18,914 253,774
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-200
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-------- ---------------
<S> <C> <C>
Dragados Y Construciones SA ESP500 ..................... 3,968 $ 84,481
Ebro Agricolas ESP100 .................................. 3,350 57,916
Empresa Nacional de Celulosas ESP1000 .................. 1,600 21,783
Endesa SA ESP200 ....................................... 78,448 1,392,260
Ercros SA ESP500 ....................................... 10,400 10,099
Fomento de Cunstruciones y Contratas SA ESP250 ......... 4,600 175,048
Gas Natural Sdg ESP500 ................................. 11,340 587,775
General de Aguas d' Barcelona ESP500 ................... 3,353 138,154
Iberdrola SA ESP500 .................................... 68,704 903,790
INM Metrovacesa ESP500 ................................. 1,865 84,063
Inmobiliaria Urbis SA Series 1 ESP500 .................. 3,100 29,288
Portland Valderrivas ESP500 ............................ 550 49,437
Prosegur Seguridad ESP100 Regd ......................... 4,250 42,663
Repsol SA ESP500 ....................................... 22,626 964,922
Sarrio SA ESP500 ....................................... 3,750 13,581
Tabacalera SA ESP500 Regd .............................. 2,803 227,123
Telefonica de Espana SA ESP500 ......................... 70,878 2,022,888
Union Electrica Fenosa SA ESP500 ....................... 22,986 220,185
Uralita SA ESP500 ...................................... 3,362 38,381
Vallehermoso SA ESP500 ................................. 3,010 92,226
Viscofan Envolturas Celulosi ESP100 .................... 1,500 37,644
Zardoya Otis SA ESP1000 ................................ 819 95,379
------------
11,931,416
------------
SWEDEN 1.8%
AB Electrolux B SEK25 .................................. 5,200 361,113
ABB AB Ser B SEK5 ...................................... 19,000 223,900
ABB AB Ser A SEK5 ...................................... 47,100 558,003
AGA AB A SEK5 .......................................... 9,200 126,967
AGA AB B SEK5 .......................................... 8,000 105,868
Astra AB Ser B SEK1.25 ................................. 21,566 362,860
Astra AB Ser A SEK1.25 ................................. 94,373 1,635,454
Atlas Copco AB A SEK5 .................................. 8,900 265,844
Atlas Copco AB B SEK5 .................................. 4,000 119,228
Ericsson LM Telephone B SEK2.5 ......................... 67,860 2,552,973
Esselte AB A SEK12.5 ................................... 1,100 20,796
Esselte AB B SEK12.5 ................................... 800 16,233
Euroc AB A SEK25 ....................................... 3,900 159,748
Hennes & Mauritz Ser B SEK1 ............................ 14,600 644,034
Securitas AB Ser B SEK2 ................................ 5,300 160,315
Skandia Foersaekrings AB SEK5 .......................... 7,400 349,278
Skandinaviska Enskilda Banken A SEK10 .................. 37,200 471,191
Skanska AB B SEK10 ..................................... 8,000 328,193
SKF International AB B SEK12.5 ......................... 4,500 95,849
SKF International AB A SEK12.5 ......................... 3,500 70,138
Stora Kopparbergs B SEK5 ............................... 3,300 40,967
Stora Kopparbergs Ser A SEK5 ........................... 19,000 239,465
Svenska Cellulosa B SEK10 .............................. 13,970 314,284
Svenska Handelsbanken B SEK10 .......................... 1,100 35,422
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-201
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Svenska Handelsbanken A SEK10 ................................................ 15,700 $ 543,163
Swedish Match Co. SEK2 ....................................................... 32,700 109,215
Trelleborg AB B SEK25 ........................................................ 8,500 107,129
Volvo AB A SEK5 .............................................................. 9,800 261,848
Volvo AB B SEK5 .............................................................. 21,400 574,489
------------
10,853,967
------------
SWITZERLAND 8.1%
ABB AG CHF50 Br .............................................................. 835 1,050,512
ABB AG CHF10 Regd ............................................................ 695 175,828
Adia SA CHF10 ................................................................ 1,927 559,517
Alusuisse Lonza Holdings AG CHF125 Br ........................................ 215 205,337
Alusuisse Lonza Holdings AG CHF125 Regd ...................................... 432 415,547
CS Holding AG CHF20 Regd ..................................................... 27,800 4,307,563
Danzas Holding AG CHF10 Regd ................................................. 210 41,322
Forbo Holding CHF50 Regd ..................................................... 140 57,303
Georg Fischer AG CHF100 Regd ................................................. 30 7,981
Georg Fischer AG CHF500 Br ................................................... 55 75,417
Grands Magasins Jelmoli CHF50 Br ............................................. 55 47,513
Grands Magasins Jelmoli CHF10 Regd ........................................... 155 25,930
Holderbank Financiere Glaris Ltd. CHF50 Br ................................... 728 594,958
Kuoni Reisen Holding CHF50 Regd Series B ..................................... 35 131,380
Merkur Holding AG CHF25 Regd ................................................. 455 96,082
Movenpick Holdings CHF50 Br .................................................. 80 32,416
Movenpick Holdings Ptg Certs CHF50 ........................................... 15 5,959
Nestle SA CHF10 Regd ......................................................... 4,089 6,136,790
Novartis AG CHF20 Regd ....................................................... 6,631 10,774,714
Novartis AG CHF20 Br ......................................................... 702 1,143,087
Roche Holding Ltd. CHF100 Br ................................................. 171 2,637,892
Roche Holding Ltd. NPV ....................................................... 750 7,458,601
Schindler Holding AG Ptg Certs CHF100 ........................................ 155 161,743
Schweize Bankgesellschaft CHF100 Br .......................................... 2,558 3,704,016
Schweize Bankverein CHF50 Regd ............................................... 7,883 2,453,724
SGS Holding CHF100 Br ........................................................ 187 358,986
Sika Finanz AG CHF60 Br ...................................................... 235 74,759
SMH Swiss Corp. for Microelectronics & Watchmaking Industries Ltd. CHF10 Regd 1,650 222,858
SMH Swiss Corp. for Microelectronics & Watchmaking Industries Ltd. CHF50 Br .. 403 222,699
Sulzer Brothers Ltd. CHF100 Regd ............................................. 436 276,806
Swiss Reinsurance Co. CHF20 Regd ............................................. 1,464 2,742,207
Swissair Transport Co., Ltd. CHF350 Regd ..................................... 256 351,033
Zurich Versicherun CHF10 Regd ................................................ 4,995 2,383,544
------------
48,934,024
------------
UNITED KINGDOM 20.5%
Abbey National PLC Ord GBP0.10 ............................................... 136,400 2,459,781
AMEC PLC Ord GBP0.50 ......................................................... 14,609 28,124
Anglian Water PLC Ord GBP1 ................................................... 26,200 357,809
Argos PLC Ord GBP0.10 5/7 .................................................... 27,749 250,892
Argyll Group PLC Ord GBP0.25 ................................................. 105,553 595,712
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-202
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Arjo Wiggins Appleton PLC Ord GBP0.25 ................ 79,867 $ 212,889
Associated British Foods PLC Ord GBP0.05 ............. 87,200 760,438
Barclays PLC Ord GBP1 ................................ 146,600 3,909,599
Barratt Developments PLC Ord GBP0.10 ................. 16,550 63,177
Bass PLC Ord GBP0.25 ................................. 85,800 1,336,987
BAT Industries PLC Ord GBP0.25 ....................... 300,107 2,741,555
BBA Group PLC Ord GBP0.25 ............................ 40,300 269,217
BG PLC Ord GBP 1 2/15 ................................ 372,605 1,679,851
BG PLC B Shs GBP0.30 ................................. 313,600 149,639
BICC PLC Ord GBP0.50 ................................. 29,941 84,504
Blue Circle Industries PLC Ord GBP0.50 ............... 71,742 403,121
BOC Group PLC Ord GBP0.25 ............................ 47,098 775,725
Boots Co., PLC GBP0.25 ............................... 88,200 1,272,014
Bowater PLC Ord GBP0.50 .............................. 48,850 240,330
Bowthorpe Holdings PLC Ord GBP0.10 ................... 13,938 86,001
BPB Industries PLC Ord GBP0.50 ....................... 49,700 278,040
British Aerospace PLC Ord GBP0.10 .................... 41,769 1,192,408
British Airways PLC Ord GBP0.25 ...................... 100,500 926,031
British Land Co., PLC Ord GBP0.25 .................... 46,033 511,263
British Petroleum Co., PLC Ord GBP0.25 ............... 551,110 7,303,246
British Sky Broadcast Ord. GBP0.50 ................... 166,800 1,251,504
British Steel PLC GBP0.50 ............................ 197,500 425,706
British Telecommunications PLC Ord GBP0.25 ........... 609,900 4,814,230
BTR PLC Ord GBP0.25 .................................. 396,186 1,199,467
Burmah Castrol PLC Ord GBP1 .......................... 20,470 357,696
Cable & Wireless PLC Ord GBP0.25 ..................... 219,619 1,933,282
Cadbury Schweppes PLC Ord GBP0.25 .................... 97,080 981,542
Caradon Ord GBP 5/18 ................................. 51,700 150,569
Carlton Communications PLC GBP0.05 ................... 56,310 435,467
Centrica PLC Ord GBP0.05 ............................. 427,400 629,403
Coats Viyella PLC Ord GBP0.20 ........................ 50,206 75,174
Commercial Union PLC Ord GBP0.25 ..................... 66,475 928,619
Courtaulds Coolings Ltd. Ord GBP0.25 ................. 39,400 192,541
Courtaulds Textile PLC Ord GBP0.25 ................... 7,375 43,321
De La Rue Co., PLC Ord GBP0.25 ....................... 21,798 142,031
Delta PLC Ord GBP0.25 ................................ 10,700 46,479
Electrocomponents PLC Ord GBP0.10 .................... 41,633 310,318
EMI Group PLC Ord GBP0.14 ............................ 76,140 636,426
English China Clays PLC Ord GBP0.25 .................. 21,969 96,876
FKI PLC GBP0.10 ...................................... 54,920 172,598
FR Group PLC Ord GBP0.25 ............................. 6,580 90,403
General Electric Co., PLC Ord GBP0.05 ................ 270,100 1,753,247
GKN PLC Ord GBP1 ..................................... 34,300 703,772
Glaxo Holdings PLC Ord GBP0.25 ....................... 340,500 8,132,042
Granada Group PLC Ord GBP0.25 ........................ 85,361 1,306,213
Great Portland Estates PLC Ord GBP0.50 ............... 26,935 106,919
Great Universal Stores PLC Ord Stock GBP0.25 ......... 97,500 1,230,471
Guardian Royal Exchange PLC Ord GBP0.05 .............. 88,163 479,797
Guinness PLC Ord GBP0.25 ............................. 391,187 3,585,181
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-203
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
---------- ---------------
<S> <C> <C>
Hammerson Property & Investment Development Corp., PLC Ord GBP0.25 ....... 27,741 $ 214,418
Hanson PLC Ord GBP2 ...................................................... 63,150 282,237
Harrison & Crosfield PLC Ord GBP0.25 ..................................... 50,810 117,880
Hepworth PLC Ord GBP0.25 ................................................. 17,600 64,289
HSBC Holdings PLC Ord HKD10 .............................................. 172,298 4,258,156
HSBC Holdings PLC Ord GBP0.75 ............................................ 85,114 2,212,736
Hyder PLC Ord GBP1.20 .................................................... 13,983 222,714
IMI PLC Ord GBP0.25 ...................................................... 33,600 223,630
Imperial Chemical Industries PLC Ord GBP1.0 .............................. 71,300 1,115,685
J. Sainsbury PLC Ord GBP0.25 ............................................. 183,742 1,550,948
Johnson Matthey PLC Ord GBP1.00 .......................................... 21,013 188,433
Kingfisher PLC GBP0.25 ................................................... 65,085 910,272
Ladbroke Group PLC Ord GBP0.10 ........................................... 113,778 494,235
Laird Group PLC Ord GBP0.25 .............................................. 10,200 74,685
Land Securities PLC Ord GBP1 ............................................. 50,500 805,999
Lasmo PLC Ord GBP0.25 .................................................... 93,657 417,620
Legal & General Group Ord GBP0.10 ........................................ 121,025 1,059,396
Lex Service PLC Ord GBP0.25 .............................................. 8,116 62,096
Lonrho PLC Ord GBP0.25 ................................................... 55,987 86,594
Lucas Varity Ord GBP0.25 ................................................. 137,666 487,009
Marks & Spencer PLC Ord GBP0.25 .......................................... 272,800 2,702,572
Marley PLC Ord GBP0.25 ................................................... 24,138 37,334
MEPC PLC Ord GBP0.25 ..................................................... 40,600 339,360
Mercury Assets Management Group PLC Ord GBP0.05 .......................... 17,681 494,642
Meyer International PLC Ord GBP0.25 ...................................... 9,112 57,723
National Grid Group Ord.GBP0.10 .......................................... 166,434 791,428
National Power PLC Ord GBP0.50 ........................................... 117,500 1,160,007
Next PLC Ord GBP0.10 ..................................................... 36,300 415,086
North West Water PLC Ord GBP1 ............................................ 52,132 669,068
Ocean Group PLC Ord GBP0.25 .............................................. 11,100 108,807
P&O Holdings PLC Ord GBP1.00 ............................................. 60,163 685,521
Pearson PLC Ord GBP0.25 .................................................. 55,400 721,037
Pilkington PLC Ord GBP0.50 ............................................... 100,494 210,825
Provident Financial PLC Ord GBP0.10 ...................................... 26,400 347,508
Prudential Corp., PLC Ord GBP0.05 ........................................ 186,515 2,275,264
Racal Electronics PLC Ord GBP0.25 ........................................ 20,400 89,622
Railtrack Group Ord GBP0.25 .............................................. 48,894 777,953
Rank Group Ord GBP0.10 ................................................... 77,282 431,072
Redland PLC Ord GBP0.25 .................................................. 50,607 284,779
Reed International Ord GBP0.125 .......................................... 110,800 1,057,400
Reuters Holdings PLC Ord GBP0.025 ........................................ 163,700 1,791,191
RMC Group PLC Ord GBP0.25 ................................................ 25,150 356,711
Rolls Royce PLC Ord GBP0.20 .............................................. 143,261 553,946
Royal Bank of Scotland Group PLC Ord GBP0.25 ............................. 82,165 1,049,364
RTZ Corp., PLC Ord GBP0.10 Regd .......................................... 103,872 1,282,687
Rugby Group PLC Ord GBP0.25 .............................................. 45,900 102,712
Schroders PLC Ord GBP1 ................................................... 18,800 591,758
Scottish & Newcastle Breweries PLC Ord GBP0.20 ........................... 59,842 734,049
Scottish Power PLC Ord GBP0.50 ........................................... 114,117 1,010,192
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-204
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
--------- --------------
<S> <C> <C>
Sears PLC Ord GBP0.25 .................................... 109,100 $ 95,142
Sedgwick Group PLC GBP0.10 ............................... 39,120 91,403
Slough Estates PLC Ord GBP0.25 ........................... 37,900 213,897
Smithkline Beecham GBP0.0625 ............................. 528,801 5,459,809
Smiths Industries PLC Ord GBP0.25 ........................ 29,400 410,218
Southern Electric PLC Ord GBP0.001 ....................... 46,435 388,897
St James Place Capital PLC Ord GBP0.15 ................... 29,300 82,922
Sun Alliance Group PLC Ord GBP0.25 ....................... 149,787 1,510,797
T&N PLC Ord GBP1 ......................................... 51,628 216,619
Tarmac PLC Ord GBP0.50 ................................... 90,242 169,272
Tate & Lyle PLC GBP0.25 .................................. 42,624 351,369
Taylor Woodrow PLC Ord GBP0.25 ........................... 28,159 82,472
TBS Group Ord GBP0.25 .................................... 514,918 6,710,697
Tesco PLC Ord GBP0.05 .................................... 211,240 1,744,962
Thames Water PLC Ord GBP1 ................................ 36,800 548,892
Thorn PLC Ord GBP0.0575 .................................. 26,486 68,857
TI Group PLC Ord GBP0.25 ................................. 46,523 358,249
Transport Development Group PLC Ord GBP0.25 .............. 9,800 32,734
Unigate PLC Ord GBP0.25 .................................. 23,200 229,421
Unilever Ord GBP0.0125 ................................... 317,400 2,735,023
United Biscuits PLC Ord GBP0.25 .......................... 51,400 190,291
Vickers PLC Ord GBP0.50 .................................. 24,000 93,195
Vodafone Group PLC Ord GBP0.05 ........................... 297,500 2,153,828
Williams Holdings PLC Ord GBP0.25 ........................ 73,550 409,045
Willis Corroon Group PLC Ord GBP0.125 .................... 30,063 72,715
Wilson Holdings PLC Ord GBP0.25 .......................... 14,200 36,916
Wimpey (George) PLC Ord GBP0.25 .......................... 26,100 45,951
Wolseley PLC GBP0.25 ..................................... 55,000 437,924
Zeneca Group Ord GBP0.25 ................................. 91,800 3,257,420
------------
124,277,234
------------
PREFERRED STOCK 0.7%
AUSTRALIA 0.1%
News Corp. Pfd AUD0.50 ................................... 122,033 603,818
Sydney Harbour Casino Holdings Ltd. AUD1 Pfd Stk ......... 34,700 32,897
636,715
------------
AUSTRIA 0.0%
Bank Austria AG Non Vt Pr ATS100 Red 01Jan97 ............. 1,784 79,252
Bau Holdings AG Pfd ATS100 ............................... 100 4,529
EA Generali AG Pfd ATS100 ................................ 100 11,225
Z Landerbank Bank Austria AG Pfd ATS100 .................. 1,300 61,656
------------
156,662
------------
FRANCE 0.0%
Etab Eco Casino Guich Perr & Co. FRF10 Prd ............... 1,654 72,447
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-205
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ---------------
<S> <C> <C>
GERMANY 0.5%
CKAG Colonia Konzern. Non Vtg Pfd DEM5 ............. 500 $ 47,830
Dyckerhoff AG Pfd DEM50 ............................ 220 58,119
Escada AG Pfd DEM50 ................................ 50 5,645
Friedrich Grohe AG Pfd DEM50 ....................... 300 72,746
Herlitz AG Pfd DEM50 ............................... 66 3,707
MAN AG Pfd DEM50 ................................... 300 67,574
Metro AG Non Vtg Pfd DEM5 .......................... 2,310 64,493
Rheinmetall AG Non Vtg Pfd DEM5 .................... 826 12,863
RWE AG Non Vtg Pfd DEM5 ............................ 21,700 917,219
SAP AG Pfd DEM5 .................................... 4,250 1,391,026
Volkswagen AG Pfd DEM50 ............................ 850 364,952
------------
3,006,174
ITALY 0.1%
Fiat SpA Privilege ITL1000 ......................... 100,435 153,380
La Rinascente SpA Privilege ITL1000 ................ 2,100 6,414
------------
159,794
------------
SINGAPORE 0.0%
Goldtron Cum Pfd SGD0.20 ........................... 4,600 805
------------
UNITS
STATE STREET BANK AND TRUST COMPANY INVESTMENT FUNDS
FOR TAX EXEMPT RETIREMENT PLANS 6.1%
Short Term Investment Fund ......................... 36,936,240 36,936,240
------------
TOTAL INVESTMENTS--100%
(Cost $580,085,424)................................ $605,577,709
============
</TABLE>
At December 31, 1997, $11,846,182 were pledged to cover margin requirements for
open futures contracts. The following long futures contracts were open at
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF NOTIONAL MATURITY UNREALIZED
FUTURE CONTRACTS CONTRACTS VALUE DATE GAIN (LOSS)
- ---------------------------------- ----------- ------------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
ASX All Ordinaries Index ......... 145 A$ 9,246,325 March 1998 $ 200,277
DAX Index ........................ 16 DM 6,710,800 March 1998 74,812
IBEX 35 Index .................... 96 ESP 697,927,000 January 1998 (3,101)
CAC 40 Index ..................... 63 FF 37,033,600 March 1998 180,251
Hang Seng Stock Index ............ 19 HK$ 10,136,250 January 1998 5,887
Nikkei 300 Index ................. 683 - 1,699,850,000 March 1998 (608,273)
FTSE 100 Index ................... 52 \P 6,880,500 March 1998 (235,105)
OMX Stock Index .................. 185 SKr 45,220,100 January 1998 (89,088)
MIB 30 Index ..................... 15 Lr 3,698,950,000 March 1998 53,630
$ (420,710)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-206
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY EAFE FUND
DAILY EAFE FUND NON-LENDING
Combined Schedule of Investments (Concluded)
(showing percentage of total value of investments)
December 31, 1997
- --------------------------------------------------------------------------------
The outstanding forward foreign currency contracts at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
SETTLEMENT CONTRACTS IN EXCHANGE UNREALIZED
DATE TO DELIVER FOR GAIN (LOSS)
- ----------------- ----------------------- ------------------------- --------------
<S> <C> <C> <C> <C> <C>
3/20/98 ......... $ 6,226,936 A$ 9,349,000 $ (124,483)
3/20/98 ......... $ 4,696,079 DM 8,228,000 (98,866)
3/20/98 ......... DM 939,000 $ 532,947 8,302
3/20/98 ......... $ 5,337,431 ESP 794,464,000 (113,951)
3/20/98 ......... ESP 84,000,000 $ 561,235 8,947
3/20/98 ......... $ 7,057,098 FF 41,422,600 (140,143)
3/20/98 ......... FF 3,400,000 $ 576,349 8,600
3/20/98 ......... $ 11,699,433 \P 7,087,000 (83,704)
3/20/98 ......... \P 521,000 $ 866,527 12,598
3/20/98 ......... $ 2,499,564 Lr 4,318,251,000 (57,918)
3/20/98 ......... Lr 717,000,000 $ 411,903 6,494
3/20/98 ......... $ 14,429,166 - 1,851,276,100 (22,615)
3/20/98 ......... - 173,500,000 $ 1,357,948 7,779
3/20/98 ......... $ 6,185,827 SKr 47,767,000 (152,661)
3/20/98 ......... SKr 3,700,000 $ 478,116 10,792
----------
$ (730,829)
==========
</TABLE>
CURRECY LEGEND
<TABLE>
<S> <C> <C> <C>
A$ Australian Dollar Lr Italian Lir
\P British Pound Sterling - Japanese Yen
FF French Franc ESP Spanish Peseta
DM German Mark SKr Swedish Krona
HK$ Hong Kong Dollar $ U.S. Dollar
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-207
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Trustee of
State Street Bank and Trust Company
Daily Government/Corporate Bond Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the selected per unit data present fairly, in all
material respects, the financial position of State Street Bank and Trust
Company Daily Government/Corporate Bond Fund at December 31, 1997, the results
of its operations for the year then ended, and the changes in its net assets
and the selected per unit data for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
selected per unit data (hereafter referred to as "financial statements") are
the responsibility of the Trustee; 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 the Trustee, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
March 17, 1998
SAI-208
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value
(cost $4,046,276,420)........................................................... $ 4,141,986,208
Variation margin receivable ..................................................... 49,938
Receivable for Fund units issued ................................................ 2,200,000
Receivable for investments sold ................................................. 133,532,028
Interest receivable ............................................................. 67,246,349
Receivable for swap contracts ................................................... 111,956
- --------------------------------------------------------------------------------- ---------------
Total assets ................................................................. 4,345,126,479
- --------------------------------------------------------------------------------- ---------------
LIABILITIES
Payable to custodian ............................................................ 1,991,664
Payable for Fund units redeemed ................................................. 303,254
Payable for investments purchased ............................................... 69,293,634
Accrued expenses ................................................................ 48,267
- --------------------------------------------------------------------------------- ---------------
Total liabilities ............................................................ 71,636,819
- --------------------------------------------------------------------------------- ---------------
NET ASSETS (equivalent to $13.00 per unit based on 328,675,117 units outstanding) $ 4,273,489,660
================================================================================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-209
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest ............................................................................. $240,758,031
- ---------------------------------------------------------------------------------------- ------------
EXPENSES
Audit ................................................................................ 18,600
Custody .............................................................................. 426,742
- ---------------------------------------------------------------------------------------- ------------
Total expenses ..................................................................... 445,342
- ---------------------------------------------------------------------------------------- ------------
Net investment income .............................................................. 240,312,689
- ---------------------------------------------------------------------------------------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND SWAP
CONTRACTS
Net realized gain (loss) on investments .............................................. 32,645,384
Net realized gain (loss) on futures contracts ........................................ 7,661
Net realized gain (loss) on swap contracts ........................................... 178,003
Net change in unrealized appreciation (depreciation) on investments .................. 73,637,519
Net change in unrealized appreciation (depreciation) on futures contracts ............ (2,663)
Net realized and unrealized gain (loss) on investments, futures contracts and swap
contracts ........................................................................... 106,465,904
- ----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $346,778,593
======================================================================================== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-210
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ............................................................. $ 240,312,689 $ 170,191,692
Net realized gain (loss) on investments ........................................... 32,645,384 (7,925,396)
Net realized gain (loss) on futures contracts ..................................... 7,661 0
Net realized gain (loss) on swap contracts ........................................ 178,003 0
Net change in unrealized appreciation (depreciation) on investments ............... 73,637,519 (65,598,636)
Net change in unrealized appreciation (depreciation) on futures contracts ......... (2,663) 0
- ------------------------------------------------------------------------------------ -------------- --------------
Net increase (decrease) in net assets resulting from operations ................... 346,778,593 96,667,660
- ------------------------------------------------------------------------------------ -------------- --------------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participant transactions ..... 866,709,299 971,941,551
- ------------------------------------------------------------------------------------ -------------- --------------
Net increase (decrease) in net assets ............................................. 1,213,487,892 1,068,609,211
NET ASSETS
Beginning of year ................................................................ 3,060,001,768 1,991,392,557
- ------------------------------------------------------------------------------------ -------------- --------------
End of year ...................................................................... $4,273,489,660 $3,060,001,768
==================================================================================== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-211
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout the Period)
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993*
--------------- --------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net investment income** .................... $ 0.83 $ 0.78 $ 0.70 $ 0.73 $ 0.11
Net realized and unrealized gain (loss)..... 0.32 (0.42) 1.17 (1.05) (0.17)
- -------------------------------------------- ---------- ---------- ---------- ---------- --------
Net increase (decrease) .................... 1.15 0.36 1.87 (0.32) (0.06)
NET ASSET VALUE
Beginning of period ........................ 11.85 11.49 9.62 9.94 10.00
- -------------------------------------------- ---------- ---------- ---------- ---------- --------
END OF PERIOD .............................. $ 13.00 $ 11.85 $ 11.49 $ 9.62 $ 9.94
- -------------------------------------------- ---------- ---------- ---------- ---------- --------
Total return (a)*** .................... 9.70% 3.13% 19.44% (3.22)% (3.27)%
- -------------------------------------------- ---------- ----------- ---------- ---------- --------
Ratio of expenses to average net
assets (a) ................................ 0.01% 0.01% 0.01% 0.01% 0.02%
Ratio of net investment income to
average net assets (a) .................... 6.73% 6.82% 6.53% 6.81% 5.94%
Portfolio turnover ......................... 294% 299% 611% 144% 23%
Net assets, end of period (000s) ........... $4,273,490 $ 3,060,002 $1,991,393 $ 1,540,440 $ 322,680
============================================ =========== =========== ========== =========== =========
</TABLE>
- ----------
(a) 1993 data annualized.
* The Fund commenced operations on October 25, 1993.
** Net investment income has been calculated based on an average of units
outstanding.
*** Total return calculation is based on the value of a single unit of
participation outstanding throughout the period. It represents the
percentage change in the net asset value per unit between the beginning
and end of the period. The calculation includes only those expenses
charged directly to the Fund. This result may be reduced by any
administrative or other fees which are incurred in the management or
maintenance of individual participant accounts.
The accompanying notes are an integral part of these financial statements.
SAI-212
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") Daily
Government/Corporate Bond Fund (the "Fund") was formed by State Street Bank
under a Declaration of Trust. The investment objective of the Fund is to match
or exceed the return of the Lehman Brothers Government/Corporate Bond Index.
State Street Bank is Trustee and custodian of the Fund. State Street Global
Advisors, a division of State Street Bank, is the Fund's investment manager.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Investments in securities listed on a national securities exchange and
over-the-counter securities are valued at the last reported sale price on the
valuation date or, if no sales are reported for that day, the last published
sale price. Short-term investments are stated at amortized cost, which
approximates market value. Investments in regulated investment companies or
other State Street Bank collective investment funds are valued at net asset
value per share/unit on the valuation date. Certain investments are valued at
fair value on the basis of valuations furnished by a pricing service, approved
by the Trustee, which determines valuations using methods based on market
transactions for comparable securities which are generally recognized by
institutional traders. Futures contracts are valued at the last settlement
price at the end of each day on the board of trade or exchange upon which they
are traded. Bond index swap contracts are marked-to-market as the net amount
due to or from the Fund in accordance with the terms of the contract based upon
the closing level of the relevant index and interest accrual through valuation
date.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Fund in connection with the issuance and redemption of units of participation
are based on the valuations of those securities determined as described above.
The cost of securities delivered and the net gain or loss on securities sold
are determined using the average cost method. Interest income earned on
securities is recorded on the accrual basis. Interest income is increased by
accretion of discount and decreased by amortization of premium.
C. INCOME TAXES
It is the Fund's policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Fund is exempt from federal income taxes and no
federal income tax provision is required.
D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
The net asset value of the Fund is determined on each business day
("valuation date"). Issuances and redemptions of Fund units are made based upon
the closing market value of the securities bought or sold as of the valuation
date.
SAI-213
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
FINANCIAL STATEMENTS
DECEMBER 31, 1997
E. EXPENSES
Under the Declaration of Trust, the Fund may pay certain expenses for
services received during the year. The Trustee is paid a custody fee of 0.0125%
of the Fund's average net asset value.
F. DISTRIBUTIONS TO PARTICIPANTS
All net investment income and net realized gains are retained by the Fund.
G. FUTURES CONTRACTS
The Fund may use futures contracts to manage interest rate exposure.
Buying futures tends to increase a fund's exposure to the underlying
instrument. Selling futures tends to decrease a fund's exposure to the
underlying instrument, or hedge other investments. Futures contracts involve,
to varying degrees, credit and market risks.
The Fund enters into futures contracts only on exchanges or boards of
trade where the exchange or board of trade acts as the counterparty to the
transaction. Thus, credit risk on such transactions is limited to the failure
of the exchange or board of trade. Losses in value may arise from changes in
the value of the underlying instruments or if there is an illiquid secondary
market for the contracts. In addition, there is the risk that there may not be
an exact correlation between a futures contract and the underlying index. The
maximum potential loss on a long futures contract is the U.S. dollar value of
the notional amount at the time the contract is opened. The potential loss on a
short futures contract is unlimited.
Upon entering into a futures contract, the Fund is required to deposit
either in cash or securities an amount ("initial margin") equal to a certain
percentage of the nominal value of the contract. Subsequent payments are made
or received by the Fund periodically, depending on the daily fluctuation in the
value of the underlying securities, and are recorded as unrealized gains or
losses by the Fund. A gain or loss is realized when the contract is closed or
expires.
H. SWAP CONTRACTS
Bond index swap contracts entered into by the Fund typically represent the
exchange by the Fund with a counterparty of a commitment to pay interest at a
variable rate in exchange for a cash flow based on the change in market price
and/or total return (change in market price plus interest income) of the
relevant bond index. Such contracts may have a term of up to ten years, but
typically require periodic interim settlement in cash, at which time both the
value of the index and the specified interest rate are reset for the next
settlement period. During the period that the swap contract is open, changes in
the value of the swap are reported as unrealized gains or losses, while
periodic cash settlements are reported as realized gains or losses in the
Statement of Operations. Unrealized gains or losses are reported as an asset or
a liability in the Statement of Assets and Liabilities.
Entering into bond index swap contracts involves, to varying degrees,
elements of credit, market and interest rate risk in excess of the amounts
reported in the Statement of Assets and Liabilities. The Fund uses swap
contracts to gain exposure to different underlying investments and to gain
exposure to markets that might be difficult to invest in through conventional
securities. Notional principal amounts are used to express the extent of
involvement in those
SAI-214
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
FINANCIAL STATEMENTS
DECEMBER 31, 1997
transactions, but are not delivered under the contracts. Accordingly, credit
risk is limited to any amounts receivable from the counterparty. To reduce
credit risk from potential counterparty default, the Fund enters into swap
contracts with counterparties whose creditworthiness has been approved by the
Trustee. The Fund bears the market risk arising from any change in index values
or interest rates.
I. DELAYED DELIVERY COMMITMENTS
The Fund may purchase or sell securities on a delayed delivery, when
issued, or forward commitment basis. Payment and delivery may take place a
month or more after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated.
J. DOLLAR ROLL TRANSACTIONS
The Fund may enter into dollar roll transactions. A dollar roll
transaction involves a sale by the Fund of securities or a forward commitment
to purchase securities, with an agreement by the Fund to repurchase
substantially similar securities or a substantially similar commitment, at an
agreed upon price and date. During the period between the sale and repurchase,
the Fund will not be entitled to accrue interest and/or receive principal
payments on the securities sold. Dollar roll transactions involve the risk that
the market value of the securities sold by the Fund may decline below the
repurchase price of those securities. In the event the buyer of the securities
under a dollar roll transaction files for bankruptcy or becomes insolvent, the
Fund's use of proceeds of the transaction may be restricted pending a
determination by or with respect to the other party.
K. USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit the Trustee to make certain
estimates and assumptions at the date of the financial statements. Actual
results could differ from those estimates.
3. INVESTMENT TRANSACTIONS
Purchases and sales of securities, excluding short-term investments and
including in-kind contributions and redemptions, if any, during the year ended
December 31, 1997 were $11,427,052,822 and $10,509,699,399, respectively,
resulting in a net realized gain (loss) of $32,645,384.
SAI-215
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. UNITS OF PARTICIPATION
Participant transactions for the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Unit issued ..................... 138,789,456 $1,697,854,639 114,745,253 $1,312,397,893
Units redeemed .................. (68,402,642) (831,145,340) (29,740,694) (340,456,342)
----------- -------------- ----------- --------------
Net increase (decrease) ......... 70,386,814 $ 866,709,299 85,004,289 $ 971,941,551
=========== ============== =========== ==============
</TABLE>
Units in excess of 10% of Fund units outstanding at December 31, 1997 held
by one of the Fund's 25 unitholders aggregated 75% of the Fund's total units
outstanding.
SAI-216
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- -----------------
<S> <C> <C> <C>
NOTES & DEBENTURES 96.2%
$ 8,540,000 Aetna Services Inc. 6.97% ................................... 15-Aug-36 $ 8,815,330
20,000,000 African Development Bank 6.88% .............................. 15-Oct-15 20,800,700
13,550,000 American Express Master Trust 5.38% ......................... 15-Jul-01 13,325,578
5,000,000 Anheuser Busch Cos. Incorporated 6.75% ...................... 15-Dec-27 5,187,430
12,810,000 Aon Capital A 8.21% ......................................... 01-Jan-27 14,393,752
1,921,916 Arkansas State Development Finance Authority 9.75% .......... 15-Nov-05 2,186,006
5,000,000 Associates Corp. of North America 7.75% ..................... 15-Feb-05 5,391,985
5,322,000 Associates Corp. of North America 7.25% ..................... 01-Sep-99 5,422,618
14,411,000 Associates Corp. of North America 6.75% ..................... 15-Oct-99 14,594,164
30,000,000 Associates Corp. of North America 6.38% ..................... 15-Aug-00 30,174,330
10,615,000 Associates Corp. of North America 6.25% ..................... 15-Mar-99 10,641,792
20,000,000 Associates Corp. of North America 6.13% ..................... 12-Nov-99 20,058,080
11,050,000 Associates Corp. of North America 6.00% ..................... 15-Mar-99 11,064,056
23,500,000 Australia & New Zealand Banking Group Ltd. 6.25% ............ 01-Feb-04 23,158,474
2,500,000 Avco Financial Services Inc. 8.25% .......................... 14-Jan-00 2,604,615
3,370,000 Avco Financial Services Inc. 7.38% .......................... 15-Aug-01 3,496,594
15,484,000 Avco Financial Services Inc. 6.35% .......................... 15-Sep-00 15,547,624
1,500,000 Avco Financial Services Inc. 5.40% .......................... 15-Jan-99 1,492,046
9,000,000 Avon Energy Partners Hlds 6.73% ............................. 11-Dec-02 9,066,258
25,085,000 Bank of Nova Scotia (NY) 6.50% .............................. 15-Jan-98 25,474,896
2,500,000 BankAmerica Corp. 9.70% ..................................... 01-Aug-00 2,707,663
250,000 BankAmerica Corp. 7.20% ..................................... 15-Sep-02 259,809
250,000 Bayerische Landesbank 7.38% ................................. 14-Dec-02 263,199
5,400,000 Bayerische Landesbank 6.38% ................................. 31-Aug-00 5,450,242
5,000,000 Bayerische Landesbank 6.38% ................................. 15-Oct-05 5,043,305
5,000,000 Bayerische Landesbank 6.25% ................................. 15-Mar-00 5,031,765
3,880,000 Bayerische Landesbank 6.13% ................................. 30-Mar-00 3,895,043
20,500,000 Bell Cablemedia 0.00% ....................................... 15-Jul-99 19,403,844
8,760,000 Belo (A H) Corp. 6.88% ...................................... 01-Jun-02 8,925,914
2,000,000 Beneficial Corp. 7.91% ...................................... 15-Mar-99 2,043,980
19,860,000 Branch Banking & Trust Co. 5.70% ............................ 01-Feb-01 19,661,559
5,550,000 Burlington Northern Santa Fe Corp. 7.29% .................... 01-Jun-36 6,043,900
4,000,000 Burlington Northern Santa Fe Corp. 7.25% .................... 01-Aug-2097 4,139,024
10,355,000 Canadian Imperial Bank 6.48% ................................ 24-Jan-00 10,446,010
36,750,000 Canadian Imperial Bank 6.20% ................................ 01-Aug-00 36,888,106
42,400,000 Cargill Inc. 6.25% .......................................... 13-Mar-00 42,678,950
11,350,000 Caterpillar Financial Services Corp. 6.92% .................. 15-Aug-00 11,591,131
3,700,000 Caterpillar Financial Services Corp. 6.80% .................. 15-Jun-99 3,742,424
12,175,000 Caterpillar Financial Services Corp. 6.71% .................. 19-Apr-99 12,298,296
13,285,000 Caterpillar Inc. 7.38% ...................................... 01-Mar-2097 14,245,970
5,350,000 Chase Manhattan Credit Card Master Trust 6.73% .............. 15-Feb-03 5,376,750
9,115,000 Chemical Bank New York 7.25% ................................ 15-Sep-02 9,460,942
15,750,000 Chemical Bank New York 6.63% ................................ 15-Aug-05 15,855,005
5,000,000 CIT Group Holdings Inc. 6.63% ............................... 28-Jun-99 5,050,295
16,675,000 CIT Group Holdings Inc. 6.38% ............................... 21-May-99 16,775,617
14,000,000 CIT Group Holdings Inc. 6.38% ............................... 01-Oct-02 14,056,728
30,100,000 CIT Group Holdings Inc.6.25% ................................ 22-Mar-99 30,215,855
3,000,000 CIT Group Holdings Inc. 6.25% ............................... 30-Sep-99 3,006,372
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-217
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ----------------
<S> <C> <C> <C>
$ 5,000,000 CIT Group Holdings Inc. 5.38% ......................................... 25-Jan-99 $ 4,972,510
23,850,000 Citibank Credit Card Master Trust 6.35% ............................... 15-Aug-02 24,074,428
8,180,000 Colorado Interstate Gas Company 10.00% ................................ 15-Jun-05 9,859,804
17,470,000 Comerica Bank 6.65% ................................................... 01-Jun-00 17,709,828
5,860,000 Commercial Credit Group Inc. 10.00% ................................... 01-May-99 6,158,995
10,000,000 Commercial Credit Group Inc. 6.13% .................................... 01-Mar-00 10,009,390
8,200,000 Commercial Credit Group Inc. 6.00% .................................... 15-Apr-00 8,172,686
13,715,000 Commercial Credit Group Inc. 6.00% .................................... 15-Jun-00 13,691,986
5,500,000 Consolidated Natural Gas Company 6.80% ................................ 15-Dec-27 5,588,341
5,430,000 Continental Bank NA 7.88% ............................................. 01-Feb-03 5,791,323
10,900,000 Crestar Capital Trust 8.16% ........................................... 15-Dec-26 11,741,044
5,000,000 Deere (John) Capital Corp. 6.28% ...................................... 11-Oct-00 5,024,880
13,585,000 Deere (John) Capital Corp. 6.00% ...................................... 01-Feb-99 13,578,534
5,000,000 Delta Air Lines Inc. 10.38% ........................................... 01-Feb-11 6,460,000
4,000,000 Delta Air Lines Inc. 10.38% ........................................... 15-Dec-22 5,488,392
2,716,000 Delta Air Lines Inc. 10.13% ........................................... 15-May-10 3,438,937
5,000,000 Den Danske Bank A/S (b) 7.40% ......................................... 15-Jun-07 5,234,535
15,465,000 Discover Card Master Trust 5.40% ...................................... 16-Nov-01 15,392,516
5,165,000 DR Investments (b) 7.45% .............................................. 15-May-07 5,470,985
7,030,000 DR Investments (b) 7.10% .............................................. 15-May-02 7,240,773
3,650,000 Eastern Energy Ltd. 6.75% ............................................. 01-Dec-06 3,700,655
4,600,000 Enron Corp. 9.65% ..................................................... 15-May-01 5,070,106
7,000,000 Enron Corp. 6.50% ..................................................... 01-Aug-02 7,048,419
7,510,000 Equitable Life Assurance Society (US) (b) 7.70% ....................... 01-Dec-15 8,045,388
14,700,000 Equitable Life Assurance Society (US) (b) 6.95% ....................... 01-Dec-05 15,047,611
1,283,444 Federal Home Loan Mortgage Corp. 8.75% ................................ 01-Jul-08 1,333,948
6,184,363 Federal Home Loan Mortgage Corp. 7.50% ................................ 01-Sep-01 6,277,314
531,881 Federal Home Loan Mortgage Corp. 7.00% ................................ 01-Aug-01 538,683
240,105 Federal Home Loan Mortgage Corp. 7.00% ................................ 01-Aug-01 243,176
467,584 Federal Home Loan Mortgage Corp. 7.00% ................................ 01-Sep-01 473,564
455,094 Federal Home Loan Mortgage Corp. 7.00% ................................ 01-Sep-01 460,915
3,450,840 Federal Home Loan Mortgage Corp. 6.50% ................................ 01-Oct-99 3,460,882
14,840,000 Federal Home Loan Mortgage Corp. 6.49% ................................ 24-Jun-04 15,251,929
24,882,189 Federal Home Loan Mortgage Corp. 6.00% ................................ 18-Aug-14 24,771,386
10,000,000 Federal Home Loan Mortgage Corp. 6.25% ................................ 15-May-19 10,009,300
407,243 Federal Home Loan Mortgage Corp. 7.00% ................................ 01-Nov-11 414,199
2,738,276 Federal Home Loan Mortgage Corp. 5.50% ................................ 01-Jun-00 2,693,341
6,800,000 Federal National Mortgage Association 10.35% .......................... 10-Dec-15 9,761,720
12,600,000 Federal National Mortgage Association 8.95% ........................... 12-Feb-18 16,385,015
7,000,000 Federal National Mortgage Association 8.28% ........................... 10-Jan-25 8,793,645
2,651,098 Federal National Mortgage Association 7.91% ........................... 01-Feb-01 2,748,658
12,500,000 Federal National Mortgage Association 7.13% ........................... 30-Apr-26 13,861,937
4,494,637 Federal National Mortgage Association 6.94% ........................... 01-Apr-07 4,627,678
5,000,000 Federal National Mortgage Association 6.54% ........................... 10-Sep-07 5,169,335
20,000,000 Federal National Mortgage Association 6.25% ........................... 01-Jan-99 19,988,800
868,400 Federal National Mortgage Association 5.50% ........................... 01-Dec-08 848,566
918,802 Federal National Mortgage Association 5.50% ........................... 01-Jun-11 893,241
21,000,000 Federal National Mortgage Association 15 Year TBA (a) 6.50% ........... 21,026,250
4,860,000 Federal National Mortgage Association Medium Term Note 6.21% .......... 07-Nov-07 4,879,003
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-218
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ----------------
<S> <C> <C> <C>
$ 12,069,599 Federal National Mortgage Association REMIC 7.00% .......... 18-Apr-04 $ 12,356,252
10,173,342 Federal National Mortgage Association REMIC 6.89% .......... 25-Dec-25 10,268,717
8,750,000 Federal National Mortgage Association 6.48% ................ 28-Jun-04 9,000,451
5,450,000 Financing Corp. 10.35% ..................................... 03-Aug-18 7,996,758
3,800,000 Financing Corp. 9.40% ...................................... 08-Feb-18 5,140,085
4,000,000 First Bank NA 6.38% ........................................ 15-Mar-01 4,039,456
4,550,000 First Union Corp. 6.55% .................................... 15-Oct-35 4,621,130
4,290,000 First Union National Bank North Carolina 6.18% ............. 15-Feb-36 4,251,647
4,034,703 Fleetwood Credit Grantor Trust 6.64% ....................... 17-Sep-12 4,054,247
5,250,000 Federal National Mortgage Association 0.99% ................ 01-Jan-05 5,326,913
7,705,000 Ford Credit Auto Loan Master Trust 6.50% ................... 15-Aug-02 7,782,050
11,875,000 Ford Credit Auto Loan Master Trust 5.50% ................... 15-Feb-03 11,680,179
7,000,000 Ford Credit Auto Owner Trust 6.30% ......................... 15-Jan-01 7,032,816
14,848,000 Ford Motor Credit Co. 8.38% ................................ 15-Jan-00 15,479,203
2,072,000 Ford Motor Credit Co. 8.20% ................................ 15-Feb-02 2,213,362
5,000,000 Ford Motor Credit Co. 8.00% ................................ 15-Jan-99 5,095,035
3,495,000 Ford Motor Credit Co. 7.75% ................................ 01-Oct-99 3,588,676
2,300,000 Ford Motor Credit Co. 7.25% ................................ 15-May-99 2,338,010
13,700,000 Ford Motor Credit Co. 6.85% ................................ 15-Aug-00 13,931,667
5,000,000 Ford Motor Credit Co. 6.38% ................................ 15-Sep-99 5,021,135
6,755,000 Ford Motor Credit Co. 6.38% ................................ 15-Apr-00 6,790,058
1,700,000 Ford Motor Credit Co. 6.25% ................................ 08-Nov-00 1,705,187
34,375,000 Ford Motor Credit Co. 5.63% ................................ 15-Jan-99 34,222,169
15,000,000 GATX Capital Corp. 6.50% ................................... 01-Nov-00 15,083,550
10,000,000 GATX Capital Corp. 6.44% ................................... 09-Jun-00 10,062,450
7,325,000 General Electric Capital Corp. 8.75% ....................... 21-May-07 8,603,798
4,000,000 General Electric Capital Corp. 8.09% ....................... 01-Apr-04 4,392,284
2,441,000 General Motors Acceptance Corp. 9.63% ...................... 15-May-00 2,626,221
1,000,000 General Motors Acceptance Corp. 9.38% ...................... 01-Apr-00 1,066,571
6,720,000 General Motors Acceptance Corp. 8.63% ...................... 15-Jun-99 6,954,488
1,849,000 General Motors Acceptance Corp. 7.75% ...................... 15-Jan-99 1,879,747
8,310,000 General Motors Acceptance Corp. 7.38% ...................... 26-May-99 8,462,746
9,650,000 General Motors Acceptance Corp. 7.13% ...................... 01-Jun-99 9,781,607
7,722,000 General Motors Acceptance Corp. 7.00% ...................... 01-Mar-00 7,859,706
7,500,000 General Motors Acceptance Corp. 6.75% ...................... 05-Jun-01 7,634,872
17,750,000 General Motors Acceptance Corp. 6.63% ...................... 17-Apr-00 17,962,379
850,000 General Motors Acceptance Corp. 6.50% ...................... 16-Apr-99 855,286
5,700,000 General Motors Acceptance Corp. 6.45% ...................... 24-May-99 5,734,736
7,400,000 General Motors Acceptance Corp. 6.04% ...................... 19-Mar-99 7,404,070
2,370,000 General Motors Acceptance Corp. 6.00% ...................... 30-Dec-98 2,372,723
5,000,000 General Motors Acceptance Corp. 5.98% ...................... 09-Mar-98 5,001,950
20,000,000 General Motors Acceptance Corp. 5.92% ...................... 22-Mar-98 19,980,800
13,710,000 General Motors Acceptance Corp. 5.88% ...................... 12-Jan-99 13,708,972
5,500,000 General Motors Acceptance Corp. 5.63% ...................... 15-Feb-01 5,415,911
1,000,000 General Motors Corp. 9.63% ................................. 01-Dec-00 1,091,182
18,000,000 Global Marine Inc. (b) 7.13% ............................... 01-Sep-07 18,768,330
20,000,000 Goldman Sachs Group L P Med Tennessee 6.16% ................ 24-Mar-98 20,032,200
4,576,344 Government National Mortgage Association 9.50% ............. 15-Nov-09 4,905,246
5,421,304 Government National Mortgage Association 7.38% ............. 01-Jan-98 5,589,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-219
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ----------------
<S> <C> <C> <C>
$ 5,519,884 Government National Mortgage Association 7.00% ............. 01-Jan-98 $ 5,682,886
5,424,767 Government National Mortgage Association 7.00% ............. 01-Jan-98 5,573,081
5,587,713 Government National Mortgage Association 6.88% ............. 20-Oct-22 5,751,880
3,580,504 Government Trust Certificates 9.63% ........................ 15-May-02 3,799,202
521,443 Government Trust Certificates 9.40% ........................ 15-May-02 554,737
10,354,729 Government Trust Certificates 9.25% ........................ 15-Nov-01 11,015,257
58,612 Government Trust Certificates 8.00% ........................ 15-May-98 59,190
9,075,000 GTE Corp. 9.38% ............................................ 01-Dec-00 9,800,129
3,922,941 Guaranteed Export Trust 6.28% .............................. 15-Jun-04 3,993,876
10,000,000 IBM Corp. 7.13% ............................................ 01-Dec-2096 10,361,270
25,460,000 Integra Bank 6.55% ......................................... 15-Jun-00 25,755,285
9,300,000 Inter American Development Bank 6.75% ...................... 15-Jul-27 9,697,426
15,900,000 International Lease Finance Corp. 6.65% .................... 01-Apr-00 16,055,073
8,300,000 International Lease Finance Corp. 6.63% .................... 01-Jun-00 8,400,978
14,750,000 International Lease Finance Corp. 6.63% .................... 15-Aug-00 14,909,551
11,290,000 International Lease Finance Corp. 6.38% .................... 18-Jan-00 11,347,805
4,875,000 International Lease Finance Corp. 6.13% .................... 01-Nov-99 4,876,336
22,825,000 Ireland (Republic of) 8.63% ................................ 15-Apr-01 24,566,228
13,000,000 Ireland (Republic of) 7.88% ................................ 01-Dec-01 13,820,963
1,825,000 Ireland (Republic of) 7.13% ................................ 15-Jul-02 1,900,181
10,600,000 Israel US Government Guaranteed Notes 7.63% ................ 15-Aug-04 11,557,880
18,200,000 Israel US Government Guaranteed Notes 6.63% ................ 15-Feb-04 18,866,338
23,500,000 Israel US Government Guaranteed Notes 6.38% ................ 15-Aug-01 23,843,546
11,375,000 Israel US Government Guaranteed Notes 5.70% ................ 15-Feb-03 11,259,009
4,580,000 Israel US Government Guaranteed Notes 5.63% ................ 15-Sep-03 4,512,321
4,000,000 John Deere Capital Corp. 6.50% ............................. 20-Sep-99 4,031,548
7,000,000 John Deere Capital Corp. 6.43% ............................. 09-Aug-99 7,044,555
13,800,000 John Deere Capital Corp. 6.35% ............................. 15-Mar-01 13,906,260
6,305,000 Kemper Corp. 6.88% ......................................... 15-Sep-03 6,453,911
10,475,000 Key Bank NA 6.13% .......................................... 03-Feb-99 10,501,774
22,400,000 Keycorp Institutional Capital 6.63% ........................ 30-Jun-99 22,607,200
6,000,000 KFW International Finance Inc. 8.85% ....................... 15-Jun-99 6,236,364
1,000,000 KFW International Finance Inc. 8.62% ....................... 15-Oct-01 1,085,643
27,575,000 KFW International Finance Inc. 8.00% ....................... 15-Feb-10 31,527,380
21,040,000 KFW International Finance Inc. 7.63% ....................... 15-Feb-04 22,665,656
5,800,000 Landeskreditbank Baden Wurttemburg 7.63% ................... 01-Feb-23 6,581,944
4,665,000 Lasmo USA Incorporated 6.75% ............................... 15-Dec-07 4,711,547
11,015,000 Lockheed Martin Corp. 6.85% ................................ 15-May-01 11,229,473
10,620,000 Lockheed Martin Corp.6.55% ................................. 15-May-99 10,674,088
9,500,000 Malaysia (Government of) 9.88% ............................. 27-Sep-00 10,009,428
19,500,000 Manitoba (Province of) 9.50% ............................... 01-Oct-00 21,137,629
8,550,000 Manitoba (Province of) 9.00% ............................... 15-Dec-00 9,232,957
12,500,000 Manitoba (Province of) 8.75% ............................... 15-May-01 13,518,950
25,200,000 Manitoba (Province of) 8.00% ............................... 15-Apr-02 26,928,644
27,976,000 Manitoba (Province of) 7.75% ............................... 01-Feb-02 29,566,520
21,219,000 Manitoba (Province of) 6.88% ............................... 15-Sep-02 21,834,966
6,245,000 Manitoba (Province of) 6.75% ............................... 01-Mar-03 6,418,561
15,250,000 Margaretten Financial Corp. 6.75% .......................... 15-Jun-00 15,429,782
8,250,000 Massachusetts Mutual Life Insurance Co. (b) 7.63% .......... 15-Nov-23 8,971,240
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-220
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ----------------
<S> <C> <C> <C>
$ 20,988,000 MBNA Master Credit Card Trust 5.40% ................. 15-Sep-00 $ 20,879,786
5,000,000 Mead Corp. 6.60% .................................... 01-Mar-02 5,056,935
3,250,000 Meridian Bancorp Inc. 6.63% ......................... 15-Jun-00 3,282,871
25,000,000 Merrill Lynch & Co. Inc. 6.77% ...................... 15-Apr-99 25,253,825
3,600,000 Merrill Lynch & Co. Inc. 6.64% ...................... 09-Apr-99 3,629,567
500,000 Merrill Lynch & Co., Inc. 6.00% ..................... 01-Mar-01 497,425
5,800,000 Metropolitan Life Insurance Co. (b) 7.70% ........... 01-Nov-15 6,175,411
6,725,000 Midland Bank PLC 7.65% .............................. 01-May-25 7,307,513
400,000 Morgan Stanley Group Inc. 8.88% ..................... 15-Oct-01 435,184
24,610,000 Morgan Stanley Group Inc. 5.63% ..................... 01-Mar-99 24,491,577
10,000,000 National Australia Bk Ltd 6.40% ..................... 10-Dec-02 10,129,500
10,180,000 National Bank Of Hungary 7.95% ...................... 01-Nov-03 10,758,590
8,250,000 National City Bank 6.35% ............................ 15-Mar-01 8,313,508
4,335,000 National Westminster Bank PLC 9.45% ................. 01-May-01 4,744,866
12,700,000 NationsBank Corp. 6.75% ............................. 15-Aug-00 12,909,156
6,250,000 NationsBank Corp. 5.85% ............................. 05-Feb-02 6,171,081
5,900,000 NationsBank Corp. 5.75% ............................. 25-Jan-01 5,849,537
18,310,000 NationsBank Credit Card Master Trust 6.45% .......... 15-Apr-03 18,507,400
12,150,000 New York Life Insurance Co. (b) 6.40% ............... 15-Dec-03 12,225,828
21,900,000 New Zealand Government 10.63% ....................... 15-Nov-05 27,765,849
23,500,000 Nordbanken AB 7.25% ................................. 30-Oct-06 24,601,562
13,050,000 Norfolk Southern Corp. 7.90% ........................ 15-May-2097 14,836,114
4,300,000 Norfolk Southern Corp. 7.05% ........................ 01-May-37 4,547,951
5,000,000 Norfolk Southern Corp. 6.70% ........................ 01-May-00 5,061,290
7,810,000 Northwest Pipeline Corp. 6.63% ...................... 01-Dec-07 7,879,407
5,000,000 Norwest Corp. 6.75% ................................. 15-Dec-27 4,977,475
10,000,000 Norwest Corp. 6.25% ................................. 15-Apr-99 10,039,270
3,750,000 Norwest Corp. 6.13% ................................. 15-Oct-00 3,754,039
15,195,000 Norwest Corp. 6.00% ................................. 15-Mar-00 15,176,964
5,000,000 Norwest Corp. 5.63% ................................. 05-Feb-01 4,936,650
10,910,000 Norwest Financial Inc. 7.25% ........................ 15-Mar-00 11,174,458
13,750,000 Norwest Financial Inc. 6.38% ........................ 01-Oct-99 13,820,854
5,000,000 Norwest Financial Inc. 6.25% ........................ 15-Mar-99 5,018,375
5,265,000 Norwest Financial Inc. 5.13% ........................ 15-Apr-00 5,161,522
3,745,000 Nova Scotia (Province of) 9.38% ..................... 15-Jul-02 4,213,413
2,000,000 Nova Scotia (Province of) 9.13% ..................... 01-May-21 2,586,576
20,085,000 Ontario (Province of) 8.00% ......................... 17-Oct-01 21,393,839
9,875,000 Ontario (Province of) 7.75% ......................... 04-Jun-02 10,473,613
9,650,000 Ontario (Province of) 7.63% ......................... 22-Jun-04 10,420,910
10,500,000 Ontario (Province of) 7.38% ......................... 27-Jan-03 11,084,262
6,200,000 Pacific Mutual (b) 7.90% ............................ 30-Dec-23 6,867,901
15,375,000 Premier Auto Trust 6.35% ............................ 06-Apr-02 15,485,515
8,000,000 Premier Auto Trust 6.25% ............................ 06-Jun-01 8,057,504
8,910,000 Premier Auto Trust 6.15% ............................ 06-Mar-00 8,918,358
14,640,000 Premier Auto Trust 6.05% ............................ 06-Apr-00 14,656,016
10,850,000 Private Export Funding Corp. 8.75% .................. 30-Jun-03 12,267,173
24,140,000 Private Export Funding Corp. 7.11% .................. 15-Apr-07 25,880,108
600,000 Private Export Funding Corp. 6.90% .................. 31-Jan-03 625,394
1,000,000 Private Export Funding Corp. 6.62% .................. 01-Oct-05 1,036,543
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-221
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ----------------
<S> <C> <C> <C>
$ 39,355,000 Private Export Funding Corp. 6.31% ...................... 30-Sep-04 $ 40,058,746
4,700,000 Private Export Funding Corp. 5.80% ...................... 01-Feb-04 4,683,569
4,525,000 Quebec (Province of) 9.13% .............................. 01-Mar-00 4,798,894
5,000,000 Quebec (Province of) 7.00% .............................. 30-Jan-07 5,189,575
16,635,000 Republic of Finland 7.88% ............................... 28-Jul-04 18,211,682
9,650,000 Republic of Finland 6.95% ............................... 15-Feb-26 10,238,978
20,012,000 Resolution Funding Corp. 8.88% .......................... 15-Jul-20 26,629,468
15,000,000 Resolution Funding Corp. 8.63% .......................... 15-Jan-21 19,551,960
19,750,000 Resolution Funding Corp. 8.13% .......................... 15-Oct-19 24,408,650
8,000,000 Scripps (E W) Co. 6.38% ................................. 15-Oct-02 8,058,928
3,000,000 Sears Roebuck & Co. 9.50% ............................... 01-Jun-99 3,134,082
4,050,000 Sears Roebuck Acceptance Corp. 6.54% .................... 06-May-99 4,074,737
12,200,000 Sears Roebuck Acceptance Corp. 6.38% .................... 16-Feb-99 12,257,840
13,000,000 Sears Roebuck Acceptance Corp. 6.22% .................... 25-Mar-99 13,042,692
20,000,000 Sears Roebuck Acceptance Corp. 5.63% .................... 07-Feb-01 19,715,740
13,590,000 Skandinaviska Enskilda Banken 6.88% ..................... 15-Feb-09 13,673,986
8,420,000 Society National Bank 7.85% ............................. 01-Nov-02 8,972,756
23,450,000 Society National Bank 7.25% ............................. 01-Jun-05 24,453,449
18,500,000 Sun Life Canada US Trust I (b) 8.53% .................... 29-May-49 20,429,679
9,750,000 Suntrust Banks Inc. 6.00% ............................... 15-Feb-26 9,595,141
5,000,000 TCI Communications Incorporated 6.88% ................... 15-Feb-06 5,040,855
26,470,000 Tennessee Gas Pipeline Co. 7.00% ........................ 15-Mar-27 27,838,499
14,110,625 Textron Financial Corp. Receivables 6.06% ............... 16-Mar-09 14,117,243
5,125,000 Time Warner Incorporated 8.11% .......................... 15-Aug-06 5,577,537
8,222,000 Time Warner Incorporated 7.48% .......................... 15-Jan-08 8,647,464
25,000,000 Time Warner Pass Through Asset Trust (b) 4.90% .......... 29-Jul-99 24,505,250
5,150,000 Tosco Corporation 7.00% ................................. 15-Jul-00 5,240,383
725,000 Travelers Group Inc. 9.50% .............................. 01-Mar-02 809,538
13,090,000 US Leasing International Inc. 6.63% ..................... 15-May-03 13,237,393
98,040,000 US Treasury Bonds 6.38% ................................. 15-Aug-27 103,453,181
26,515,000 US Treasury Bonds 13.25% ................................ 15-May-14 42,402,682
500,000 US Treasury Bonds 12.75% ................................ 15-Nov-10 713,786
17,335,000 US Treasury Bonds 12.50% ................................ 15-Aug-14 26,804,174
11,650,000 US Treasury Bonds 12.00% ................................ 15-Aug-13 17,179,102
40,000 US Treasury Bonds11.25% ................................. 05-Feb-15 62,700
9,050,000 US Treasury Bonds10.38% ................................. 15-Nov-12 12,035,839
12,320,000 US Treasury Bonds 9.88% ................................. 15-Nov-15 17,534,859
1,685,000 US Treasury Bonds 9.25% ................................. 15-Feb-16 2,287,217
400,000 US Treasury Bonds 9.00% ................................. 15-Nov-18 540,695
9,010,000 US Treasury Bonds 8.88% ................................. 15-Aug-17 11,957,820
51,500,000 US Treasury Bonds 8.88% ................................. 15-Feb-19 68,930,123
6,750,000 US Treasury Bonds 8.75% ................................. 15-May-17 8,848,993
32,000,000 US Treasury Bonds 8.75% ................................. 15-Aug-20 42,678,720
7,260,000 US Treasury Bonds 8.50% ................................. 15-Feb-20 9,436,889
53,645,000 US Treasury Bonds 8.13% ................................. 15-Aug-19 67,146,481
23,000,000 US Treasury Bonds 8.13% ................................. 15-Aug-21 29,015,098
17,300,000 US Treasury Bonds 8.00% ................................. 15-Nov-21 21,575,799
19,733,000 US Treasury Bonds 7.88% ................................. 15-Feb-21 24,237,610
12,591,000 US Treasury Bonds 7.50% ................................. 15-Nov-16 14,698,104
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-222
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- ----------------
<S> <C> <C> <C>
$ 6,840,000 US Treasury Bonds 7.50% .................................. 15-Nov-24 $ 8,183,027
23,695,000 US Treasury Bonds 7.25% .................................. 15-Aug-22 27,379,904
1,331,000 US Treasury Bonds 6.75% .................................. 15-Aug-26 1,466,054
87,075,000 US Treasury Bonds 6.63% .................................. 15-Feb-27 94,555,439
5,000,000 US Treasury Bonds 6.00% .................................. 15-Feb-26 4,995,870
7,000,000 US Treasury Notes 7.88% .................................. 15-Aug-01 7,490,238
4,400,000 US Treasury Notes 7.88% .................................. 15-Nov-04 4,921,629
18,165,000 US Treasury Notes 7.25% .................................. 15-Aug-04 19,632,369
31,000,000 US Treasury Notes 6.63% .................................. 30-Apr-02 32,017,110
2,000,000 US Treasury Notes 6.50% .................................. 15-May-05 2,086,296
60,000,000 US Treasury Notes 6.50% .................................. 15-Aug-05 62,606,400
300,000 US Treasury Notes 6.50% .................................. 15-Oct-06 314,271
47,705,000 US Treasury Notes 6.38% .................................. 30-Sep-01 48,743,347
27,250,000 US Treasury Notes 6.25% .................................. 31-Oct-01 27,746,904
38,265,000 US Treasury Notes 6.25% .................................. 28-Feb-02 38,986,219
11,213,000 US Treasury Notes 5.88% .................................. 30-Sep-02 11,282,980
4,370,000 US Treasury Notes 5.88% .................................. 15-Feb-04 4,410,580
4,865,000 US Treasury Notes 5.75% .................................. 30-Sep-99 4,872,774
4,500,000 US Treasury Notes 5.75% .................................. 31-Oct-02 4,506,462
38,805,000 US Treasury Notes 5.75% .................................. 30-Nov-02 38,835,268
40,000,000 US Treasury Notes 5.63% .................................. 30-Nov-99 39,980,880
25,910,000 US Treasury Notes 5.63% .................................. 31-Dec-02 25,823,823
4,880,000 US Treasury Sc Strp Interest 0.00% ....................... 15-May-99 4,521,515
50,425,000 US Treasury Sc Strp Interest 0.00% ....................... 15-Feb-10 24,632,612
10,425,000 USA Waste Services Incorporated 6.50% .................... 15-Dec-02 10,428,055
9,275,000 USL Capital Corp. 8.13% .................................. 15-Feb-00 9,642,021
13,850,000 Victorian Public Authority Financing 8.25% ............... 15-Jan-02 14,967,930
6,500,000 Wachovia Bank NA 6.70% ................................... 14-Apr-99 6,566,495
5,265,000 Wal Mart Stores Incorporated 6.13% ....................... 21-Nov-00 5,284,849
15,330,000 Westpac Banking Ltd. 9.13% ............................... 15-Aug-01 16,732,986
13,412,000 Westpac Banking Capital Corp.7.88% ....................... 15-Oct-02 14,259,196
13,525,000 Zions Institutional Capital Trust A 8.54% ................ 15-Dec-26 14,912,136
------------ ----------------------------------------------------------- --------- --------------
TOTAL NOTES AND DEBENTURES (Cost $3,888,400,425).......... 3,983,669,783
----------------------------------------------------------- --------------
UNITS
------------
STATE STREET BANK AND TRUST COMPANY
INVESTMENT FUNDS FOR TAX EXEMPT RETIREMENT PLANS--3.8%
1,476,282 Cash Plus Fund ........................................... $ 15,440,430
142,277,780 Short Term Investment Fund ............................... 142,277,780
------------ ----------------------------------------------------------- --------------
TOTAL STATE STREET BANK AND TRUST COMPANY
INVESTMENT FUNDS FOR TAX EXEMPT RETIREMENT PLANS
(Cost $157,277,780)...................................... $ 157,718,210
----------------------------------------------------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-223
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- -----------------
<S> <C> <C> <C>
SHORT TERM US GOVERNMENT OBLIGATIONS--0.0%
$ 100,000 US Treasury Bills (c) 5.21% ......................................... 22-Jan-98 $ 99,697
500,000 US Treasury Bills (c) 5.08% ......................................... 22-Jan-98 498,518
---------- ---------------------------------------------------------------------- --------- --------------
TOTAL SHORT TERM US GOVERNMENT OBLIGATIONS (Cost $598,215) .......... 598,215
---------------------------------------------------------------------- --------------
TOTAL INVESTMENTS--100% (Cost $4,046,276,420)........................ $4,141,986,208
====================================================================== ==============
</TABLE>
(a) All or a portion of these securities have been purchased on a delayed
delivery basis.
(b) Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
(c) At December 31, 1997, US Treasury Bills were pledged to cover margin
requirements for open futures contracts. The following long futures
contracts were open at December 31, 1997:
<TABLE>
<CAPTION>
FUTURES NUMBER OF NOTIONAL MATURITY UNREALIZED
CONTRACT CONTRACTS VALUE DATE GAIN (LOSS)
- ----------------------- ----------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Eurodollar ......... 60 $14,128,500 March 1998 $ 5,250
Eurodollar ......... 42 9,888,150 June 1998 3,900
Eurodollar ......... 42 9,884,250 September 1998 2,550
Eurodollar ......... 41 9,641,350 December 1998 1,337
Eurodollar ......... 41 9,641,350 March 1999 825
Eurodollar ......... 41 9,637,700 June 1999 1,400
Eurodollar ......... 30 7,050,900 September 1999 (150)
Eurodollar ......... 18 4,229,550 December 1999 (2,250)
Eurodollar ......... 18 4,230,450 March 2000 (2,250)
Eurodollar ......... 18 4,227,750 June 2000 (2,250)
Eurodollar ......... 18 4,228,650 September 2000 (2,250)
Eurodollar ......... 18 4,225,950 December 2000 (2,250)
Eurodollar ......... 18 4,227,300 March 2001 (2,700)
Eurodollar ......... 18 4,226,400 June 2001 (2,700)
Eurodollar ......... 9 2,112,525 September 2001 (1,125)
--------
$ (2,663)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-224
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
DAILY GOVERNMENT/CORPORATE BOND FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
- --------------------------------------------------------------------------------
The following swap contracts were open at December 31, 1997:
<TABLE>
<CAPTION>
CURRENT UNREALIZED
NOTIONAL APPRECIATION
AMOUNT DESCRIPTION (DEPRECIATION)
- ----------------- ---------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
$ 10,000,000 Agreement with Lehman Brothers Special Financing Inc. terminating on April 1, 1998 to $ 0
make monthly payments equal to 1 month LIBOR minus 5 basis points multiplied by the
Notional Amount of $10,000,000; and to receive or make payments equal to the notional
amount multiplied by the percentage change for the month in the Bond Index. For the
purposes of this agreement the Bond Index is measured as 100 plus the total return
since inception of the Lehman Brothers Corporate Bond Index.
100,000,000 Agreement with Lehman Brothers Special Financing Inc. terminating on September 1, 0
-------------- ------------
1998 to make monthly payments equal to 1 month LIBOR minus 7.5 basis points
multiplied by the Notional Amount of $100,000,000; and to receive or make payments
equal to the notional amount multiplied by the percentage change for the month in the
Bond Index. For the purposes of this agreement the Bond Index is measured as 100
plus the total return since inception of the Lehman Brothers Long Corporate Bond Index.
$ 110,000,000 $ 0
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-225
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Trustee of
State Street Bank and Trust Company
Short Term Investment Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the selected per unit data present fairly, in all
material respects, the financial position of State Street Bank and Trust
Company Short Term Investment Fund at December 31, 1997, the results of its
operations for the year then ended, and the changes in their net assets and the
selected per unit data for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and selected per
unit data (hereafter referred to as "financial statements") are the
responsibility of the Trustee; 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 the Trustee, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 20, 1998
SAI-226
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at amortized cost ....................................... $ 18,571,262,405
Cash ............................................................................... 137
Interest and other receivables ..................................................... 137,842,732
- ------------------------------------------------------------------------------------- ----------------
Total assets ................................................................... 18,709,105,274
- ------------------------------------------------------------------------------------- ----------------
LIABILITIES
Payable for investments purchased .................................................. 50,000,000
Distributions payable .............................................................. 96,035,133
Accrued expenses ................................................................... 5,700
Other liabilities .................................................................. 7,335
- ------------------------------------------------------------------------------------- ----------------
Total liabilities .............................................................. 146,048,168
- ------------------------------------------------------------------------------------- ----------------
NET ASSETS (equivalent to $1.00 per unit based on 18,563,059,727 units outstanding) $ 18,563,057,106
===================================================================================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-227
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest ............................................................. $1,076,760,697
- ----------------------------------------------------------------------- --------------
EXPENSES
Audit ................................................................ 18,800
Other ................................................................ 7,478
- ----------------------------------------------------------------------- --------------
Total expenses ..................................................... 26,278
- ----------------------------------------------------------------------- --------------
Net investment income .............................................. 1,076,734,419
- ----------------------------------------------------------------------- --------------
NET REALIZED GAIN (LOSS) ON INVESTMENTS ............................... 242
- ----------------------------------------------------------------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....... $1,076,734,661
======================================================================= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-228
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Statement of Changes in Net Assets
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------- -------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ........................................................ $ 1,076,734,419 $ 781,297,285
Net realized gain (loss) on investments ...................................... 242 (39,765)
- ------------------------------------------------------------------------------- ---------------- ---------------
Net increase in net assets resulting from operations ......................... 1,076,734,661 781,257,520
- ------------------------------------------------------------------------------- ---------------- ---------------
Distributions from net investment income ..................................... (1,076,730,419) (781,297,285)
- ------------------------------------------------------------------------------- ---------------- ---------------
FROM PARTICIPANT TRANSACTIONS
Net increase (decrease) in net assets resulting from participant transactions 4,800,113,295 1,369,831,060
- ------------------------------------------------------------------------------- ---------------- ---------------
Net increase (decrease) in net assets ........................................ 4,800,117,537 1,369,791,295
NET ASSETS
Beginning of year ........................................................... 13,762,939,569 12,393,148,274
- ------------------------------------------------------------------------------- ---------------- ---------------
End of year ................................................................. $ 18,563,057,106 $13,762,939,569
=============================================================================== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-229
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Selected Per Unit Data
(For a Unit of Participation Outstanding Throughout Each Year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net investment income .................. $ 0.0563 $ 0.0548 $ 0.0604 $ 0.0424 $ 0.0336
Net realized gain (loss)* .............. 0.0000 0.0000 0.0000 0.0000 0.0000
Net change in net assets resulting from
operations ............................ $ 0.0563 $ 0.0548 $ 0.0604 $ 0.0424 $ 0.0336
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------
Distributions from net investment
income ................................ $ 0.0563 $ 0.0548 $ 0.0604 $ 0.0424 $ 0.0336
======================================== ========== ========== ========== ========== ==========
Total return** ..................... 5.77% 5.62% 6.21% 4.32% 3.41%
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net
assets*** ............................. 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of net investment income to
average net assets .................... 5.63% 5.56% 6.04% 4.24% 3.36%
Net assets, end of year (000s) ......... $18,563,057 $13,762,940 $12,393,148 $ 9,239,219 $12,657,842
======================================== =========== =========== =========== =========== ===========
</TABLE>
- ----------
* Zero amounts represent those which are less than $.00005 per unit.
** Total return calculation is based on the value of a single unit of
participation outstanding throughout the period. It assumes reinvestment
of distributions and includes only those expenses charged directly to the
Fund. This result may be reduced by any administrative or other fees
which are incurred in the management or maintenance of individual
participant accounts.
*** Less than .005%.
The accompanying notes are an integral part of these financial statements.
SAI-230
<PAGE>
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. FUND ORGANIZATION AND INVESTMENT OBJECTIVE
The State Street Bank and Trust Company ("State Street Bank") Short Term
Investment Fund (the "Fund") was formed by State Street Bank under a
Declaration of Trust. The investment objective of the Fund is to maintain a
diversified portfolio of short-term securities. The investments of the Fund are
currently limited to high-quality bonds, notes, commercial paper and other
evidences of indebtedness which are payable on demand or which have a maturity
date not exceeding three months from the date of purchase, except that up to
20% of the Fund's investments may be placed in securities with a maturity date
not exceeding 13 months. State Street Bank is Trustee and custodian of the
Fund. State Street Global Advisors, a division of State Street Bank, is the
Fund's investment manager.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Investments are stated at amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. The cost of
securities contributed to, and proceeds related to securities delivered by, the
Fund in connection with the issuance and redemption of units of participation
are based on the valuations of those securities determined as described above.
The cost of securities delivered and the net gain or loss on securities sold
are determined using the average cost method. Interest income earned on
securities is recorded on the accrual basis. Interest income is increased by
accretion of discount and decreased by amortization of premium.
C. INCOME TAXES
It is the Fund's policy to comply with the requirements of Section 501(a)
of the Internal Revenue Code relating to collective investment of employee
benefit funds. Accordingly, the Fund is exempt from federal income taxes and no
federal income tax provision is required.
D. ISSUANCES AND REDEMPTIONS OF UNITS OF PARTICIPATION
Issuances and redemptions of participant units are made on each business
day ("valuation date"). Participant units are typically purchased and redeemed
at a constant net asset value of $1.00 per unit. In the event that a
significant disparity develops between the constant net asset value and the
market-based net asset value of the Fund, the Trustee may determine that
continued redemption at a constant $1.00 net asset value will create
inequitable results for the Fund's unitholders. In these circumstances, the
Trustee, in its sole discretion and acting on behalf of the Fund's unitholders,
may direct that units be redeemed at the market-based net asset value until
such time as the disparity between the market-based and the constant net asset
value per unit is deemed to be immaterial.
E. EXPENSES
Under the Declaration of Trust, the Fund may pay certain expenses for
services received during the year.
SAI-231
<PAGE>
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
F. DISTRIBUTIONS TO PARTICIPANTS
Distributions from net investment income are recorded on each valuation
date and paid monthly. All net realized gains are retained by the Fund.
G. USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit the Trustee to make certain
estimates and assumptions at the date of the financial statements.
3. INVESTMENT TRANSACTIONS
Purchases and sales of short-term investments (including maturities)
during the year ended December 31, 1997 were $1,525,201,998,167 and
$1,520,614,907,024, respectively, resulting in a net realized gain (loss) of
$242.
4. UNITES OF PARTICIPATION
Participant transactions for the Fund wre as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1997 1996
------------------------------------------- -------------------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Units issued .................... 55,593,526,128 $ 55,593,526,128 62,949,538,186 $ 62,949,538,186
Units redeemed .................. (50,793,412,833) (50,793,412,833) (61,579,707,126) (61,579,707,126)
--------------- ----------------- --------------- -----------------
Net increase (decrease) ......... 4,800,113,295 $ 4,800,113,295 1,369,831,060 $ 1,369,831,060
=============== ================= =============== =================
</TABLE>
SAI-232
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Schedule of Investments
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- --------------
<S> <C> <C> <C>
PRINCIPAL SHORT TERM INSTRUMENTS--96.0%
$ 50,000,000 Abbey National Treasury Services PLC 5.75% .......... 18-Feb-98 $ 50,000,000
40,000,000 Abbey National Treasury Services PLC 5.77% .......... 20-Feb-98 40,000,000
200,000,000 Abbey National Treasury Services PLC 5.76% .......... 17-Feb-98 200,000,000
50,000,000 Abbey National Treasury Services PLC 5.75% .......... 26-Feb-98 50,000,000
100,000,000 Abbey National Treasury Services PLC 5.61% .......... 15-Jan-98* 99,958,186
43,000,000 ABN Amro Bank NV 5.64% .............................. 20-Jan-98 42,998,841
63,000,000 Assets Securitization Cooperative 5.70% ............. 12-Feb-98 62,581,050
90,000,000 Assets Securitization Cooperative 6.50% ............. 09-Jan-98 89,870,000
105,000,000 Assets Securitization Cooperative 5.85% ............. 27-Jan-98 104,556,375
93,000,000 Assets Securitization Cooperative 5.80% ............. 13-Feb-98 92,355,717
118,000,000 Assets Securitization Cooperative 5.79% ............. 20-Feb-98 117,051,083
68,000,000 Assets Securitization Cooperative 5.74% ............. 17-Mar-98 67,186,833
100,000,000 Assets Securitization Cooperative 5.70% ............. 20-Feb-98 99,209,028
49,400,000 Assets Securitization Cooperative 5.63% ............. 27-Jan-98 49,199,134
83,000,000 Assets Securitization Cooperative 5.63% ............. 06-Jan-98 82,935,156
19,000,000 Australia & New Zealand Banking 5.65% ............... 19-Feb-98 18,987,918
14,100,000 Avco Financial Services Inc. 5.90% .................. 09-Jan-98 14,081,513
21,000,000 Avco Financial Services Inc. 5.57% .................. 08-Jan-98 20,977,256
70,000,000 Bank of Montreal (Chicago) 5.77% .................... 31-Mar-98* 69,979,688
185,000,000 Bank of Montreal (Chicago) 5.76% .................... 20-Jan-98 185,000,967
63,000,000 Bank of New York 6.00% .............................. 24-Mar-98 62,986,486
50,000,000 Bank of New York 5.83% .............................. 15-Jan-98 49,999,266
45,000,000 Bank of New York 5.82% .............................. 28-Jan-98 44,999,044
100,000,000 Bank of Nova Scotia 5.81% ........................... 26-Jan-98 100,000,000
50,000,000 Bank of Nova Scotia 5.77% ........................... 20-Jan-98 50,000,000
75,000,000 Bank of Nova Scotia 5.72% ........................... 07-Jan-98 75,000,000
100,000,000 Bank of Nova Scotia 5.72% ........................... 09-Jan-98 100,000,000
75,000,000 Bank of Nova Scotia Euro CD 5.76% ................... 18-Feb-98 75,000,986
35,000,000 Bank of Scotland 5.73% .............................. 17-Apr-98 34,997,997
60,000,000 Bank One Texas NA 5.49% ............................. 05-Jan-98* 59,976,206
25,000,000 Bank One Wisconsin 5.89% ............................ 19-Mar-98* 25,007,923
70,000,000 Bank Scotland Treasury Services PLC 5.81% ........... 23-Mar-98* 69,980,183
50,000,000 Barclays Bank PLC 5.75% ............................. 10-Feb-98 50,002,298
210,000,000 Barclays Bank PLC 5.67% ............................. 01-Jan-98* 209,897,830
244,000,000 Barclays Bank PLC 5.60% ............................. 12-Jan-98 243,986,404
40,000,000 Bayerische Hypotheken Und 5.96% ..................... 26-Oct-98 39,984,400
80,000,000 Bayerische Hypotheken Und 5.94% ..................... 22-Oct-98 79,963,048
31,000,000 Bayerische Hypotheken Und 5.91% ..................... 28-Aug-98 30,992,045
100,000,000 Bayerische Hypotheken Wechsel 5.77% ................. 24-Feb-98 100,000,466
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-233
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- --------------
<S> <C> <C> <C>
$ 75,000,000 Bayerische Landesbank 5.75% ............................... 18-Feb-98 $ 75,000,000
100,000,000 Bayerische Landesbank New York 5.84% ...................... 26-Jan-98* 99,962,490
125,000,000 Bayerische Vereinsbank AG 5.78% ........................... 27-Feb-98 125,001,951
103,000,000 Bayerische Vereinsbank AG 5.77% ........................... 24-Feb-98 103,001,523
100,000,000 Branch Bank + Trust Co. 6.50% ............................. 02-Jan-98 100,000,000
200,000,000 Branch Bank + Trust Co. 6.00% ............................. 02-Jan-98 200,000,000
32,000,000 Branch Banking & Trust Co. Wilson NC 5.65% ................ 02-Jan-98* 31,991,441
50,000,000 Canadian Imperial Bank Commerce 5.87% ..................... 11-Aug-98 49,960,762
110,000,000 Canadian Imperial Bank Commerce 5.80% ..................... 31-Mar-98 110,000,000
200,000,000 Canadian Imperial Holding Inc. 6.75% ...................... 02-Jan-98 $199,962,500
600,000,000 Chase Manhattan Corp. 6.25% ............................... 02-Jan-98 600,000,000
100,000,000 CIT Group Holdings Inc. 5.64% ............................. 01-Jan-98* 99,955,510
300,000,000 Citicorp 6.75% ............................................ 02-Jan-98 299,943,750
65,000,000 Colorado National Bank 5.86% .............................. 21-Jan-98* 64,994,099
53,000,000 Colorado National Bank 5.86% .............................. 22-Jan-98* 52,997,896
50,000,000 Comerica Bank 5.69% ....................................... 30-Jan-98 50,000,000
100,000,000 Comerica Bank (Detroit) 5.64% ............................. 07-Feb-98* 99,948,864
40,000,000 Comerica Bank (Detroit) 5.77% ............................. 23-Mar-98* 39,980,185
50,000,000 Commerzbank AG 5.75% ...................................... 12-Jan-98 50,000,000
100,000,000 Cregem North America Inc. 5.68% ........................... 12-Feb-98 99,337,333
100,000,000 Daimler-Benz North America 5.63% .......................... 21-Apr-98 98,281,250
17,534,000 Delaware Funding Corp. 5.95% .............................. 15-Jan-98 17,493,428
100,000,000 Delaware Funding Corp. 5.95% .............................. 16-Jan-98 99,752,083
64,942,000 Delaware Funding Corp. 5.86% .............................. 16-Jan-98 64,783,433
87,692,000 Delaware Funding Corp. 5.79% .............................. 12-Feb-98 87,099,641
44,057,000 Delaware Funding Corp. 5.65% .............................. 09-Jan-98 44,001,684
50,000,000 Den Danske Corp. 5.66% .................................... 05-Mar-98 50,000,000
83,000,000 Deutsche Bank AG 5.94% .................................... 22-Oct-98 82,961,662
20,000,000 Deutsche Bank AG 5.80% .................................... 28-Jan-98 19,999,434
75,000,000 Deutsche Bank AG 5.78% .................................... 16-Jan-98 75,000,000
100,000,000 Deutsche Bank AG 5.73% .................................... 27-Feb-98 99,992,522
60,000,000 Deutsche Bank AG 5.70% .................................... 06-Jan-98 59,999,198
168,000,000 Deutsche Bank AG 5.61% .................................... 02-Jan-98* 167,918,298
75,000,000 E.I. Du Pont de Nemours & Co. 5.75% ....................... 16-Jan-98 74,820,313
125,000,000 E.I. Du Pont de Nemours & Co. 5.75% ....................... 30-Jan-98 124,421,007
25,000,000 E.I. Du Pont de Nemours & Co. 5.51% ....................... 16-Jan-98 24,942,604
38,200,000 E.I. Du Pont de Nemours & Co. 5.49% ....................... 02-Jun-98 37,315,330
25,000,000 Federal Farm Credit Bank Consolidated Mtns 5.54% .......... 01-Jan-98* 24,992,983
52,000,000 Federal Farm Credit Banks Bonds 5.45% ..................... 03-Mar-98 51,979,369
60,000,000 Federal Home Loan Banks 5.83% ............................. 07-Jul-98 59,979,527
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-234
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- --------------
<S> <C> <C> <C>
$ 83,000,000 Federal Home Loan Banks 5.71% ......................................... 21-Jan-98 $ 82,998,254
75,000,000 Federal Home Loan Mortgage Corp. 5.72% ................................ 17-Mar-98 74,980,736
122,150,000 Federal Home Loan Mortgage Discount Notes 5.70% ....................... 26-Jan-98 121,666,490
88,480,000 Federal Home Loan Mortgage Discount Notes 5.68% ....................... 12-Feb-98 87,894,189
19,207,000 Federal Home Loan Mortgage Discount Notes 5.65% ....................... 12-Feb-98 19,080,394
105,000,000 Federal Home Loan Mortgage Discount Notes 5.64% ....................... 20-Feb-98 104,177,500
50,000,000 Federal Home Loan Mortgage Discount Notes 5.64% ....................... 09-Mar-98 49,475,167
165,000,000 Federal Home Loan Mortgage Discount Notes 5.64% ....................... 17-Mar-98 163,061,250
160,000,000 Federal Home Loan Mortgage Discount Notes 5.55% ....................... 23-Jan-98 159,457,333
25,000,000 Federal Home Loan Mortgage Discount Notes 5.50% ....................... 06-Feb-98 24,862,500
78,000,000 Federal National Mortgage Association 6.08% ........................... 06-May-98 77,969,548
214,607,000 Federal National Mortgage Association Discount Notes 5.65% ............ 11-Feb-98 213,226,064
22,000,000 Federal National Mortgage Association Discount Notes 5.62% ............ 10-Mar-98 21,766,458
53,000,000 Federal National Mortgage Association Medium Term Note 5.55% .......... 01-Jan-98* 52,993,417
50,000,000 Federal National Mortgage Association Mtns 5.71% ...................... 09-Sep-98 49,953,892
50,000,000 First National Bank Chicago 5.78% ..................................... 05-Aug-98 49,991,496
150,000,000 General Electric Capital Corp. 6.80% .................................. 02-Jan-98 149,971,667
50,000,000 General Electric Capital Corp. 5.71% .................................. 27-Mar-98 49,325,903
50,000,000 General Electric Capital Corp. 5.70% .................................. 06-Feb-98 49,715,000
70,000,000 General Electric Capital Corp. 5.70% .................................. 25-Feb-98 69,390,417
50,000,000 General Electric Capital Corp. 5.69% .................................. 11-Feb-98 49,675,986
50,000,000 General Electric Capital Corp. 5.68% .................................. 12-Feb-98 49,668,667
50,000,000 General Electric Capital Corp. 5.63% .................................. 22-Jan-98 49,835,792
50,000,000 General Electric Capital Corp. 5.62% .................................. 04-Feb-98 49,734,611
100,000,000 General Electric Capital Corp. 5.62% .................................. 12-Feb-98 99,344,333
75,000,000 General Electric Capital Corp. 5.60% .................................. 20-Jan-98 74,778,333
75,000,000 General Electric Capital Corp. 5.60% .................................. 04-Feb-98 74,603,333
50,000,000 General Electric Capital Corp. 5.54% .................................. 18-Mar-98 49,415,222
24,000,000 Glaxo PLC 5.73% ....................................................... 19-Mar-98 23,705,860
149,500,000 Goldman Sachs Group L P 5.85% ......................................... 30-Jan-98 148,795,481
85,000,000 Grand Metro Capital Corp. 5.56% ....................................... 30-Apr-98 83,439,199
150,000,000 ING Bank 5.81% ........................................................ 30-Jan-98 150,000,000
50,000,000 ING Bank Euro CD 5.77% ................................................ 21-Jan-98 50,000,000
20,000,000 International Business Machines 5.67% ................................. 28-Jan-98 19,997,489
163,000,000 J. P. Morgan & Co., Inc. 5.80% ........................................ 10-Feb-98 161,949,556
100,000,000 J. P. Morgan & Co., Inc. 5.78% ........................................ 10-Feb-98 99,357,778
200,000,000 Key Bank NA 6.00% ..................................................... 02-Jan-98 200,000,000
64,200,000 KFW International Finance Inc. 5.78% .................................. 30-Jan-98 63,901,078
77,000,000 KFW International Finance Inc. 5.75% .................................. 26-Feb-98 76,311,278
280,900,000 KFW International Finance Inc. 5.73% .................................. 27-Feb-98 278,351,535
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-235
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- --------------
<S> <C> <C> <C>
$ 40,000,000 KFW International Finance Inc. 5.53% ....................... 21-Jan-98 $ 39,877,111
50,000,000 Landesbank Hessen Thuringen 5.96% .......................... 20-Mar-98 49,995,915
50,000,000 Landesbank Hessen Thuringen 5.93% .......................... 30-Jun-98 49,975,264
25,000,000 Landesbank Hessen Thuringen 5.79% .......................... 04-Feb-98 24,999,275
113,500,000 Merck & Co., Inc. 6.25% .................................... 05-Jan-98 113,421,181
50,000,000 Merrill Lynch & Co. 5.85% .................................. 04-Mar-98* 49,998,332
58,000,000 Merrill Lynch & Co. Inc. 5.94% ............................. 14-Jan-98* 58,000,930
50,000,000 Merrill Lynch & Co. Inc. 5.88% ............................. 10-Aug-98 49,994,279
50,000,000 Merrill Lynch & Co. Inc. 5.84% ............................. 09-Mar-98* 49,998,198
85,000,000 Merrill Lynch & Co. Inc. 5.69% ............................. 20-Jan-98* 84,993,260
280,000,000 Merrill Lynch & Co., Inc. 5.71% ............................ 30-Apr-98 274,715,078
100,000,000 Merrill Lynch & Co., Inc. 5.70% ............................ 30-Apr-98 98,115,833
20,000,000 Merrill Lynch & Co., Inc. 5.55% ............................ 09-Feb-98 19,879,750
84,917,000 Monte Rosa Capital Corp. 6.00% ............................. 22-Jan-98 84,619,791
48,000,000 Monte Rosa Capital Corp. 5.88% ............................. 16-Jan-98 47,882,400
64,275,000 Monte Rosa Capital Corp. 5.85% ............................. 10-Feb-98 63,857,213
30,000,000 Monte Rosa Capital Corp. 5.84% ............................. 22-Jan-98 29,897,800
150,000,000 Monte Rosa Capital Corp. 5.83% ............................. 26-Jan-98 149,392,708
75,000,000 Monte Rosa Capital Corp. 5.80% ............................. 12-Feb-98 74,492,500
20,220,000 Monte Rosa Capital Corp. 5.80% ............................. 13-Feb-98 20,079,920
73,000,000 Monte Rosa Capital Corp. 5.79% ............................. 13-Feb-98 72,495,144
45,000,000 Morgan Guaranty Trust Co. 5.94% ............................ 20-Mar-98 44,995,405
150,000,000 Morgan Guaranty Trust Co. 5.82% ............................ 27-Mar-98 150,005,347
100,000,000 Morgan Guaranty Trust Co. 5.82% ............................ 13-Jan-98 99,998,270
50,000,000 National Australia Bank Ltd. 5.77% ......................... 20-Jan-98 50,000,000
50,000,000 National Australia Bank Ltd. 5.77% ......................... 20-Jan-98 50,000,131
75,000,000 National Australia Bank Ltd. New York 5.67% ................ 05-Mar-98 74,994,408
25,000,000 National City Bank (Cleveland) 5.80% ....................... 03-Mar-98 24,998,400
50,000,000 National Westminster Bank PLC 5.86% ........................ 10-Aug-98 49,988,419
30,000,000 National Westminster Bank PLC 5.69% ........................ 27-Feb-98 29,998,877
75,000,000 National Westminster Bank PLC 5.68% ........................ 02-Mar-98 74,996,456
25,000,000 National Westminster Bank PLC 5.67% ........................ 11-Feb-98 24,996,642
27,000,000 National Westminster Bank PLC 5.66% ........................ 11-Feb-98 26,998,417
70,000,000 National Westminster Bank PLC 5.66% ........................ 05-Mar-98 69,995,368
500,000,000 NationsBank Charlotte North Carolina 6.25% ................. 02-Jan-98 500,000,000
50,500,000 NationsBank Charlotte North Carolina 5.78% ................. 19-Mar-98* 50,464,680
40,000,000 NationsBank Corp. Mts 5.83% ................................ 02-Mar-98* 40,000,000
40,000,000 NationsBank Corporation Mdm Tm Senior Notes 5.64% .......... 14-Sep-98* 40,000,000
90,000,000 Nordeutsche Landesbank CD 5.94% ............................ 23-Oct-98 89,951,340
27,000,000 Northern Trust Co. 5.75% ................................... 04-Mar-98 26,995,610
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-236
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Schedule of Investments (Continued)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- --------------
<S> <C> <C> <C>
$ 40,000,000 Old Kent Bank & Trust Co. 5.83% ..................... 02-Mar-98* $ 39,987,189
40,000,000 Old Kent Bank & Trust Co. 5.68% ..................... 01-Jan-98* 39,994,954
60,000,000 Pfizer Inc. 5.93% ................................... 30-Jan-98 59,713,383
400,000,000 Pittsburgh National Bank Nassau 6.75% ............... 02-Jan-98 400,000,000
90,000,000 PNC Bank NA 6.10% ................................... 01-Jan-98* 89,949,568
50,000,000 PNC Bank NA 5.88% ................................... 09-Jan-98* 49,999,236
20,000,000 PNC Bank NA 5.62% ................................... 01-Jan-98* 19,998,407
75,000,000 PNC Bank NA 5.60% ................................... 01-Jan-98* 74,963,596
95,000,000 Rabobank Nederland N. V. 5.88% ...................... 16-Mar-98 94,991,713
200,000,000 Republic National Bank New York 6.00% ............... 02-Jan-98 200,000,000
40,000,000 Royal Bank Canada (NY Branch) 5.84% ................. 25-Aug-98 39,983,918
55,000,000 Royal Bank Canada (NY Branch) 5.83% ................. 25-Aug-98 54,974,485
49,750,000 Student Loan Marketing Association 5.79% ............ 16-Sep-98 49,726,733
50,000,000 Sudwestdeutsche Landesbank 5.81% .................... 03-Mar-98 50,000,835
120,603,000 Suntrust Banks Inc. 5.50% ........................... 02-Jan-98 120,603,000
75,000,000 Svenska Grand Cayman 5.91% .......................... 02-Jan-98 75,000,000
45,000,000 Svenska Handelsbank 5.76% ........................... 17-Feb-98 45,000,000
111,900,000 Swiss Bank Corp. 5.98% .............................. 19-Mar-98 111,894,603
155,000,000 Swiss Bank Corp. 5.76% .............................. 17-Feb-98 155,000,000
50,000,000 Swiss Bank Corp. 5.76% .............................. 18-Feb-98 50,000,000
75,000,000 Tiers Trust 5.98% ................................... 15-Jan-98* 75,000,000
40,000,000 Toronto Dominion Bank 5.91% ......................... 10-Aug-98 39,978,248
75,000,000 Toronto Dominion Bank 5.76% ......................... 31-Mar-98 75,000,000
70,000,000 Toronto Dominion Bank 5.75% ......................... 17-Feb-98 69,991,602
125,000,000 Toronto Dominion Bank (Grand Cayman) 6.75% .......... 02-Jan-98 125,000,000
25,000,000 U.S. National Bank Oregon 5.78% ..................... 26-Mar-98* 24,991,726
500,000,000 UBS Finance Delaware Inc. 6.75% ..................... 02-Jan-98 499,906,250
75,000,000 US Treasury Notes 6.13% ............................. 31-Mar-98 75,063,693
138,000,000 US Treasury Notes 5.00% ............................. 31-Jan-98 137,916,090
30,000,000 USAA Capital Corp. 5.68% ............................ 05-Feb-98 29,834,333
25,000,000 USAA Capital Corp. 5.60% ............................ 10-Feb-98 24,844,444
25,000,000 USAA Capital Corp. 5.54% ............................ 10-Mar-98 24,738,389
100,000,000 Wachovia Bank & Trust 6.00% ......................... 02-Jan-98 100,000,000
36,000,000 Wachovia Bank N A 5.90% ............................. 02-Oct-98 35,978,137
45,000,000 Wells Fargo & Co. 5.77% ............................. 18-Mar-98* 44,978,797
108,000,000 Wells Fargo & Co. 5.76% ............................. 18-Mar-98* 107,937,553
280,000,000 Westdeutsche Landesbank 7.00% ....................... 02-Jan-98 280,000,000
250,000,000 Westdeutsche Landesbank 5.90% ....................... 12-Jan-98 250,000,000
100,000,000 Westdeutsche Landesbank 5.76% ....................... 13-Feb-98 100,000,000
65,000,000 Westpac Banking Corp. 6.24% ......................... 07-Apr-98 64,995,111
</TABLE>
The accompanying notes are an integral part of these financial statements.
SAI-237
<PAGE>
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
SHORT TERM INVESTMENT FUND
Schedule of Investments (Concluded)
(showing percentage of total value of investments)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- -----------------
<S> <C> <C> <C>
$ 50,000,000 Westpac Banking Corp. 5.86% .......................................... 15-Jan-98 $ 49,999,450
45,000,000 Westpac Banking Corp. 5.85% .......................................... 15-Jan-98 44,999,339
25,000,000 Westpac Banking Corp. 5.83% .......................................... 27-Jan-98 24,999,843
15,000,000 Westpac Banking Corp. 5.79% .......................................... 05-Aug-98 14,997,450
65,000,000 Westpac Banking Corp. Deposit Notes 5.97% ............................ 24-Mar-98 64,981,874
50,000,000 Westpac Banking Corp. Deposit Notes 5.95% ............................ 29-Jun-98 50,001,156
35,000,000 Westpac Banking Corp. Deposit Notes 5.92% ............................ 28-Aug-98 34,989,045
------------ ----------------------------------------------------------------------- --------- ---------------
TOTAL SHORT TERM INSTRUMENTS ......................................... 17,821,262,405
----------------------------------------------------------------------- ---------------
REPURCHASE AGREEMENT--4.0%
750,000,000 Swiss Bank Corp. Repo 6.63% (collaterized by US Treasury Notes 8.75%
------------
and 10.75% due 11/15/08 and 8/15/05, valued at $765,007,925).......... 02-Jan-98 750,000,000
----------------------------------------------------------------------- --------- ---------------
TOTAL INVESTMENTS--100% .............................................. $18,571,262,405
======================================================================= ===============
</TABLE>
- ----------
* Variable rate security. Rate disclosed is that which was in effect at
December 31, 1997. Date disclosed is the next interest rate reset date.
The accompanying notes are an integral part of these financial statements.
SAI-238
<PAGE>
Supplement dated May 1, 1998 to Prospectus dated May 1, 1998
------------------------------------------------------------------------
MEMBERS RETIREMENT PROGRAMS
funded under contracts with
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 Avenue of the Americas, New York, New York 10104
Toll-Free Telephone 800-223-5790
----------------------------------
VARIABLE ANNUITY BENEFITS
----------------------------------
This Prospectus Supplement should be read and retained for
future reference by Participants in the Members Retirement
Programs who are considering variable
annuity payment benefits after retirement.
This Prospectus Supplement is not authorized for
distribution unless accompanied or preceded by
the Prospectus dated May 1, 1998 for the
appropriate Members Retirement Program.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS: ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
<PAGE>
RETIREMENT BENEFITS
When you become eligible to receive benefits under a Members
Retirement Program, you may select one or more of the following forms of
distribution, which are available in variable or fixed form. The law requires
that if the value of your Account Balance is more than $5,000, you must receive
a Qualified Joint and Survivor Annuity unless your Spouse consents to a
different election.
Life Annuity - annuity providing monthly payments for your life. No
payments will be made after your death, even if you have received only one
payment.
Life Annuity Period Certain - an annuity providing monthly payments
for your life or, if longer, a specified period of time. If you die before the
end of that specified period, payments will continue to your beneficiary until
the end of the period. Subject to legal limitations, you may specify a minimum
payment period of 5, 10, 15 or 20 years; the longer the specified period, the
smaller the monthly payments will be.
Joint and Survivor Annuity - Period Certain - an annuity providing
monthly payments for your life and that of your beneficiary or, if longer, a
specified period of time. If you and your beneficiary both die before the end
of the specified period, payments will continue to your contingent beneficiary
until the end of the period. Subject to legal limitations, you may specify a
minimum payment period of 5, 10, 15 or 20 years; the longer the specified
period, the smaller the monthly payments will be.
How Annuity Payments are Made
When your distribution of benefits under an annuity begins, your Units
in the Funds are redeemed. Part or all of the proceeds, plus part or all of
your Account Balance in the General Account Options, may be used to purchase an
annuity. The minimum amount that can be used to purchase any type of annuity is
$5,000. Usually, a $350 charge will be deducted from the amount used to
purchase the annuity to reimburse us for administrative expenses associated
with processing the application and with issuing each month's annuity payment.
Applicable premium taxes will also be deducted.
Annuity payments may be fixed or variable.
FIXED ANNUITY PAYMENTS. Fixed annuity payments are determined from our
annuity rate tables in effect at the time the first annuity payment is
made. The minimum amount of the fixed payments is determined from
tables in our contract with the Trustees, which show the amount of
proceeds necessary to purchase each $1 of monthly annuity payments
(after deduction of any applicable taxes and the annuity
administrative charge). These tables are designed to determine the
amounts required to pay for the annuity selected, taking into account
our administrative and investment expenses and mortality and expense
risks. The size of your payment will depend upon the form of annuity
chosen, your age and the
2
<PAGE>
age of your beneficiary if you select a joint and survivor annuity.
If our current group annuity rates for payment of proceeds would
produce a larger payment, those rates will apply instead of the
minimums in the contract tables. If we give any group pension client
with a qualified plan a better annuity rate than those currently
available for the Program, we will also make those rates available to
Program participants. The annuity administrative charge may be
greater than $350 in that case. Under our contract with the Trustees,
we may change the tables but not more frequently than once every five
years. Fixed annuity payments will not fluctuate during the payment
period.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments are funded
through our Separate Account No. 4 (Pooled) (the "Fund"), through the
purchase of Annuity Units. The number of Annuity Units purchased is
equal to the amount o the first annuity payment divided by the Annuity
Unit Value for the due date of the first annuity payment. The amount
of the first annuity payment is determined in the same manner for a
variable annuity as it is for a fixed annuity. The number of Annuity
Units stays the same throughout the payment period for the variable
annuity but the Annuity Unit Value changes to reflect the investment
income and the realized and unrealized capital gains and losses of the
Fund, after adjustment for an assumed base rate of return of 5-3/4%,
described below.
The amounts of variable annuity payments are determined as follows:
Payments normally start as of the first day of the second calendar month
following our receipt of the proper forms. The first two monthly payments are
the same.
Payments after the first two will vary according to the investment
performance of the Fund. Each monthly payment will be calculated by multiplying
the number of Annuity Units credited to you by the Annuity Unit Value for the
first business day of the calendar month before the due date of the payment.
The Annuity Unit Value was set at $1.1553 as of July 1, 1969, the
first day that Separate Account No. 4 (Pooled) was operational. For any month
after that date, it is the Annuity Unit Value for the preceding month
multiplied by the change factor for the current month. The change factor gives
effect to the assumed annual base rate of return of 4-3/4% and to the actual
investment experience of the Fund.
Because of the adjustment for the assumed base rate of return, the
Annuity Unit Value rises and falls depending on whether the actual rate of
investment return is higher or lower than 5-3/4%.
Illustration of Changes in Annuity Payments. To show how we determine
variable annuity payments from month to month, assume that the amount you
applied to purchase an annuity is enough to fund an annuity with a monthly
payment of $363 and that the Annuity Unit Value for the due date of the first
annuity payment is $1.05. The number of annuity units credited under your
certificate would be 345.71 (363 divided by 1.05 = 345.71). If the
3
<PAGE>
third monthly payment is due on March 1, and the Annuity Unit Value for
February was $1.10, the annuity payment for March would be the number of units
(345.71) times the Annuity Unit Value ($1.10), or $380.28. If the Annuity Unit
Value was $1.00 on March 1, the annuity payment for April would be 345.71 times
$1.00 or $345.71.
Summary of Annuity Unit Values for the Fund
This table shows the Annuity Unit Values with an assumed based rate of
return of 5-3/4%.
First Business Day of Annuity Unit Value
--------------------- ------------------
October 1987 $ 4.3934
October 1988 $ 3.5444
October 1989 $ 4.8357
October 1990 $ 3.8569
October 1991 $ 5.4677
October 1992 $ 5.1818
October 1993 $ 6.3886
October 1994 $ 6.1563
October 1995 $ 7.4970
October 1996 $ 8.0828
October 1997 $11.0300
THE FUND
The Fund (Separate Account No. 4 (Pooled)) was established pursuant to
the Insurance law of the State of New York in 1969. It is an investment account
used to fund benefits under group annuity contracts and other agreements for
tax-deferred retirement programs administered by us.
For a full description of the fund, its investment policies, the risks
of an investment in the Fund and information relating to the valuation of Fund
assets, see the description of the Fund in our May 1, 1998 prospectus and the
Statement of Additional Information.
INVESTMENT MANAGER
The Manager
We, Equitable Life, act as Investment Manager to the Fund. As such, we
have complete discretion over Fund assets and we invest and reinvest these
assets in accordance with the investment policies described in our May 1, 1998
prospectus and Statement of Additional Information.
4
<PAGE>
We are a New York stock life insurance company with our Home Office at
1290 Avenue of the Americas, New York, New York 10104. Founded in 1859, we are
one of the largest insurance companies in the United States. Equitable Life,
our sole stockholder Equitable Companies, Inc., and their subsidiaries managed
assets of approximately $274.1 billion as of December 31, 1997, including third
party assets of $216.9 billion.
Investment Management
In providing investment management to the funds, we currently use the
personnel and facilities of our majority owned subsidiary, Alliance Capital
Management L.P. ("Alliance"), for portfolio selection and transaction services.
For a description of Alliance, see our May 1, 1998 Members Retirement Program
prospectus.
Fund Transactions
The Fund is charged for securities brokers commissions, transfer taxes
and other fees relating to securities transactions. Transactions in equity
securities for the Fund are executed primarily through brokers which are
selected by Alliance/Equitable Life and receive commissions paid by the Fund.
For 1997, 1996 and 1995, the Fund paid $3,698,148, $4,682,578 and $6,044,623,
respectively, in brokerage commissions. For a full description of our policies
relating to the selection of brokers, see the description of the fund in our
May 1, 1998 Statement of Additional Information.
5
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Fund reflect applicable fees,
charges and other expenses under the Members Programs as in effect during the
periods covered, as well as the charges against the account made in accordance
with the terms of all other contracts participating in the account.
Separate Account No. 4 (Pooled): Page
Report of Independent Accountants - Price Waterhouse LLP 7
Statement of Assets and Liabilities,
December 31, 1997 8
Statement of Operations and Changes in Net Assets
for the Years Ended December 31, 1997 and 1996 9
Portfolio of Investments
December 31, 1997 10
Notes to Financial Statements 15
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and the Contractowners of Separate Account No. 4
of The Equitable Life Assurance Society of the United States:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and changes in net assets and the selected per unit data (included
under Condensed Financial Information in the prospectus of American Dental
Association Members Retirement Program) present fairly, in all material
respects, the financial position of Separate Account No. 4 (Pooled) (The
Growth Equity Fund) of The Equitable Life Assurance Society of the United
States ("Equitable Life") at December 31, 1997 and its results of operations,
the changes in net assets for each of the two years in the period then ended
and the selected per unit data for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and the
selected per unit data (hereafter referred to as "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 securities at December 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 10, 1998
7
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED) (THE ALLIANCE GROWTH EQUITY FUND)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statements of Assets and Liabilities
December 31, 1997
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments (Notes 2 and 3):
Common stocks--at market value (cost: $1,945,635,407)......................... $2,635,013,465
Preferred stocks--at market value (cost: $1,742,250).......................... 2,777,625
Long-Term debt securities--at value (amortized cost: $3,016,327) ............. 2,728,125
Participation in Separate Account No. 2A--at amortized cost, which
approximates market value, equivalent to 100,276 units at $270.27 .......... 27,101,569
Cash............................................................................ 64,818
Receivables:
Securities sold.............................................................. 15,688,292
Dividends.................................................................... 1,062,061
----------------------------------------------------------------------------------------------
Total assets................................................................ 2,684,435,955
----------------------------------------------------------------------------------------------
LIABILITIES:
Payables:
Securities purchased.......................................................... 6,071,076
Due to Equitable Life's General Account....................................... 32,755,106
Investment management fees payable............................................ 7,455
Accrued expenses................................................................ 525,753
Accrued retained by Equitable Life in Separate Account No. 4 (Note 1) .......... 1,095,138
- -----------------------------------------------------------------------------------------------
Total liabilities........................................................... 40,454,528
- -----------------------------------------------------------------------------------------------
NET ASSETS (NOTE 1):
Net assets attributable to participants' accumulations.......................... 2,611,671,263
Reserves and other liabilities attributable to annuity benefits................. 32,310,164
- -----------------------------------------------------------------------------------------------
NET ASSETS...................................................................... $2,643,981,427
===============================================================================================
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
INVESTMENT INCOME (NOTE 2):
Dividends (net of foreign taxes withheld--1997: $2,138 and 1996: $62,998) ...... $ 13,385,197 $ 13,755,557
Interest........................................................................ 845,517 292,364
- ---------------------------------------------------------------------------------------------------------------
Total........................................................................... 14,230,714 14,047,921
EXPENSES (NOTE 4)............................................................... (19,783,932) (18,524,630)
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS............................................................. (5,553,218) (4,476,709)
- ---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 2):
Realized gain from security and foreign currency transactions................... 372,430,956 218,176,662
- ---------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments and foreign currency
transactions:
Beginning of year............................................................. 448,580,808 290,870,386
End of year................................................................... 690,125,231 448,580,808
- ---------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation/depreciation.................................. 241,544,423 157,710,422
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................................. 613,975,379 375,887,084
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets attributable to operations............................... 608,422,161 371,410,375
- ---------------------------------------------------------------------------------------------------------------
FROM CONTRIBUTIONS AND WITHDRAWALS:
Contributions................................................................... 546,890,479 552,427,638
Withdrawals..................................................................... (969,496,108) (590,972,941)
- ---------------------------------------------------------------------------------------------------------------
Decrease in net assets attributable to contributions and withdrawals ........... (422,605,629) (38,545,303)
- ---------------------------------------------------------------------------------------------------------------
(Increase) Decrease in accumulated amount retained by Equitable Life in
Separate Account No. 4 (Note 1)............................................... (360,863) 536,145
- ---------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS.......................................................... 185,455,669 333,401,217
NET ASSETS--BEGINNING OF YEAR................................................... 2,458,525,758 2,125,124,541
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS--END OF YEAR......................................................... $2,643,981,427 $2,458,525,758
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Portfolio of Investments
December 31, 1997
- -------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES (NOTE 3)
- -------------------------------------------------------------------------------
COMMON STOCKS:
BUSINESS SERVICES:
ENVIRONMENTAL CONTROL (0.6%)
United States Filter Corp.* ......................... 554,700 $ 16,606,331
-------------
PROFESSIONAL SERVICES (0.3%)
Corrections Corp. of America*........................ 185,000 6,856,562
-------------
TRUCKING, SHIPPING (0.2%)
Knightsbridge Tankers, Ltd........................... 150,000 4,246,875
OMI Corp.*........................................... 264,000 2,425,500
-------------
6,672,375
-------------
TOTAL BUSINESS SERVICES (1.1%) ...................... 30,135,268
-------------
CONSUMER CYCLICALS
AIRLINES (9.0%)
America West Holdings Corp. (Class B)*............... 542,200 10,098,475
Continental Airlines, Inc. (Class B)*................ 2,600,000 125,125,000
KLM Dutch Airlines................................... 280,000 10,570,000
Northwest Airlines Corp. (Class A)*.................. 1,900,000 90,962,500
Southwest Airlines Co................................ 50,000 1,231,250
-------------
237,987,225
-------------
APPAREL, TEXTILE (0.2%)
Tommy Hilfiger Corp.*................................ 100,000 3,512,500
Wolverine World Wide, Inc............................ 91,000 2,058,875
-------------
5,571,375
-------------
AUTO-RELATED (6.3%)
Republic Industries, Inc.*........................... 7,100,000 165,518,750
-------------
FOOD SERVICES, LODGING (1.9%)
Extended Stay America, Inc.*......................... 1,400,000 17,412,500
Host Marriott Corp.*................................. 1,675,000 32,871,875
Suburban Lodges of America, Inc.*.................... 70,000 931,875
-------------
51,216,250
-------------
HOUSEHOLD FURNITURE, APPLIANCES (0.8%)
Industrie Natuzzi Spa (ADR).......................... 1,011,000 20,851,875
-------------
LEISURE-RELATED (1.3%)
Cendant Corporation.................................. 1,000,000 34,375,000
-------------
RETAIL--GENERAL (0.8%)
Circuit City Stores--Circuit City Group ............. 400,000 14,225,000
Limited, Inc......................................... 300,000 7,650,000
-------------
21,875,000
-------------
TOTAL CONSUMER CYCLICALS (20.3%) .................... 537,395,475
-------------
10
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Portfolio of Investments (Continued)
December 31, 1997
- -------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES (NOTE 3)
- -------------------------------------------------------------------------------
CONSUMER NONCYCLICALS
DRUGS (3.6%)
Centocor, Inc.*...................................... 1,230,700 $ 40,920,775
Geltex Pharmaceuticals, Inc.*........................ 700,000 18,550,000
Genzyme Corporation*................................. 100,000 2,775,000
IDEC Pharmaceuticals Corp.*.......................... 75,600 2,598,750
MedImmune, Inc.*..................................... 736,800 31,590,300
--------------
96,434,825
--------------
FOODS (0.2%)
Tysons Foods, Inc.................................... 228,100 4,676,050
--------------
TOBACCO (4.4%)
Loews Corp........................................... 1,100,000 116,737,500
--------------
TOTAL CONSUMER NONCYCLICALS (8.2%) .................. 217,848,375
--------------
CREDIT-SENSITIVE
BANKS (0.2%)
Chase Manhattan Corp................................. 40,000 4,380,000
--------------
FINANCIAL SERVICES (15.0%)
A.G. Edwards, Inc. .................................. 700,000 27,825,000
Green Tree Financial Corp............................ 54,200 1,419,362
Legg Mason, Inc...................................... 1,200,031 67,126,734
MBNA Corp............................................ 4,800,000 131,100,000
Merrill Lynch & Co., Inc............................. 1,400,000 102,112,500
Morgan Stanley, Dean Witter, Discover & Co. ......... 1,000,000 59,125,000
PMI Group, Inc....................................... 100,000 7,231,250
--------------
395,939,846
--------------
INSURANCE (13.1%)
CNA Financial Corp.*................................. 1,700,000 217,175,000
IPC Holdings Ltd..................................... 207,400 6,675,687
Life Re Corporation.................................. 721,000 47,000,188
NAC Re Corp.......................................... 538,700 26,295,294
Travelers Group, Inc................................. 950,000 51,181,250
--------------
348,327,419
--------------
REAL ESTATE (0.4%)
Excel Realty Trust, Inc.............................. 140,000 4,410,000
Imperial Credit Commercial Mortgage Investment
Corp................................................. 25,000 365,625
Imperial Credit Mortgage Holdings.................... 187,500 3,351,562
Novastar Financial, Inc.............................. 75,000 1,185,938
--------------
9,313,125
--------------
11
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Portfolio of Investments (Continued)
December 31, 1997
- -------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES (NOTE 3)
- -------------------------------------------------------------------------------
UTILITY--TELEPHONE (8.7%)
Telebras Sponsored (ADR)............................. 250,000 $ 29,109,375
Telephone & Data Systems, Inc........................ 4,000,000 186,250,000
Teleport Communications Group, Inc. (Class A)* ...... 300,000 16,462,500
--------------
231,821,875
--------------
TOTAL CREDIT-SENSITIVE (37.4%) ...................... 989,782,265
--------------
ENERGY
OIL--DOMESTIC (0.0%)
Apache Corp.......................................... 15,000 525,938
--------------
OIL--INTERNATIONAL (0.3%)
Gulf Canada Resources Ltd.*.......................... 750,000 5,250,000
IRI International Corporation*....................... 150,000 2,100,000
Petroleo Brasileiro S.A. (ADR)....................... 50,000 1,169,330
--------------
8,519,330
--------------
OIL--SUPPLIES & CONSTRUCTION (15.3%)
Baker Hughes, Inc. .................................. 555,000 24,211,875
BJ Services Co.*..................................... 15,000 1,079,063
Diamond Offshore Drilling, Inc. ..................... 860,000 41,387,500
Dresser Industries, Inc. ............................ 170,000 7,129,375
Halliburton Co. ..................................... 1,400,000 72,712,500
Lukoil Holdings--Spons (ADR)......................... 15,000 1,377,375
Lukoil Holdings--Spons (ADR)(Pref. Shares) .......... 40,000 1,241,576
Nabors Industries, Inc.*............................. 435,000 13,675,312
Noble Drilling Corp.*................................ 1,300,000 39,812,500
Oceaneering International, Inc.*..................... 300,000 5,925,000
Parker Drilling Co.*................................. 5,500,000 67,031,250
Rowan Cos., Inc.*.................................... 3,500,000 106,750,000
Schlumberger, Ltd.................................... 270,000 21,735,000
--------------
404,068,326
--------------
TOTAL ENERGY (15.6%) ................................ 413,113,594
--------------
TECHNOLOGY
ELECTRONICS (2.7%)
Altera Corp.*........................................ 100,000 3,312,500
DBT Online, Inc.*.................................... 160,000 3,990,000
Network Associates, Inc.*............................ 400,000 21,150,000
Sterling Commerce, Inc.* ............................ 650,000 24,984,375
Teradyne, Inc.*...................................... 290,000 9,280,000
U.S. Satellite Broadcasting Co., Inc.*............... 40,000 317,500
Xilinx, Inc.*........................................ 250,000 8,765,625
--------------
71,800,000
--------------
12
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Portfolio of Investments (Continued)
December 31, 1997
- -------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES (NOTE 3)
- -------------------------------------------------------------------------------
OFFICE EQUIPMENT SERVICES (0.1%)
CheckFree Holdings Corp.*............................ 100,000 $ 2,700,000
------------
TELECOMMUNICATIONS (14.1%)
ADC Telecommunications, Inc.*........................ 860,000 35,905,000
American Satellite Network--Rights*.................. 70,000 0
Bell Canada International, Inc.*..................... 25,000 381,250
Core Communications, Inc.*........................... 504,000 5,103,000
DSC Communications Corp.*............................ 450,000 10,800,000
MCI Communications Corp.............................. 300,000 12,843,750
Millicom International Cellular S.A.*................ 1,515,000 57,001,875
Nextel Communications, Inc. (Class A)*............... 485,000 12,610,000
Nokia Corp.--Sponsored (A Shares)(ADR)............... 260,000 18,200,000
Powertel, Inc.*...................................... 73,300 1,227,775
Tellabs, Inc.*....................................... 100,000 5,287,500
United States Cellular Corp.*........................ 2,915,400 90,377,400
Vanguard Cellular Systems, Inc. (Class A)* .......... 2,200,000 28,050,000
WorldCom, Inc.*...................................... 3,100,000 93,775,000
------------
371,562,550
------------
TOTAL TECHNOLOGY (16.9%) ............................ 446,062,550
------------
DIVERSIFIED
MISCELLANEOUS (0.2%)
Viad Corp. .......................................... 35,000 675,938
------------
TOTAL DIVERSIFIED (0.2%) ............................ 675,938
------------
TOTAL COMMON STOCKS (99.7%)
(Cost $1,945,635,407) .............................. 2,635,013,465
------------
PREFERRED STOCKS:
CONSUMER CYCLICALS
AIRLINES (0.1%)
Continental Airlines Financial Trust 8.5% Conv. ..... 27,000 2,777,625
------------
TOTAL CONSUMER CYCLICALS (0.1%) ..................... 2,777,625
------------
TOTAL PREFERRED STOCKS (0.1%)
(Cost $1,742,250) .................................. 2,777,625
------------
13
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Portfolio of Investments (Continued)
December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT (NOTE 3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM DEBT SECURITIES:
TECHNOLOGY:
TELECOMMUNICATIONS (0.1%)
United States Cellular Corp.
Zero Coupon Conv., 2015 ................................................ $7,500,000 $ 2,728,125
--------------
TOTAL TECHNOLOGY (0.1%) ................................................. 2,728,125
--------------
TOTAL LONG-TERM DEBT SECURITIES (0.1%)
(Amortized Cost $3,016,327) ............................................ 2,728,125
--------------
PARTICIPATION IN SEPARATE ACCOUNT NO. 2A,
at amortized cost, which approximates
market value, equivalent to 100,276 units
at $270.27 each (1.0%) ................................................. 27,101,569
--------------
TOTAL INVESTMENTS (100.9%)
(Cost/Amortized Cost $1,977,495,553) ................................... 2,667,620,784
OTHER ASSETS LESS LIABILITIES (-0.9%) ................................... (22,544,219)
AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 4 (0.0%)(NOTE 1) .................................. (1,095,138)
--------------
NET ASSETS (100.0%) ..................................................... 2,643,981,427
--------------
Reserves attributable to participants' accumulations .................... 2,611,671,263
Reserves and other contract liabilities attributable to annuity benefits 32,310,164
--------------
NET ASSETS .............................................................. $2,643,981,427
==============
</TABLE>
* Non-income producing.
See Notes to Financial Statements.
14
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Notes to Financial Statements
1. Separate Account No. 4 (Pooled) (the Growth Equity Fund) (the Fund) of
The Equitable Life Assurance Society of the United States (Equitable Life), a
wholly-owned subsidiary of The Equitable Companies Incorporated, was
established in conformity with the New York State Insurance Law. Pursuant to
such law, to the extent provided in the applicable contracts, the net assets
in the Fund are not chargeable with liabilities arising out of any other
business of Equitable Life. The excess of assets over reserves and other
contract liabilities amounting to $1,095,138 as shown in the Statements of
Assets and Liabilities in Separate Account No. 4 may be transferred to
Equitable Life's General Account.
Interests of retirement and investment plans for Equitable Life employees,
managers, and agents in Separate Account No. 4 aggregated $384,471,790.19
(14.5%), at December 31, 1997 and $288,921,270 (11.8%), at December 31, 1996,
of the net assets in the Fund.
Equitable Life is the investment manager for the Fund. Alliance Capital
Management L.P. (Alliance) serves as the investment adviser to Equitable Life
with respect to the management of the Fund. Alliance is a publicly-traded
limited partnership which is indirectly majority-owned by Equitable Life.
Equitable Life and Alliance seek to obtain the best price and execution of
all orders placed for the Fund considering all circumstances. In addition to
using brokers and dealers to execute portfolio security transactions for
accounts under their management, Equitable Life and Alliance may also enter
into other types of business and securities transactions with brokers and
dealers, which will be unrelated to allocation of the Fund's portfolio
transactions.
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.
2. Security transactions are recorded on the trade date. Amortized cost of
debt securities consists of cost adjusted, where applicable, for amortization
of premium or accretion of discount. Dividend income is recorded on the
ex-dividend date; interest income (including amortization of premium and
discount on securities using the effective yield method) is accrued daily.
Realized gains and losses on the sale of investments are computed on the
basis of the identified cost of the related investments sold.
Transactions denominated in foreign currencies are recorded at the rate
prevailing at the date of such transactions. Asset and liability accounts
that are denominated in a foreign currency are adjusted to reflect the
current exchange rate at the end of the period. Transaction gains or losses
resulting from changes in the exchange rate during the reporting period or
upon settlement of the foreign currency transactions are reflected under
"Realized and Unrealized Gain (Loss) on Investments" in the Statements of
Operations and Changes in Net Assets.
15
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Notes to Financial Statements (Continued)
Equitable Life's internal short-term investment account, Separate Account
No. 2A, was established to provide a more flexible and efficient vehicle to
combine and invest temporary cash positions of certain eligible accounts
(Participating Funds) under Equitable Life's management. Separate Account No.
2A invests in debt securities maturing in sixty days or less from the date of
acquisition. At December 31, 1997, the amortized cost of investments held in
Separate Account No. 2A consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
AMORTIZED COST %
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper, 5.70%-6.75%, due 01/02/98 through 02/12/98 .......... $210,793,367 94.7%
Bankers' Acceptances, 5.65%-5.73% due 01/16/98 through 01/26/98........ 9,474,385 4.3
- -------------------------------------------------------------------------------------------------
Total Investments...................................................... 220,267,752 99.0
Cash and Receivables Less Liabilities.................................. 2,244,569 1.0
- -------------------------------------------------------------------------------------------------
Net Assets of Separate Account No. 2A.................................. $222,512,321 100.0%
=================================================================================================
Units Outstanding...................................................... 823,297
Unit Value............................................................. $270.27
- -------------------------------------------------------------------------------------------------
</TABLE>
Participating Funds purchase or redeem units depending on each
participating account's excess cash availability or cash needs to meet its
liabilities. Separate Account No. 2A is not subject to investment management
fees. Separate Account No. 2A is valued daily at amortized cost, which
approximates market value.
For 1997 and 1996, investment security transactions, excluding short-term
debt securities, were as follows:
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 4
------------------------------
COST OF NET PROCEEDS
PURCHASES OF SALES
- -------------------------------------------------------------------------------
Stocks and long-term corporate debt securities:
1997.......................................... $1,569,991,103 $1,988,739,298
1996.......................................... 2,439,864,229 2,487,456,851
U.S. Government obligations:
1997.......................................... -- --
1996.......................................... -- --
- -------------------------------------------------------------------------------
3. Investment securities are valued as follows:
Stocks listed on national securities exchanges and certain
over-the-counter issues traded on the National Association of Securities
Dealers, Inc. Automated Quotation (NASDAQ) national market system are valued
at the last sale price, or, if no sale, at the latest available bid price.
Foreign securities not traded directly, or in American Depository Receipt
(ADR) form in the United States, are valued at the last sale price in the
local currency on an exchange in the country of origin. Foreign currency is
converted into its U.S. dollar equivalent at current exchange rates.
United States Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
are valued at representative quoted prices.
16
<PAGE>
SEPARATE ACCOUNT NO. 4 (POOLED)
OF THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Notes to Financial Statements (Continued)
Long-term publicly traded corporate bonds are valued at prices obtained
from a bond pricing service of a major dealer in bonds when such prices are
available; however, in circumstances where Equitable Life and Alliance deem
it appropriate to do so, an over-the-counter or exchange quotation may be
used.
Convertible preferred stocks listed on national securities exchanges are
valued at their last sale price or, if there is no sale, at the latest
available bid price.
Convertible bonds and unlisted convertible preferred stocks are valued at
bid prices obtained from one or more major dealers in such securities; where
there is a discrepancy between dealers, values may be adjusted based on
recent premium spreads to the underlying common stock.
Other assets that do not have a readily available market price are valued
at fair value as determined in good faith by Equitable Life's investment
officers.
Separate Account No. 2A is valued daily at amortized cost, which
approximates market value. Short-term debt securities purchased directly by
the Funds which mature in 60 days or less are valued at amortized cost.
Short-term debt securities which mature in more than 60 days are valued at
representative quoted prices.
4. Charges and fees are deducted in accordance with the terms of the
various contracts which participate in the Fund. With respect to the American
Dental Association Members Retirement Program, these expenses consist of
investment management and accounting fees, program expense charge, direct
expenses and record maintenance and report fee. These charges and fees are
paid to Equitable Life by the Fund and are recorded as expenses in the
accompanying Statements of Operations and Changes in Net Assets.
5. No Federal income tax based on net income or realized and unrealized
capital gains was applicable to contracts participating in the Fund for the
two years ended December 31, 1997, by reason of applicable provisions of the
Internal Revenue Code and no Federal income tax payable by Equitable Life for
such years will affect such contracts. Accordingly, no Federal income tax
provision is required.
17
