UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000 Commission File No. 0-25280
--------------------------------------------------------------------------------
The Equitable Life Assurance Society of the United States (Exact name
of registrant as specified in its charter)
New York 13-5570651
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, 10104
New York
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (212) 554-1234
including area code
---------------------------------------
None
--------------------------------------------------------------------------------
(Former name, former address, and former fiscal year
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at November 10, 2000
----------------------------------------- ------------------------------------
Common Stock, $1.25 par value 2,000,000
Page 1 of 40
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page #
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999...................................... 3
Consolidated Statements of Earnings for the Three Months and
Nine Months Ended September 30, 2000 and 1999.............. 4
Consolidated Statements of Shareholder's Equity for the
Nine Months Ended September 30, 2000 and 1999.............. 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999.......................... 6
Notes to Consolidated Financial Statements.................. 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 3: Quantitative and Qualitative Disclosures About Market Risk.... 35
PART II OTHER INFORMATION
Item 1: Legal Proceedings............................................. 36
Item 6: Exhibits and Reports on Form 8-K.............................. 39
SIGNATURES............................................................... 40
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements.
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
September 30, December 31,
2000 1999
------------- --------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................ 16,745.5 $ 18,599.7
Held to maturity, at amortized cost........................ 140.1 133.2
Mortgage loans on real estate............................... 3,078.2 3,270.0
Equity real estate.......................................... 997.4 1,160.2
Policy loans................................................ 2,473.9 2,257.3
Other equity investments.................................... 860.6 671.2
Investment in and loans to affiliates....................... 1,366.8 1,201.8
Other invested assets....................................... 2,632.2 911.6
-------------- --------------
Total investments........................................ 28,294.7 28,205.0
Cash and cash equivalents..................................... 213.3 628.0
Deferred policy acquisition costs............................. 4,325.3 4,033.0
Other assets.................................................. 6,062.0 3,868.3
Closed Block assets........................................... 8,720.7 8,607.3
Separate Accounts assets...................................... 55,778.6 54,453.9
-------------- --------------
Total Assets.................................................. $ 103,394.6 $ 99,795.5
============== ==============
LIABILITIES
Policyholders' account balances............................... 20,068.1 $ 21,351.4
Future policy benefits and other policyholders liabilities.... 4,924.1 4,777.6
Short-term and long-term debt................................. 1,897.6 1,407.9
Other liabilities............................................. 5,144.9 3,133.6
Closed Block liabilities...................................... 9,085.3 9,025.0
Separate Accounts liabilities................................. 55,690.2 54,332.5
-------------- --------------
Total liabilities........................................ 96,810.2 94,028.0
-------------- --------------
Commitments and contingencies (Note 12)
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................................ 3,974.8 3,557.2
Retained earnings............................................. 2,898.3 2,600.7
Accumulated other comprehensive loss.......................... (291.2) (392.9)
-------------- --------------
Total shareholder's equity............................... 6,584.4 5,767.5
-------------- --------------
Total Liabilities and Shareholder's Equity.................... $ 103,394.6 $ 99,795.5
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------- ------------- ------------
(In Millions)
<S> <C> <C> <C> <C>
REVENUES
Universal life and investment-type
product policy fee income............... $ 359.0 $ 314.3 $ 1,048.0 $ 918.8
Premiums.................................. 197.0 140.0 467.6 405.6
Net investment income..................... 538.6 538.5 1,731.4 1,680.7
Investment (losses) gains, net............ (38.7) (32.0) (222.9) 22.1
Commissions, fees and other income........ 644.4 527.6 1,937.6 1,523.9
Contribution from the Closed Block........ 28.0 23.7 73.8 65.6
------------ ------------- ------------- ------------
Total revenues....................... 1,728.3 1,512.1 5,035.5 4,616.7
------------ ------------- ------------- ------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account
balances................................ 267.6 267.2 780.3 807.0
Policyholders' benefits................... 284.6 262.0 830.0 756.7
Other operating costs and expenses........ 704.7 656.0 2,120.7 2,073.5
------------ ------------- ------------- ------------
Total benefits and other deductions.. 1,256.9 1,185.2 3,731.0 3,637.2
------------ ------------- ------------- ------------
Earnings from continuing operations before
Federal income taxes and minority interest 471.4 326.9 1,304.5 979.5
Federal income taxes...................... 298.9 96.6 509.1 255.3
Minority interest in net income of
consolidated subsidiaries............... 102.0 43.8 241.4 127.8
------------ ------------- ------------- ------------
Earnings from continuing operations....... 70.5 186.5 554.0 596.4
Loss from discontinued operations, net of
Federal income taxes.................... - (3.4) (6.4) (10.0)
------------ ------------- ------------- ------------
Net Earnings.............................. $ 70.5 $ 183.1 $ 547.6 $ 586.4
============ ============= ============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
2000 1999
-------------- --------------
(In Millions)
<S> <C> <C>
SHAREHOLDER'S EQUITY
Common stock, at par value, beginning of year and end of period $ 2.5 $ 2.5
-------------- --------------
Capital in excess of par value, beginning of year............. 3,557.2 3,110.2
Additional capital in excess of par value..................... 416.1 7.2
Capital contribution.......................................... 1.5 -
-------------- --------------
Capital in excess of par value, end of period................. 3,974.8 3,117.4
-------------- --------------
Retained earnings, beginning of year.......................... 2,600.7 1,944.1
Dividends paid to the shareholder............................. (250.0) (150.0)
Net earnings.................................................. 547.6 586.4
-------------- --------------
Retained earnings, end of period.............................. 2,898.3 2,380.5
-------------- --------------
Accumulated other comprehensive (loss) income, beginning of year (392.9) 355.8
Other comprehensive income (loss)............................. 101.7 (665.9)
-------------- --------------
Accumulated other comprehensive loss, end of period........... (291.2) (310.1)
-------------- --------------
Total Shareholder's Equity, End of Period..................... $ 6,584.4 $ 5,190.3
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
2000 1999
-------------- --------------
(In Millions)
<S> <C> <C>
Net earnings.................................................. $ 547.6 $ 586.4
Adjustments to reconcile net earnings to net cash (used)
provided by operating activities:
Interest credited to policyholders' account balances....... 780.3 807.0
Universal life and investment-type product policy fee
income .................................................. (1,048.0) (918.8)
Investment losses (gains), net............................. 222.9 (22.1)
Change in Federal income tax payable....................... 204.9 141.8
Change in property and equipment........................... (202.6) (162.9)
Change in deferred policy acquisition costs................ (322.6) (108.9)
Change in future policy benefits........................... (860.3) 32.5
Other, net................................................. (506.1) 8.0
-------------- --------------
Net cash (used) provided by operating activities.............. (1,183.9) 363.0
-------------- --------------
Cash flows from investing activities:
Maturities and repayments................................... 1,635.6 1,432.9
Sales....................................................... 6,128.6 6,475.0
Purchases................................................... (5,632.4) (9,553.8)
Increase in short-term investments.......................... (1,755.8) (58.6)
Other, net.................................................. (151.5) (167.9)
-------------- --------------
Net cash provided (used) by investing activities.............. 224.5 (1,872.4)
-------------- --------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits................................................... 1,963.0 1,997.4
Withdrawals and transfers to Separate Accounts............. (3,080.6) (1,460.6)
Net increase in short-term financings....................... 499.7 433.4
Dividends paid to the shareholder........................... (250.0) (150.0)
Proceeds from newly issued Alliance Units................... 1,600.0 -
Other, net.................................................. (187.4) (108.1)
-------------- --------------
Net cash provided by financing activities..................... 544.7 712.1
-------------- --------------
Change in cash and cash equivalents........................... (414.7) (797.3)
Cash and cash equivalents, beginning of year.................. 628.0 1,245.5
-------------- --------------
Cash and Cash Equivalents, End of Period...................... $ 213.3 $ 448.2
============== ==============
Supplemental cash flow information:
Interest Paid............................................... $ 61.0 $ 63.9
============== ==============
Income Taxes Paid........................................... $ 320.1 $ 27.4
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The preparation of the accompanying unaudited consolidated financial
statements in conformity with GAAP requires management to make estimates
and assumptions (including normal, recurring accruals) 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.
These statements should be read in conjunction with the consolidated
financial statements of the Company for the year ended December 31, 1999.
The results of operations for the nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
The terms "third quarter 2000" and "third quarter 1999" refer to the three
months ended September 30, 2000 and 1999, respectively. The terms "first
nine months of 2000" and "first nine months of 1999" refer to the nine
months ended September 30, 2000 and 1999, respectively.
Certain reclassifications have been made in the amounts presented for prior
periods to conform those periods with the current presentation.
2) ACCOUNTING POLICIES AND PRONOUNCEMENTS
Commissions, fees and other income principally include Investment
Management advisory and service fees. Investment Management advisory and
service fees are recorded as revenue as the related services are performed.
Certain investment advisory contracts provide for a performance fee, in
addition to or in lieu of a base fee, that is calculated as a percentage of
the related investment results over a specified period of time. Performance
fees are recorded as revenue at the end of the measurement period.
In December 1999, the staff of the SEC issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements", which is
effective fourth quarter 2000. SAB No. 101 deals with revenue recognition
issues; implementation of SAB 101 is not expected to have a material impact
on the Company's consolidated balance sheet or statement of earnings.
Effective January 1, 2001, the Company will adopt the requirements of SFAS
No. 133, as subsequently amended by SFAS Nos. 137 and 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an
amendment of FASB Statement No. 133", and supplemented by implementation
guidance issued by the Derivatives Implementation Group and cleared by the
FASB. Management has not yet completed and is continuing to refine its
assessment of the impact of adoption, including quantification of the
adjustments at transition. While preliminary estimates would indicate such
adjustments are not expected to have a material impact on the Company's
consolidated balance sheet or statement of earnings, the transition impact
at January 1, 2001 cannot as yet be reliably measured as it is dependent
upon a number of variables, including, but not limited to, actual
derivatives and related hedge positions, market values of derivatives and
hedged positions, and further interpretations of SFAS No. 133 by the FASB.
3) DEFERRED POLICY ACQUISITION COSTS
In second quarter 1999, management competed a study of the cash flows and
liability characteristics of its insurance product lines as compared to the
expected cash flows of the underlying assets. That analysis reflected an
assessment of the potential impact on future operating cash flows from
current economic conditions and trends, including rising interest rates and
securities market volatility and the impact of increasing competitiveness
within the insurance marketplace (evidenced, for example, by the
proliferation of bonus annuity products) on inforce business. The review
indicated that changes to the then-current invested asset allocation
strategy were required to reposition assets with greater price volatility
away from products with demand liquidity characteristics to support those
products with lower liquidity needs. To implement these findings, the
existing investment portfolio was reallocated, and prospective investment
allocation targets were revised.
7
<PAGE>
The reallocation of the assets impacted investment results by product,
thereby impacting the future gross margin estimates utilized in the
amortization of DAC for universal life and investment-type products. The
revisions to estimated future gross profits resulted in an after-tax
writedown of DAC of $85.6 million (net of a Federal income tax benefit of
$46.1 million) for the nine months ended September 30, 1999.
4) INVESTMENTS
Investment valuation allowances and changes thereto are shown below:
<TABLE>
Nine Months Ended
September 30,
----------------------------
2000 1999
------------ ------------
(In Millions)
<S> <C> <C>
Balances, beginning of year.................................. $ 148.6 $ 230.6
Additions charged to income.................................. 36.6 34.5
Deductions for writedowns and asset dispositions............. (76.6) (107.7)
------------ ------------
Balances, End of Period...................................... $ 108.6 $ 157.4
============ ============
Balances, end of period:
Mortgage loans on real estate.............................. $ 31.6 $ 32.3
Equity real estate......................................... 77.0 125.1
------------ ------------
Total........................................................ $ 108.6 $ 157.4
============ ============
</TABLE>
For the third quarter and first nine months of 2000 and of 1999, investment
income is shown net of investment expenses of $46.1 million, $156.8
million, $58.3 million and $171.6 million, respectively.
As of September 30, 2000 and December 31, 1999, fixed maturities classified
as available for sale had amortized costs of $17,344.6 million and
$19,373.6 million and fixed maturities in the held to maturity portfolio
had estimated fair values of $140.1 million and $133.2 million,
respectively. Other equity investments included equity securities with
carrying values of $24.7 million and $23.3 million and costs of $28.5
million and $32.7 million as of September 30, 2000 and December 31, 1999,
respectively.
On January 1, 1999, investments in publicly-traded common equity securities
in the General Account portfolio within other equity investments amounting
to $102.3 million were transferred from available for sale securities to
trading securities. As a result of this transfer, unrealized investment
gains of $83.3 million ($43.2 million net of related DAC and Federal income
taxes) were recognized as realized investment gains in the consolidated
statement of earnings. In third quarter and first nine months of 2000 and
1999, respectively, net unrealized holding (losses) gains of $(1.8)
million, $(12.3) million, $2.4 million, and $86.9 million were included in
net investment income in the consolidated statements of earnings. These
trading securities had a carrying value of $5.9 million and $14.1 million
and costs of $6.5 million and $7.2 million at September 30, 2000 and
December 31, 1999, respectively.
For the first nine months of 2000 and of 1999, proceeds received on sales
of fixed maturities classified as available for sale amounted to $5,893.3
million and $5,939.0 million, respectively. Gross gains of $71.1 million
and $49.3 million and gross losses of $151.6 million and $115.0 million
were realized on these sales for the first nine months of 2000 and of 1999,
respectively. Unrealized investment gains (losses) related to fixed
maturities classified as available for sale decreased by $174.9 million
during the first nine months of 2000, resulting in a balance of $(599.1)
million at September 30, 2000.
8
<PAGE>
Impaired mortgage loans along with the related provision for losses were as
follows:
<TABLE>
September 30, December 31,
2000 1999
------------- --------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses........... $ 81.7 $ 142.4
Impaired mortgage loans without provision for losses........ 50.9 2.2
------------- --------------
Recorded investment in impaired mortgage loans.............. 132.6 144.6
Provision for losses........................................ (20.2) (23.0)
------------- --------------
Net Impaired Mortgage Loans................................. $ 112.4 $ 121.6
============= ==============
</TABLE>
During the first nine months of 2000 and of 1999, respectively, the
Company's average recorded investment in impaired mortgage loans was $139.2
million and $139.1 million. Interest income recognized on these impaired
mortgage loans totaled $8.0 million and $9.6 million for the first nine
months of 2000 and of 1999, respectively.
5) PURCHASE AND SALE OF INTERESTS IN AFFILIATES
On November 3, 2000, the Holding Company and the Company sold their 34.6%
and 28.4% respective interests in DLJ to Credit Suisse Group. The Holding
Company and the Company received $1.28 billion and $1.05 billion in cash
and $2.67 billion (13.8 million shares) and $2.19 billion (11.4 million
shares) in Credit Suisse Group common stock, respectively. The fair value
of the stock consideration was based on the exchange rate and stock price
at the time the transaction closed. Credit Suisse Group repurchased $1.18
billion (6.3 million shares) of its common stock from the Holding Company
and Equitable Life at closing. The Company estimates the gain on the DLJ
sale at $1.10 billion (net of $868.2 million in taxes, including $186.3
million recorded in third quarter 2000).
In October 2000, Alliance completed its acquisition of substantially all of
the assets and liabilities of Sanford C. Bernstein ("Bernstein") for an
aggregate current value of approximately $3.5 billion ($1.48 billion in
cash and 40.8 million newly issued Alliance Units). The Holding Company
provided Alliance with the cash portion of the consideration by purchasing
approximately 32.6 million newly issued Alliance Units for $1.60 billion in
June 2000. AXA Financial's consolidated economic interest in Alliance was
approximately 52.7%, 13.2% held by the Holding Company and 39.5% by
Equitable Life, after the transaction closed. The Company recorded an
increase of $416.1 million in Capital in excess of par value as a result of
this transaction.
During second quarter 1999, DLJ completed its offering of a new class of
its common stock to track the financial performance of DLJdirect, its
online brokerage business. As a result of this offering, the Company
recorded a non-cash pre-tax realized gain of $95.8 million.
9
<PAGE>
6) SALE OF DISABILITY INCOME BUSINESS
During July 2000, Equitable Life transferred, at no gain or loss, all the
risk of its directly written DI business for years 1993 and prior to Centre
Life Insurance Company, a subsidiary of Zurich Financial Services. The
transfer of risk to Centre Life was accomplished through an indemnity
reinsurance contract. The cost of the arrangement will be amortized over
the expected lives of the contracts reinsured and will not have a
significant impact on the results of operations in any specific period.
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
September 30, December 31,
2000 1999
--------------- --------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS Fixed maturities:
Available for sale, at estimated fair value (amortized
cost of $4,361.9 and $4,144.8)........................ $ 4,284.4 $ 4,014.0
Mortgage loans on real estate............................. 1,606.2 1,704.2
Policy loans.............................................. 1,564.8 1,593.9
Cash and other invested assets............................ 227.3 194.4
Deferred policy acquisition costs......................... 817.2 895.5
Other assets.............................................. 220.8 205.3
--------------- --------------
Total Assets.............................................. $ 8,720.7 $ 8,607.3
=============== ==============
Future policy benefits and other policyholders' account
balances.............................................. $ 9,009.3 $ 9,011.7
Other liabilities......................................... 76.0 13.3
-------------- --------------
Total Liabilities......................................... $ 9,085.3 $ 9,025.0
============== ==============
</TABLE>
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
(In Millions)
<S> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
Premiums and other income......... $ 139.2 $ 147.9 $ 442.6 $ 460.3
Investment income (net of
investment expenses of $.9,
$3.1, $7.6 and $13.1)........... 147.3 142.3 436.9 429.5
Investment losses, net............ (4.0) (6.6) (5.0) (5.1)
------------ ------------ ------------- ------------
Total revenues.................. 282.5 283.6 874.5 884.7
------------ ------------ ------------- ------------
Policyholders' benefits and
dividends....................... 243.3 238.6 762.0 765.5
Other operating costs and expenses 11.2 21.3 38.7 53.6
------------ ------------ ------------- ------------
Total benefits and other
deductions...................... 254.5 259.9 800.7 819.1
------------ ------------ ------------- ------------
Contribution from the Closed Block $ 28.0 $ 23.7 $ 73.8 $ 65.6
============ ============ ============= ============
</TABLE>
Investment valuation allowances amounted to $6.8 million and $4.6 million
on mortgage loans and $15.5 million and $24.7 million on equity real estate
at September 30, 2000 and December 31, 1999, respectively.
10
<PAGE>
Impaired mortgage loans along with the related provision for losses were as
follows:
<TABLE>
September 30, December 31,
2000 1999
--------------- ---------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 15.5 $ 26.8
Impaired mortgage loans without provision for losses...... 15.3 4.5
-------------- ---------------
Recorded investment in impaired mortgages................. 30.8 31.3
Provision for losses...................................... (4.8) (4.1)
-------------- ---------------
Net Impaired Mortgage Loans............................... $ 26.0 $ 27.2
============== ===============
</TABLE>
During the first nine months of 2000 and of 1999, respectively, the Closed
Block's average recorded investment in impaired mortgage loans was $32.4
million and $45.0 million.
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
September 30, December 31,
2000 1999
-------------- ---------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Mortgage loans on real estate............................. $ 341.0 $ 454.6
Equity real estate........................................ 390.6 426.6
Fixed maturities available for sale, at estimated
fair value (amortized cost of $277.3 and $85.3)......... 283.0 85.5
Other equity investments.................................. 54.5 55.8
Other invested assets..................................... - 1.6
-------------- ---------------
Total investments....................................... 1,069.1 1,024.1
Cash and cash equivalents................................. 79.1 164.5
Other assets.............................................. 208.4 213.0
-------------- ---------------
Total Assets.............................................. $ 1,356.6 $ 1,401.6
============== ===============
Policyholders liabilities................................. $ 976.8 $ 993.3
Allowance for future losses............................... 265.3 242.2
Other liabilities......................................... 114.5 166.1
-------------- ---------------
Total Liabilities......................................... $ 1,356.6 $ 1,401.6
============== ===============
</TABLE>
11
<PAGE>
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
(In Millions)
<S> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
Investment income (net of
investment expenses of $8.7,
$12.8, $28.4 and $38.3)......... $ 33.4 $ 30.2 $ 85.7 $ 72.7
Investment (losses) gains, net.... (1.9) (6.2) .1 (16.7)
Policy fees, premiums and
other income.................... - .1 .2 .1
------------ ------------ ------------- ------------
Total revenues.................... 31.5 24.1 86.0 56.1
Benefits and other deductions..... 27.1 26.5 81.6 80.9
Earnings credited (losses charged)
to allowance for future
losses.......................... 4.4 (2.4) 4.4 (24.8)
------------ ------------ ------------- ------------
Pre-tax results from operations... - - - -
Pre-tax loss from strengthening
the allowance for
future losses................... - (4.6) (9.8) (14.7)
Federal income tax benefit........ - 1.2 3.4 4.7
------------ ------------ ------------- ------------
Loss from Discontinued
Operations...................... $ - $ (3.4) $ (6.4) $ (10.0)
============ ============ ============= ============
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of discontinued operations
against the allowance, re-estimates future losses, and adjusts the
allowance, if appropriate. The evaluations performed in the first nine
months of 2000 and 1999 resulted in management's decision to strengthen the
allowance by $9.8 million and $14.7 million for the first nine months ended
September 30, 2000 and 1999, respectively. This resulted in after-tax
losses of $6.4 million for the first nine months of 2000 and $10.0 million
for the first nine months of 1999.
Management believes the allowance for future losses at September 30, 2000
is adequate to provide for all future losses; however, the determination of
the allowance involves 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 discontinued operations differ from management's current
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 loss
allowance are likely to result.
Investment valuation allowances amounted to $.6 million and $1.9 million on
mortgage loans and $27.8 million and $54.8 million on equity real estate at
September 30, 2000 and December 31, 1999, respectively.
9) FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary, at
the end of each successive interim period to reflect the current estimate
of the annual effective tax rate. Federal income taxes for third quarter
2000 and for the first nine months of 2000 include a tax provision of
$183.8 million required as a result of management's decision to dispose of
DLJ.
10) RESTRUCTURING COSTS
At September 30, 2000, the restructuring liabilities included costs related
to employee termination and exit costs, the termination of operating leases
and the consolidation of insurance operations' service centers and amounted
to $6.7 million. The amounts paid during the first nine months of 2000
totaled $3.5 million.
12
<PAGE>
11) RELATED PARTIES TRANSACTIONS
Effective January 1, 2000, the Company reimburses the Holding Company for
expenses relating to the Excess Retirement Plan, Supplemental Executive
Retirement Plan and certain other employee benefit plans that provide
participants with medical, life insurance, and deferred compensation
benefits. Such reimbursement is made on the basis of the cost to the
Holding Company of the benefits provided which totaled $12.4 million for
the first nine months of 2000. The Company paid $514.9 million of
commissions and fees to AXA Distribution and its subsidiaries for the first
nine months of 2000 on sales of insurance products. For the first nine
months of 2000, the Company charged AXA Distribution's subsidiaries for
their applicable share of operating expenses pursuant to the Agreements for
Services. Such charges totaled $262.2 million for the first nine months of
2000.
12) LITIGATION
There have been no new material legal proceedings and no material
developments in matters which were previously reported in the Company's
Notes to Consolidated Financial Statements for the year ended December 31,
1999, except as described below:
Life Insurance and Annuity Sales Cases
Equitable Life is a defendant in a purported class action commenced in
March 2000 on behalf of persons who purchased variable annuities from
Equitable Life from January 1989 to the present. The complaint alleges
various improper sales practices, including misrepresentations in
connection with the use of variable annuities in a qualified retirement
plan or similar arrangement, charging inflated or hidden fees, and failure
to disclose unnecessary tax deferral fees. The plaintiff seeks damages,
including punitive damages, in an unspecified amount and attorneys' fees
and expenses. In May 2000, Equitable Life removed the case to the United
States District Court of Alabama and filed a motion to dismiss the
complaint, and plaintiff moved to remand the case to state court.
In June 2000, an action was brought against Equitable Life, AXA Advisors
and EDI (the defendants) alleging that the defendants engaged in fraudulent
and deceptive practices in connection with the marketing and sale of
deferred annuity products to fund tax-qualified contributory retirement
plans. The named plaintiff purports to act as a private attorney general on
behalf of the general public of the State of California and also asserts
individual common-law claims. On behalf of the named plaintiff, and in
certain instances also on behalf of the general public, the complaint
asserts claims for unlawful, unfair or fraudulent business acts and
practices and for false or misleading advertising and for fraud, fraudulent
concealment and deceit, negligent misrepresentation and negligence. The
complaint seeks injunctive relief, restitution for members of the general
public of the State of California who have been harmed by defendants'
conduct, compensatory and punitive damages on behalf of the named
plaintiff, and attorneys' fees, costs and expenses. By order dated October
11, 2000, the District Court denied plaintiff's motion to remand the case
to state court and granted defendants' motion to dismiss the action.
In October 2000, an action was brought against Equitable Life, AXA
Advisors, and EDI (the defendants) by two individuals who purchased
Equitable Life deferred annuity products. The action purports to be on
behalf of a class consisting of all persons who purchased an individual
deferred annuity contract or who received a certificate to a group deferred
annuity contract, sold by one of the defendants, which was used to fund a
contributory retirement plan or arrangement qualified for favorable income
tax treatment; excluded from the class are officers, directors and agents
of the defendants. The complaint alleges that the defendants engaged in
fraudulent and deceptive practices in connection with the marketing and
sale of deferred annuity products to fund tax-qualified contributory
retirement plans and seeks injunctive and declaratory relief, an
unspecified amount of compensatory and punitive damages, restitution for
all members of the class, and an award of attorneys' fees, costs and
expenses. In October 2000, the defendants removed the action to the United
States District Court for the Eastern District of New York. The defendants'
time to respond to the complaint has not yet expired.
Agent Health Benefits Case
In June 2000, plaintiffs appealed to the Court of Appeals for the Ninth
Circuit contesting the District Court's award of legal fees to plaintiffs'
counsel in connection with a previously settled count of the complaint
unrelated to the health benefit claims. In that appeal, plaintiffs have
challenged the District Court's subject matter jurisdiction over the health
benefit claims. Briefing has not yet been completed.
13
<PAGE>
Prime Property Fund Case
In May 2000, the court scheduled a jury trial for February 2001. In August
2000, Equitable Life filed a motion for summary adjudication on plaintiff's
claims, based on the purchase and subsequent foreclosure of the loan which
financed the partnership's property, for punitive damages. In October 2000,
following the issuance of a tentative ruling denying Equitable Life's
motion, the Superior Court heard oral argument and took the matter under
submission. Also in October 2000, plaintiff filed a motion for leave to
file a supplemental complaint to add allegations relating to the
post-foreclosure transfer of certain funds from the partnership to
Equitable Life. The proposed supplemental complaint alleges, among other
things, that such conduct constitutes self-dealing and a breach of
fiduciary duty, and seeks compensatory and punitive damages based on such
conduct.
Alliance Reorganization Case
In September 1999, an action was brought on behalf of a purported class of
owners of limited partnership units of Alliance Holding challenging the
then-proposed reorganization of Alliance Holding. Named defendants include
Alliance Holding, Alliance, four Alliance Holding executives and the
general partner of Alliance Holding and Alliance. Equitable Life is
obligated to indemnify the defendants for losses and expenses arising out
of the litigation. Plaintiffs allege inadequate and misleading disclosures,
breaches of fiduciary duties, and the improper adoption of an amended
partnership agreement by Alliance Holding and seek payment of unspecified
money damages and an accounting of all benefits alleged to have been
improperly obtained by the defendants. In September 2000, all defendants,
except one Alliance Holding executive, filed an answer to the amended
complaint denying the material allegations contained therein; in lieu of
joining in the answer to the amended complaint, the Alliance Holding
executive filed a motion to dismiss in September 2000. In November 2000,
the remaining defendants filed a motion to dismiss the amended complaint
and their opening brief in support thereto. 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 this litigation should not have a material adverse effect on
the consolidated 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 consolidated results of operations in any particular period.
Alliance Capital
In the Alliance North American Government Income Trust action, a
Stipulation and Agreement of Settlement has been signed with the lawyers
for the plaintiffs settling this action. Under the Stipulation and
Agreement of Settlement, the Operating Partnership will permit shareholders
of the fund to invest up to $250 million in Alliance mutual funds free of
initial sales charges. On August 3, 2000, the court signed an order
approving the Stipulation and Agreement of Settlement. Shareholders of the
fund had thirty days from the date the order became final to appeal the
order. The order became final on September 6, 2000.
Disposal of DLJ
Subsequent to the August 30, 2000 announcement of the proposed sale of DLJ,
three putative class action lawsuits have been filed in the Delaware Court
of Chancery naming AXA Financial as one of the defendants and challenging
the proposed sale of DLJ because the transaction does not include the sale
of DLJdirect tracking stock. The plaintiffs in these cases purport to
represent a class consisting of the holders of DLJdirect tracking stock and
their successors in interest, excluding the defendants and any person or
entity related to or affiliated with any of the defendants. AXA Financial,
DLJ and the DLJ directors are named as defendants. The complaints assert
claims for breaches of fiduciary duties, and seek an unspecified amount of
compensatory damages and costs and expenses, including attorneys' fees. The
plaintiffs in one case unsuccessfully sought a hearing in connection with
their motion for an order enjoining the transaction. The parties in these
cases have agreed to extend the time for defendants to respond to the
complaints.
14
<PAGE>
A putative class action lawsuit was filed in New York challenging the
proposed sale of DLJ (for omitting the DLJdirect tracking stock) and also
alleges claims relating to the initial offering of the DLJdirect tracking
stock. The complaint alleges claims for violations of the securities laws,
breaches of the fiduciary duties of loyalty, good faith and due care,
aiding and abetting such breaches, and breach of contract. The plaintiff
purports to represent a class consisting of: all purchasers of DLJdirect
tracking stock in the initial public offering and thereafter (with respect
to the securities law claims); and all owners of DLJdirect tracking stock
who allegedly have been or will be injured by the proposed sale of DLJ
(with respect to all other claims). AXA Financial, Equitable Life, AXA
S.A., DLJ, Donaldson, Lufkin & Jenrette Securities Corporation, Credit
Suisse Group, Diamond Acquisition Corp., and DLJ's directors are named as
defendants. The complaint seeks declaratory and injunctive relief, an
unspecified amount of damages, and costs and expenses, including attorney's
fees. The defendants' time to respond has not yet expired.
AXA's Purchase of Holding Company Minority Interest
Following the August 30, 2000 announcement of AXA's proposal to purchase
the outstanding shares of Holding Company Common Stock that it does not
already own, fourteen putative class action lawsuits were commenced in the
Delaware Court of Chancery. The Holding Company, AXA, and directors and/or
officers of the Holding Company are named as defendants in each of these
lawsuits. The various plaintiffs each purport to represent a class
consisting of owners of Holding Company Common Stock and their successors
in interest, excluding the defendants and any person or entity related to
or affiliated with any of the defendants. They challenge the adequacy of
the offer announced by AXA and allege that the defendants have engaged or
will engage in unfair dealing, overreaching and/or have breached or will
breach fiduciary duties owed to the minority shareholders of the Holding
Company. The complaints seek declaratory and injunctive relief, an
accounting, and unspecified compensatory damages, costs and expenses,
including attorneys' fees. A similar lawsuit was filed in the Supreme Court
of the State of New York, County of New York, after the filing of the first
Delaware action. By agreement, the defendants' time to respond to the
complaints in the Delaware and New York actions has been extended
indefinitely.
Although the outcome of litigation cannot be predicted with certainty, the
Company's management believes that the ultimate resolution of the matters
described above should not have a material adverse effect on the
consolidated financial position of the Company. The Company's management
cannot make an estimate of loss, if any, or predict whether or not such
litigations will have a material adverse effect on the Company's
consolidated results of operations in any particular period.
15
<PAGE>
13) BUSINESS SEGMENT INFORMATION
<TABLE>
Investment
Insurance Services Elimination Total
------------- -------------- ------------ --------------
(In Millions)
<S> <C> <C> <C> <C>
Three Months Ended
September 30, 2000
-------------------------------
Segment revenues............... $ 1,163.1 $ 631.5 $ (28.1) $ 1,766.5
Investment (losses) gains...... (75.0) 36.8 - (38.2)
------------- -------------- ------------ --------------
Total Revenues................. $ 1,088.1 $ 668.3 $ (28.1) $ 1,728.3
============= ============== ============ ==============
Adjusted pre-tax earnings...... $ 300.3 $ 100.0 $ - $ 400.3
Investment (losses) gains, net
of related DAC and
other charges............... (66.8) 33.8 - (33.0)
Pre-tax minority interest...... - 104.1 - 104.1
------------- -------------- ------------ --------------
Pre-tax Earnings from
Continuing Operations....... $ 233.5 $ 237.9 $ - $ 471.4
============= ============== ============ ==============
Three Months Ended
September 30, 1999
-------------------------------
Segment revenues............... $ 1,064.9 $ 481.7 $ (1.5) $ 1,545.1
Investment (losses) gains...... (33.7) .7 - (33.0)
------------- -------------- ------------ --------------
Total Revenues................. $ 1,031.2 $ 482.4 $ (1.5) $ 1,512.1
============= ============== ============ ==============
Adjusted pre-tax earnings...... $ 211.7 $ 95.2 $ - $ 306.9
Investment (losses) gains, net
of related DAC and
other charges............... (29.6) .6 - (29.0)
Pre-tax minority interest...... - 49.0 - 49.0
------------- -------------- ------------ --------------
Pre-tax Earnings from
Continuing Operations........ $ 182.1 $ 144.8 $ - $ 326.9
============= ============== ============ ==============
</TABLE>
16
<PAGE>
<TABLE>
Investment
Insurance Services Elimination Total
------------- -------------- ------------- --------------
(In Millions)
<S> <C> <C> <C> <C>
Nine Months Ended
September 30, 2000
-------------------------------
Segment revenues............... $ 3,473.4 $ 1,872.0 $ (87.0) $ 5,258.4
Investment (losses) gains...... (265.6) 42.7 - (222.9)
------------- -------------- ------------ --------------
Total Revenues................. $ 3,207.8 $ 1,914.7 $ (87.0) $ 5,035.5
============= ============== ============ ==============
Adjusted pre-tax earnings...... $ 871.8 $ 392.7 $ - $ 1,264.5
Investment (losses) gains, net
of related DAC and
other charges................ (245.8) 39.7 - (206.1)
Pre-tax minority interest...... - 246.1 - 246.1
------------- -------------- ------------ --------------
Pre-tax Earnings from
Continuing Operations........ $ 626.0 $ 678.5 $ - $ 1,304.5
============= ============== ============ ==============
Nine Months Ended
September 30, 1999
-------------------------------
Segment revenues............... $ 3,183.1 $ 1,406.9 $ (4.4) $ 4,585.6
Investment (losses) gains...... (78.4) 109.5 - 31.1
------------- -------------- ------------ --------------
Total Revenues................. $ 3,104.7 $ 1,516.4 $ (4.4) $ 4,616.7
============= ============== ============ ==============
Adjusted pre-tax earnings...... $ 659.2 $ 286.6 $ - $ 945.8
Investment (losses) gains, net
of related DAC and
other charges................ (86.5) 109.0 - 22.5
Non-recurring DAC
adjustments.................. (131.7) - - (131.7)
Pre-tax minority interest...... - 142.9 - 142.9
------------- -------------- ------------ --------------
Pre-tax Earnings from
Continuing Operations........ $ 441.0 $ 538.5 $ - $ 979.5
============= ============== ============ ==============
Total Assets:
September 30, 2000............. $ 89,660.1 $ 13,778.1 $ (43.6) $ 103,394.6
============= ============== ============ ==============
December 31, 1999.............. $ 86,842.7 $ 12,961.7 $ (8.9) $ 99,795.5
============= ============== ============ ==============
</TABLE>
14) COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the third quarters of
2000 and 1999 and the first nine months of 2000 and 1999 are as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
(In Millions)
<S> <C> <C> <C> <C>
Net earnings...................... $ 70.5 $ 183.1 $ 547.6 $ 586.4
------------ ------------ ------------- ------------
Change in unrealized gains
(losses), net of
reclassification
adjustment...................... 146.5 (148.8) 101.7 (665.9)
------------ ------------ ------------- ------------
Other comprehensive income
(loss).......................... 146.5 (148.8) 101.7 (665.9)
------------ ------------ ------------- ------------
Comprehensive Income (Loss)....... $ 217.0 $ 34.3 $ 649.3 $ (79.5)
============ ============ ============= ============
</TABLE>
17
<PAGE>
15) SUBSEQUENT EVENTS
In October 2000, the Board of Directors of the Holding Company, acting upon
a unanimous recommendation of a special committee of independent directors,
approved an agreement with AXA for the acquisition of the approximately 40%
of outstanding Holding Company Common Stock it does not already own. Under
the terms of the agreement, the minority shareholders of the Holding
Company would receive $35.75 in cash and 0.295 of an AXA American
Depositary Share ("ADS") for each Holding Company share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated operating results and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements and the footnotes included in Item 1, and with the MD&A in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999
("1999 Form 10-K").
COMBINED OPERATING RESULTS
The combined and segment level discussions for the Insurance and Investment
Services segments in this MD&A are presented on an adjusted pre-tax earnings
basis, which is a non-GAAP measure. Amounts reported in the GAAP financial
statements have been adjusted to exclude the effect of unusual or non-recurring
events and transactions and to exclude realized investment gains/losses, net of
related DAC and other changes. A reconciliation of adjusted pre-tax earnings to
GAAP reported earnings from continuing operations precedes each discussion. A
discussion of significant adjustments begins on the next page. The excluded
items are important to an understanding of our overall results of operations.
The following table presents the combined adjusted operating results outside of
the Closed Block combined on a line-by-line basis with the contribution of
Closed Block. The Insurance analysis, which begins on page 21, likewise reflects
the Closed Block amounts on a line-by-line basis. The MD&A addresses the
combined adjusted operating results unless noted otherwise. The Investment
Services discussion begins on page 24.
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- -------------- ----------------- -------------------
(In Millions)
<S> <C> <C> <C> <C>
Operating Results:
Policy fee income and premiums............ $ 694.6 $ 601.7 $ 1,957.6 $ 1,780.2
Net investment income..................... 685.9 681.9 2,168.3 2,104.8
Commissions, fees and other income........ 640.5 521.4 1,933.2 1,519.7
---------------- -------------- ----------------- -------------------
Total revenues.......................... 2,021.0 1,805.0 6,059.1 5,404.7
Total benefits and other deductions..... 1,516.6 1,449.1 4,548.5 4,316.0
---------------- -------------- ----------------- -------------------
Adjusted pre-tax earnings before
minority interest....................... 504.4 355.9 1,510.6 1,088.7
Minority interest......................... (104.1) (49.0) (246.1) (142.9)
---------------- -------------- ----------------- -------------------
Adjusted Pre-tax earnings................ 400.3 306.9 1,264.5 945.8
Pre-tax Adjustments:
Investment (losses) gains, net of related
DAC
and other charges....................... (33.0) (29.0) (206.1) 22.5
Non-recurring DAC adjustments............. - - - (131.7)
Minority interest......................... 104.1 49.0 246.1 142.9
---------------- -------------- ----------------- -------------------
GAAP Reported:
Earnings from continuing operations
before Federal income taxes and
minority interest....................... 471.4 326.9 1,304.5 979.5
Federal income taxes...................... 298.9 96.6 509.1 255.3
Minority interest in net income of
consolidated subsidiaries............... 102.0 43.8 241.4 127.8
---------------- -------------- ----------------- -------------------
Earnings from Continuing Operations......... $ 70.5 $ 186.5 $ 554.0 $ 596.4
================ ============== ================= ===================
</TABLE>
19
<PAGE>
Adjustments to GAAP pre-tax reported earnings in the first nine months of 2000
resulted in the exclusion of investment losses of $206.1 million (net of DAC and
other charges totaling $15.8 million) as compared to net investment gains of
$22.5 million (net of DAC and other charges and credits totaling $3.4 million)
for the 1999 period. The losses in 2000 included $136.3 million of writedowns
and $96.4 million of realized losses on fixed maturities sold from the General
Account's portfolio. The 1999 net gains were primarily due to the $95.8 million
gain related to the sale of an approximately 18% interest in DLJdirect's
financial performance through the sale of a new class of DLJ common stock in
second quarter 1999. In addition, $83.5 million of gains were recognized upon
reclassification of publicly traded common equities to a trading portfolio and
$13.8 million of gains resulted from the exercise of subsidiaries' options and
conversion of DLJ RSUs. Losses of $138.2 million on writedowns and $58.6 million
on sales of General Account fixed maturities partially offset these 1999 gains.
In addition, in second quarter 1999, there was a $131.7 million non-recurring
DAC adjustment resulting from the revisions to estimated future gross profits
related to the investment asset reallocation in third quarter 2000.
Continuing Operations
Compared to the first nine months of 1999, the $318.7 million higher adjusted
pre-tax earnings for the 2000 period were due to higher adjusted earnings in
both business segments. Federal income taxes for third quarter 2000 and for the
first nine months of 2000 include a tax provision of $183.8 million required as
a result of management's decision to dispose of DLJ. Minority interest in net
income of consolidated subsidiaries was higher due to increased earnings at
Alliance.
The $654.4 million increase in revenues for the first nine months of 2000 as
compared to the comparable 1999 period was attributed to a $413.5 million
increase in commissions, fees and other income principally due to increased
business activity within the Investment Services segment, a $177.4 million
increase in policy fee income and premiums in Insurance and a $63.5 million
increase in investment income.
For the first nine months of 2000, total benefits and other deductions increased
by $232.5 million from the comparable 1999 period reflecting increases in other
operating costs and expenses of $189.4 million and higher policyholder benefits.
The increase in other operating costs and expenses principally resulted from
higher costs associated with increased revenues in the two business segments and
with expenditures related to their strategic initiatives.
20
<PAGE>
COMBINED OPERATING RESULTS BY SEGMENT
Insurance
The following table combines the Closed Block amounts with the operating results
of operations outside of the Closed Block on a line-by-line basis.
Insurance - Combined Operating Results
(In Millions)
<TABLE>
Nine Months Ended September 30,
--------------------------------------------------------------
2000
----------------------------------------------
Insurance Closed 1999
Operations Block Combined Combined
---------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Operating Results:
Policy fee income and premiums........ $ 1,515.5 $ 442.0 $ 1,957.5 $ 1,780.2
Net investment income................. 1,669.6 436.9 2,106.5 2,061.5
Commissions, fees and other income.... 214.5 (4.4) 210.1 160.5
Contribution from the Closed Block.... 73.8 (73.8) - -
---------------- ------------- -------------- -------------
Total revenues...................... 3,473.4 800.7 4,274.1 4,002.2
Total benefits and other
deductions.......................... 2,601.6 800.7 3,402.3 3,343.0
---------------- ------------- -------------- -------------
Adjusted pre-tax earnings............... 871.8 - 871.8 659.2
Pre-tax Adjustments:
Investment losses, net of DAC
and other charges................... (245.8) - (245.8) (86.5)
Non-recurring DAC adjustments........ - - - (131.7)
---------------- ------------- -------------- -------------
GAAP Reported:
Earnings from Continuing Operations
before Federal Income Taxes and
Minority Interest................... $ 626.0 $ - $ 626.0 $ 441.0
================ ============= ============== =============
</TABLE>
For the first nine months of 2000, Insurance adjusted pre-tax earnings reflected
an increase of $212.6 million from the year earlier period. Higher policy fees
on variable and interest-sensitive life and individual annuity contracts, and
higher margins between investment income and interest credited on policyholders'
account balances contributed to the improved earnings. Segment revenues
increased $271.9 million over the prior year period due to a $177.3 million
increase in policy fee income and premiums, a $49.6 million increase in
commissions, fees and other income and a $45.0 million increase in investment
income. Policy fee income rose $132.7 million to $1.05 billion due to higher
insurance and annuity account balances while premiums increased $44.6 million to
$909.6 million. The increase in commissions, fees and other income was
principally due to higher gross investment management fees received from EQ
Advisors Trust offset by a decrease in mutual fund fees resulting from the
transfer of AXA Advisors to AXA Distribution in third quarter 1999. The increase
in management fees was partially offset by an increase in subadvisory fees
included in total benefits and other deductions. Higher yields on General
Account Investment Assets principally related to other equity investments and
fixed maturities contributed to the increase in investment income.
Total benefits and other deductions for the first nine months of 2000 increased
$59.3 million from the comparable 1999 period reflecting higher commissions,
compensation and benefits, higher policyholders' benefits and higher subadvisory
fees. Commissions increased due to higher product sales and higher commission
rates paid to AXA Distribution subsidiaries. Higher policyholders' benefits for
the first nine months of 2000 were primarily due to the reserve increase
resulting from the issuance of a single non-participating conversion annuity
contract in third quarter 2000. Offsetting these increases were higher DAC
capitalization and lower other operating expenses. The decline in the Insurance
segment's other operating expenses resulted from charging AXA Distribution and
its subsidiaries, AXA Advisors and AXA Network, their applicable share of such
expenses. Partially offsetting this decline were higher strategic initiative
related expenditures in the first nine months 2000 as compared to the 1999
period.
21
<PAGE>
During July 2000, Equitable Life transferred, at no gain or loss, all the risk
of its directly written DI business for years 1993 and prior to Centre Life
Insurance Company, a subsidiary of Zurich Financial Services. The transfer of
risk to Centre Life Insurance was accomplished through an indemnity reinsurance
contract. The cost of the arrangement will be amortized over the expected lives
of the contracts reinsured and will not have a significant impact on the results
of operations in any specific period.
Premiums and Deposits - The following table lists sales for major insurance
product lines. Premiums and deposits are presented net of internal conversions
(1999 data have been restated to conform to this presentation) and are presented
gross of reinsurance ceded.
Premiums and Deposits
(In Millions)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- -----------------------------------
2000 1999 2000 1999
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Retail:
Annuities
First year........................... $ 684.2 $ 784.1 $ 2,328.9 $ 2,400.7
Renewal.............................. 319.5 313.7 1,135.6 1,083.3
Group Pensions....................... 166.1 93.9 324.7 281.8
-------------- --------------- ----------------- ---------------
1,169.8 1,191.7 3,789.2 3,765.8
Life(1)
First year........................... 86.6 90.7 297.1 301.5
Renewal.............................. 534.6 542.6 1,683.7 1,671.4
-------------- --------------- ----------------- ---------------
621.2 633.3 1,980.8 1,972.9
Other(2)
First year........................... 2.1 2.9 6.7 8.1
Renewal.............................. 64.9 97.0 246.8 280.6
-------------- --------------- ----------------- ---------------
67.0 99.9 253.5 288.7
-------------- --------------- ----------------- ---------------
Total retail....................... 1,858.0 1,924.9 6,023.5 6,027.4
-------------- --------------- ----------------- ---------------
Wholesale:
Annuities
First year........................... 615.8 592.2 1,919.2 1,503.0
Renewal.............................. 14.6 14.2 48.7 32.0
-------------- --------------- ----------------- ---------------
630.4 606.4 1,967.9 1,535.0
Life
First year........................... 11.6 .1 16.8 .2
-------------- --------------- ----------------- ---------------
Total wholesale.................... 642.0 606.5 1,984.7 1,535.2
-------------- --------------- ----------------- ---------------
Total Premiums and Deposits $ 2,500.0 $ 2,531.4 $ 8,008.2 $ 7,562.6
============== =============== ================= ===============
<FN>
(1) Includes variable and interest-sensitive and traditional life products.
(2) Includes health insurance and reinsurance assumed.
</FN>
</TABLE>
First year premiums and deposits for life and annuity products for the first
nine months of 2000 increased from prior year levels by $355.2 million primarily
due to higher sales of individual annuities by the wholesale distribution
channel and higher variable and interest-sensitive life sales (excluding COLI
sales which declined). Renewal premiums and deposits increased by $47.5 million
during the first nine months of 2000 over the prior year period as increases in
the larger block of annuity and variable life business were partially offset by
decreases in other products and traditional life policies. The increase in Group
Pensions for the three and nine months ended September 30, 2000 is principally
due to the issuance of a single non-participating conversion annuity contract in
third quarter 2000.
22
<PAGE>
Surrenders and Withdrawals - The following table presents surrenders and
withdrawals, including universal life and investment-type contract withdrawals,
for major individual insurance and annuity product lines. Annuity surrenders and
withdrawals are presented net of internal replacements; the 1999 data have been
restated to conform to the presentation.
Surrenders and Withdrawals
(In Millions)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Annuities.............................. $ 1,069.8 $ 824.6 $ 3,481.9 $ 2,551.7
Variable and interest-sensitive life... 176.0 142.7 533.8 458.8
Traditional life....................... 76.5 83.2 252.4 265.5
---------------- ---------------- --------------- ---------------
Total.................................. $ 1,322.3 $ 1,050.5 $ 4,268.1 $ 3,276.0
================ ================ =============== ===============
</TABLE>
Policy and contract surrenders and withdrawals increased $992.1 million during
the first nine months of 2000 compared to the same period in 1999 principally
due to the growing size and maturity of the book of annuities and variable and
interest-sensitive life business. There was an increase in the annuities'
surrender rate from 8.7% in the first nine months of 1999 to 9.7% in the 2000
period while the surrender rate declined to 9.0% for third quarter 2000 from
9.7% for second quarter 2000 and 10.5% in first quarter 2000. Trends in
surrenders and withdrawals discussed above continue to fall within the range of
expected experience underlying the current invested asset allocation strategy.
23
<PAGE>
Investment Services
The following table summarizes the operating results of the Investment Services
segment.
Investment Services - Operating Results
(In Millions)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------------
2000 1999 2000 1999
-------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Operating Results:
Investment advisory and
service fees.................. $ 394.2 $ 307.0 $ 1,146.0 $ 903.7
Distribution revenues............ 167.0 115.5 469.7 314.3
Equity in DLJ's earnings......... 14.8 36.7 139.1 124.6
Other revenues................... 55.5 22.5 117.2 64.3
-------------- ---------------- ---------------- ------------------
Total revenues................. 631.5 481.7 1,872.0 1,406.9
-------------- ---------------- ---------------- ------------------
Promotion and servicing.......... 212.1 156.8 620.0 447.1
Employee compensation and
benefits....................... 138.8 113.5 398.9 334.5
All other operating expenses..... 76.5 67.2 214.3 195.8
-------------- ---------------- ---------------- ------------------
Total expenses................. 427.4 337.5 1,233.2 977.4
-------------- ---------------- ---------------- ------------------
Adjusted pre-tax earnings
before minority interest...... 204.1 144.2 638.8 429.5
Minority interest................ (104.1) (49.0) (246.1) (142.9)
-------------- ---------------- ---------------- ------------------
Adjusted pre-tax earnings....... 100.0 95.2 392.7 286.6
Pre-tax Adjustments:
Investment gains (losses), net... 33.8 .6 39.7 109.0
Minority interest.................. 104.1 49.0 246.1 142.9
-------------- ---------------- ---------------- ------------------
GAAP Reported:
Earnings from
Continuing Operations before
Federal Income Taxes
and Minority Interest......... $ 237.9 $ 144.8 $ 678.5 $ 538.5
============== ================ ================ ==================
</TABLE>
For the first nine months of 2000, adjusted pre-tax earnings for Investment
Services increased by $465.1 million from the year-earlier period primarily due
to higher earnings for Alliance and higher equity in DLJ's earnings. Excluding
DLJ's earnings contribution, total segment revenues were up $450.6 million
principally due to higher revenues at Alliance. Investment advisory and service
fees increased $242.3 million while distribution revenues grew by $155.4
million. The increase in investment advisory and service fees primarily resulted
from increases in average assets under management partially offset by a decline
in performance fees of $36.8 million to $23.0 million for the first nine months
of 2000. These lower performance fees were principally due to a refinement of
procedures for estimating these fees implemented in fourth quarter 1999.
Currently, a substantial number of accounts that may earn performance fees have
a calendar year measurement period; therefore, the majority of these fees are
recognized in the fourth quarter. The growth in distribution revenues was
principally due to higher average equity mutual fund assets under management
attributed to sales and to market appreciation.
The resolution of a class action lawsuit at Alliance resulted in the recognition
of a one-time, non-cash gain of $23.9 million in first quarter 2000, which
reduced all other operating expenses for the 2000 period. When this one-time
gain is excluded, Investment Services' total expenses increased by $279.7
million for the first nine months of 2000 primarily due to increases in mutual
fund promotional expenses and employee compensation and benefits at Alliance.
Promotion and servicing increased 38.7% principally due to increased
distribution plan payments resulting from higher average domestic, offshore and
cash management assets under management and higher amortization of deferred
sales commissions, as well as higher travel, entertainment and promotional
expenses incurred in connection with mutual fund sales initiatives. Higher
compensation and benefits were due to increased incentive and base compensation
and commissions reflecting increased headcounts in the mutual fund area along
with salary increases. Commissions increased primarily due to higher mutual fund
and institutional sales.
24
<PAGE>
On October 2, 2000, Alliance completed its acquisition of substantially all of
the assets and liabilities of Bernstein for an aggregate current value of
approximately $3.5 billion ($1.48 billion in cash and 40.8 million newly issued
Alliance Units). The Holding Company provided Alliance with the cash portion of
the consideration by purchasing approximately 32.6 million newly issued Alliance
Units for $1.60 billion on June 21, 2000. AXA Financial's consolidated economic
interest in Alliance was approximately 52.7%, 13.2% held by the Holding Company
and 39.5% by Equitable Life, after the transaction closed. Additionally, the
Holding Company has agreed to provide liquidity to former Bernstein shareholders
after a two-year lock-out period to allow the 40.8 million private Units to be
sold to the Holding Company over the following eight years, but generally not
more than 20% of such Units in any one annual period.
On November 3, 2000, the Holding Company and the Company sold their 34.6% and
28.4% respective interests in DLJ to the Credit Suisse Group. The Holding
Company and the Company received $1.28 billion and $1.05 billion in cash and
$2.67 billion (13.8 million shares) and $2.19 billion (11.4 million shares) in
Credit Suisse Group common stock, respectively. The fair value of the stock
consideration was based on the exchange rate and stock price at the time the
transaction closed. Credit Suisse Group repurchased $1.18 billion (6.3 million
shares) of its common stock from the Holding Company and Equitable Life at
closing. The Company estimates the gain on the DLJ sale at $1.10 billion (net of
$868.2 million in taxes, including the $186.3 million recorded in third quarter
2000).
25
<PAGE>
Fees and Assets Under Management.
As the following table illustrates, third party clients represent the primary
source of fees from assets under management.
Fees and Assets Under Management
(In Millions)
<TABLE>
At or For the
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- -----------------------------------
2000 1999 2000 1999
-------------------------------------- --------------- -------------------
<S> <C> <C> <C> <C>
FEES:
Third parties........................... $ 356.1 $ 268.7 $ 1,025.9 $ 791.5
Equitable Life Separate Accounts........ 28.0 27.4 87.3 79.2
Equitable Life General Account
and other............................ 10.1 10.9 32.8 33.0
------------------- ---------------- --------------- -------------------
Total Fees.............................. $ 394.2 $ 307.0 $ 1,146.0 $ 903.7
=================== ================ =============== ===================
</TABLE>
<TABLE>
ASSETS UNDER MANAGEMENT:
Assets by Manager
Alliance:
<S> <C> <C>
Third party................................................................ $ 324,070 $ 256,423
Equitable Life Separate Accounts - EQ Advisors Trust....................... 37,015 30,852
Equitable Life Separate Accounts - other................................... 4,527 4,700
Equitable Life General Account and Holding Company Group................... 22,782 25,299
--------------- -------------------
Total Alliance............................................................... 388,394 317,274
--------------- -------------------
Equitable Life:
Equitable Life (non-Alliance) General Account.............................. 14,720 13,047
Equitable Life (non-Alliance) Separate Accounts - EQ Advisors Trust........ 8,333 4,838
Equitable Life real estate related Separate Accounts....................... 2,178 3,825
Equitable Life Separate Accounts - other................................... 3,726 2,020
--------------- -------------------
Total Equitable Life ........................................................ 28,957 23,730
--------------- -------------------
Total by Account:
Third party................................................................ 324,070 256,423
General Account and other.................................................. 37,502 38,346
Separate Accounts.......................................................... 55,779 46,235
--------------- -------------------
Total Assets Under Management................................................ $ 417,351 $ 341,004
=============== ===================
</TABLE>
Fees from assets under management increased 26.8% for the first nine months of
2000 from the comparable 1999 period as a result of growth in assets under
management for third parties principally at Alliance. The Alliance assets under
management growth in the first nine months of 2000 was primarily due to market
appreciation, good investment performance and net sales of mutual funds and
other products.
26
<PAGE>
GENERAL ACCOUNT INVESTMENT PORTFOLIO
Management discusses the Closed Block assets and assets outside of the Closed
Block on a combined basis as General Account Investment Assets. The following
table reconciles the consolidated balance sheet asset amounts to General Account
Investment Assets.
General Account Investment Asset Carrying Values
September 30, 2000
(In Millions)
<TABLE>
General
Account
Balance Closed Investment
Balance Sheet Captions: Sheet Block Other(1) Assets(2)
------------------------------------ --------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Fixed maturities:
Available for sale(3)............ $ 16,745.5 $ 4,284.4 $ (69.7) $ 21,099.6
Held to maturity................. 140.1 - - 140.1
Mortgage loans on real estate...... 3,078.2 1,606.2 - 4,684.4
Equity real estate................. 997.4 47.1 (2.6) 1,047.1
Policy loans....................... 2,473.9 1,564.9 .6 4,038.2
Other equity investments........... 860.6 36.0 - 896.6
Other invested assets.............. 3,909.0 1.5 3,282.2 628.3
-------------------- --------------- ---------------- -----------------
Total investments................ 28,204.7 7,540.1 3,210.5 32,534.3
Cash and cash equivalents.......... 213.3 141.4 291.9 62.8
Corporate debt and other(4)........ - - 1,125.3 (1,125.3)
-------------------- --------------- ---------------- -----------------
Total.............................. $ 28,418.0 $ 7,681.5 $ 4,627.7 $ 31,471.8
==================== =============== ================ =================
</TABLE>
(1) Assets listed in the "Other" category principally consist of assets held in
portfolios other than the General Account (primarily in Alliance and the
investment in DLJ) which are not managed as part of General Account
Investment Assets and certain reclassifications and intercompany
adjustments. The "Other" category is deducted in arriving at General
Account Investment Assets.
(2) General Account Investment Assets are computed by adding the Balance Sheet
and Closed Block and deducting the Other amounts.
(3) At September 30, 2000, the amortized cost of the General Account's
available for sale and held to maturity fixed maturities portfolios were
$21.77 billion and $140.1 million, respectively, compared with estimated
market values of $21.10 billion and $140.1 million, respectively.
(4) Includes Equitable Life debt and other miscellaneous assets and liabilities
related to General Account Investment assets and various balance sheet
lines.
27
<PAGE>
Asset Valuation Allowances and Writedowns
Writedowns on fixed maturities were $136.3 million and $138.2 million for the
first nine months of 2000 and 1999, respectively. The following table shows
asset valuation allowances and additions to and deductions from such allowances
for mortgages and equity real estate for the periods indicated.
General Account Investment Assets
Valuation Allowances
(In Millions)
<TABLE>
Equity Real
Mortgages Estate Total
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
Balances at January 1, 2000................ $ 32.1 $ 145.8 $ 177.9
Additions.................................. 9.5 36.4 45.9
Deductions(1).............................. (3.2) (89.7) (92.9)
------------------- -------------------- ----------------------
Ending Balances at September 30, 2000...... $ 38.4 $ 92.5 $ 130.9
=================== ==================== ======================
Balances at January 1, 1999................ $ 45.4 $ 211.8 $ 257.2
Additions.................................. 6.8 31.7 38.5
Deductions(1).............................. (11.2) (104.5) (115.7)
------------------- -------------------- ----------------------
Ending Balances at September 30, 1999...... $ 41.0 $ 139.0 $ 180.0
=================== ==================== ======================
<FN>
(1) Primarily reflected releases of allowances due to asset dispositions and writedowns.
</FN>
</TABLE>
General Account Investment Assets
The following table shows amortized cost, valuation allowances and net amortized
cost of major categories of General Account Investment Assets at September 30,
2000 and net amortized cost at December 31, 1999.
General Account Investment Assets
(In Millions)
<TABLE>
September 30, 2000 December 31, 1999
----------------------------------------------- ------------------------
Net Net
Amortized Valuation Amortized Amortized
Cost Allowances Cost Cost
----------------- --------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Fixed maturities(1).................. $ 21,909.3 $ - $ 21,909.3 $ 23,719.1
Mortgages............................ 4,722.8 38.4 4,684.4 4,974.2
Equity real estate................... 1,139.6 92.5 1,047.1 1,251.2
Other equity investments............. 896.6 - 896.6 826.2
Policy loans......................... 4,038.2 - 4,038.2 3,851.2
Cash and short-term investments...... 691.1 - 691.1 1,220.6
---------------- --------------- ------------- ------------------------
Total................................ $ 33,397.6 $ 130.9 $ 33,266.7 $ 35,842.5
================ =============== ============= ========================
<FN>
(1) Excludes unrealized losses of $669.6 million and unrealized gains of
$896.4 million in fixed maturities classified as available for sale at
September 30, 2000 and December 31, 1999, respectively.
</FN>
</TABLE>
28
<PAGE>
Investment Results of General Account Investment Assets
Investment Results by Asset Category
(Dollars In Millions)
<TABLE>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------------------- ----------------------------------------------------
2000 1999 2000 1999
------------------------ ------------------------ ------------------------- -------------------------
(1) (1) (1) (1)
Yield Amount Yield Amount Yield Amount Yield Amount
--------- --------------- ----------- ------------ ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Income.............. 8.01% $ 441.2 8.01% $ 465.2 8.01% $ 1,363.5 7.90% $ 1,362.1
Investment
gains/(losses).... (1.26)% (67.6) (0.84)% (47.5) (1.40)% (232.7) (1.17)% (196.8)
--------- --------------- ----------- ------------ ---------- ------------- ---------- --------------
Total............... 6.75% $ 373.6 7.17% $ 417.7 6.61% $ 1,130.8 6.73% $ 1,165.3
Ending assets(2).... $ 22,201.4 $ 24,337.4 $ 22,201.4 $ 24,337.4
Mortgages:
Income.............. 8.63% $ 97.9 8.30% $ 99.3 8.54% $ 297.5 8.71% $ 301.5
Investment
gains/(losses).... (0.30)% (3.3) (0.07)% (.8) (0.14)% (4.8) (0.11)% (3.4)
--------- --------------- ----------- ------------ ---------- ------------- ---------- --------------
Total............... 8.33% $ 94.6 8.23% $ 98.5 8.40% $ 292.7 8.60% $ 298.1
Ending assets(3).... $ 4,715.8 $ 4,942.3 $ 4,715.8 $ 4,942.3
Equity Real
Estate:
Income(4)........... 7.18% $ 14.6 8.35% $ 27.1 8.03% $ 53.9 7.61% $ 75.3
Investment
gains/(losses).... (3.69)% (7.4) (0.41)% (1.3) (1.49)% (9.8) 1.69% 16.2
--------- --------------- ----------- ------------ ---------- ------------- ---------- --------------
Total............... 3.49% $ 7.2 7.94% $ 25.8 6.54% $ 44.1 9.30% $ 91.5
Ending assets(4).... $ 803.5 $ 1,318.5 $ 803.5 $ 1,318.5
Other Equity
Investments:
Income.............. 12.47% $ 28.4 11.53% $ 23.1 33.35% $ 199.1 26.73% $ 153.3
Investment
gains/(losses).... (0.32)% (0.7) 5.40% 10.2 (4.31)% (23.5) 17.25% 86.4
--------- --------------- ----------- ------------ ---------- ------------- ---------- --------------
Total............... 12.15% $ 27.7 16.93% $ 33.3 29.04% $ 175.6 43.98% $ 239.7
Ending assets(5).... $ 974.8 $ 807.2 $ 974.8 $ 807.2
Policy Loans:
Income.............. 6.68% $ 64.6 6.90% $ 63.3 6.71% $ 191.5 6.77% $ 184.8
Ending assets....... $ 4,038.2 $ 3,812.1 $ 4,038.2 $ 3,812.1
Cash and Short-term
Investments:
Income.............. 9.06% $ 13.5 7.80% $ 15.8 10.46% $ 57.8 7.38% $ 51.8
Ending assets(6).... $ 707.0 $ 982.0 $ 707.0 $ 982.0
Equitable Life
Debt and Other:
Interest expense
and other......... 6.36% $ (13.3) 7.18% $ (11.2) 7.53% $ (40.8) 8.40% $ (38.6)
Ending liabilities.. $ (1,125.3) $ (692.4) $ (1,125.3) $ (692.4)
Total:
Income(7)........... 8.10% $ 646.9 8.03% $ 682.6 8.62% $ 2,122.5 8.28% $ 2,090.2
Investment
gains/(losses).... (1.01)% (79.0) (0.47)% (39.4) (1.13)% (270.8) (0.40)% (97.6)
--------- --------------- ----------- ------------ ---------- ------------- ---------- --------------
Total(8)............ 7.09% $ 567.9 7.56% $ 643.2 7.49% $ 1,851.7 7.88% $ 1,992.6
Ending net assets... $ 32,315.4 $ 35,507.1 $ 32,315.4 $ 35,507.1
29
<PAGE>
<FN>
(1) Yields have been calculated on a compound annual effective rate basis
using the quarterly average asset carrying values excluding unrealized
gains (losses) in fixed maturities and adjusted for the current periods'
income, gains and fees. Annualized yields are not necessarily indicative
of a full year's results.
(2) Fixed maturities investment assets are shown net of securities purchased
but not yet paid for of $211.2 million and $139.0 million, and include
accrued income of $372.4 million and $399.0 million, amounts due from
securities sales of $115.7 million and $50.9 million and other assets of
$15.2 million and $19.7 million as of September 30, 2000 and 1999,
respectively.
(3) Mortgage investment assets include accrued income of $58.7 million and
$61.2 million and are adjusted for related liability balances of $(27.3)
million and $(25.8) million as of September 30, 2000 and 1999,
respectively.
(4) Equity real estate investment assets are shown net of third party debt and
minority interest in real estate of $251.4 million and $280.8 million, and
include accrued income of $16.3 million and $28.5 million and are adjusted
for related liability balances of $(8.5) million and $(1.6) million as of
September 30, 2000 and 1999, respectively. Equity real estate income is
shown net of operating expenses, depreciation, third party interest
expense and minority interest. Third party interest expense and minority
interest totaled $4.4 million, $3.9 million, $12.3 million and $15.0
million for the third quarter and first nine months of 2000 and of 1999,
respectively.
(5) Other equity investment assets include adjustment for accrued income and
pending settlements of $7.3 million and $1.2 million as of September 30,
2000 and 1999, respectively.
(6) Cash and short-term investments are shown net of financing arrangements of
$0.0 million and $(107.1) million and other adjustments for accrued income
and cash in transit of $15.9 million and $30.0 million as of September 30,
2000 and 1999, respectively.
(7) Total investment income includes non-cash income from amortization,
payments-in-kind distributions and undistributed equity earnings of $15.0
million, $14.2 million, $46.9 million and $47.5 million for the third
quarters and first nine months of 2000 and of 1999, respectively.
Investment income is shown net of depreciation of $5.5 million, $6.2
million, $16.2 million and $16.8 million for the same respective periods.
(8) Total yields are shown before deducting investment fees paid to its
investment advisors. These fees include asset management, acquisition,
disposition, accounting and legal fees. If investment fees had been
deducted, total yields would have been 6.85%, 7.29%, 7.26% and 7.62% for
the third quarter and the first nine months of 2000 and of 1999,
respectively.
</FN>
</TABLE>
Fixed Maturities. Fixed maturities consist largely of investment grade corporate
debt securities, including significant amounts of U.S. government and agency
obligations. At September 30, 2000 and December 31, 1999, respectively, 76.1%
and 76.9% of total fixed maturities were publicly traded; 81.5% and 87.4% of
below investment grade securities were also publicly traded. The $232.7 million
of investment losses in the first nine months of 2000 were due to $136.3 million
of writedowns primarily on high yield and emerging market securities and $96.4
million of losses on sales.
Fixed Maturities By Credit Quality
(In Millions)
<TABLE>
September 30, 2000 December 31, 1999
-------------------------------------- ------------------------------------
Rating Agency
NAIC Equivalent Amortized Estimated Amortized Estimated
Rating Designation Cost Fair Value Cost Fair Value
-------------- ---------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa...... $ 19,168.3 $ 18,859.6 $ 20,561.4 $ 19,973.0
3-6 BBa and lower......... 2,740.9 2,380.0 3,157.7 2,849.7
----------------- ----------------- ----------------- ------------------
Total Fixed Maturities............... $ 21,909.2 $ 21,239.6 $ 23,719.1 $ 22,822.7
================= ================= ================= ==================
</TABLE>
At September 30, 2000, AXA Financial held mortgage pass-through securities with
an amortized cost of $2.39 billion, $2.41 billion of CMOs, including $1.98
billion in publicly-traded CMOs, and $1.15 billion of public and private asset
backed securities, primarily backed by home equity, mortgage, airline and other
equipment, and credit card receivables.
The amortized cost of problem and potential problem fixed maturities was $202.4
million (0.9% of the amortized cost of this category) and $169.7 million (0.8%)
at September 30, 2000, respectively, compared to $154.0 million (0.6%) and $42.7
million (0.2%) at December 31, 1999, respectively.
30
<PAGE>
Mortgages. Mortgages consist of commercial and agricultural loans. At September
30, 2000, commercial mortgages totaled $2.76 billion (58.4% of the amortized
cost of the category) and agricultural loans were $1.97 billion (41.6%).
Problem, Potential Problem and Restructured Mortgages
Amortized Cost
( In Millions)
<TABLE>
September 30, December 31,
2000 1999
---------------- -----------------
<S> <C> <C>
COMMERCIAL MORTGAGES.......................................................... $ 2,757.0 $ 3,048.2
Problem commercial mortgages.................................................. 60.1 .5
Potential problem commercial mortgages........................................ 52.7 120.6
Restructured commercial mortgages............................................. 125.0 130.7
AGRICULTURAL MORTGAGES........................................................ $ 1,965.6 $ 1,957.4
</TABLE>
The original weighted average coupon rate on the $125.0 million of restructured
mortgages was 8.9%. As a result of these restructurings, the restructured
weighted average coupon rate was 8.1% and the restructured weighted average cash
payment rate was 8.5%.
At September 30, 2000 and 1999, respectively, management identified impaired
mortgage loans with carrying values of $138.4 million and $178.1 million. The
provisions for losses for these impaired mortgage loans were $25.0 million and
$34.8 million at September 30, 2000 and 1999, respectively. For the first nine
months of 2000 and of 1999, respectively, income accrued on these loans was $9.8
million and $11.6 million, including cash received of $8.8 million and $11.6
million.
For the first nine months of 2000, scheduled principal amortization payments and
prepayments on commercial mortgage loans received aggregated $294.0 million. In
addition, $192.0 million of commercial mortgage loan maturity payments were
scheduled: $181.8 million were paid as due and $10.2 million were granted
short-term extensions.
Equity Real Estate. As of September 30, 2000, on the basis of amortized cost,
the equity real estate category included $723.0 billion (63.4%) acquired as
investment real estate and $416.6 million (36.6%) acquired through or in lieu of
foreclosure (including in-substance foreclosures).
During the first nine months of 2000 and 1999, respectively, proceeds from the
sale of equity real estate totaled $195.7 million and $257.6 million, and gains
of $33.4 million and $36.9 million were recognized. The carrying value of the
equity real estate at the date of sale reflected total writedowns and additions
to valuation allowances on the properties taken in periods prior to their sale
of $85.4 million and $95.7 million, respectively.
At September 30, 2000, the vacancy rate for AXA Financial's office properties
was 7.0% in total, with a vacancy rate of 6.1% for properties acquired as
investment real estate and 13.6% for properties acquired through foreclosure.
The national commercial office vacancy rate was 9.7% (as of June 30, 2000) as
measured by CB Richard Ellis.
31
<PAGE>
Other Equity Investments. Other equity investments consist of private equity,
LBO, mezzanine, venture capital and other limited partnership interests ($669.0
million or 68.6% of the amortized cost of this portfolio at September 30, 2000),
alternative limited partnerships ($192.7 million or 19.8%) and common stock and
other equity securities, including the excess of Separate Account assets over
Separate Account liabilities. Alternative funds utilize trading strategies that
may be leveraged; they attempt to protect against market risk through a variety
of methods, including short sales, financial futures, options and other
derivative instruments. Other equity investments can produce significant
volatility in investment income since they predominantly are accounted for in
accordance with the equity method which treats increases and decreases in the
estimated fair value of the underlying assets (or allocable portion thereof, in
the case of partnerships), whether realized or unrealized, as investment income
or loss to the General Account. Effective January 1, 1999, all investments in
publicly-traded common equity securities in the General Account and Holding
Company Group portfolios were designated as "trading securities" for purposes of
classification under SFAS No. 115. Investment gains of $83.5 million and $3.8
million, respectively, were recognized at that date on the two portfolios.
Changes in the investments' fair value are included in investment income.
Returns on equity investments are very volatile and investment results for any
period are not representative of any other period.
LIQUIDITY AND CAPITAL RESOURCES
Equitable Life paid a $150.0 million shareholder dividend in May 2000, followed
by a $100.0 million shareholder dividend in September 2000.
Equitable Life has a commercial paper program with an issue limit of up to $1.00
billion. This program is available for general corporate purposes. On June 30,
2000, Equitable Life renewed its $350.0 million 5-year credit facility expiring
in June 2005 and its $350.0 million 364-day credit facility. These credit
facilities support the commercial paper program. Equitable Life uses this
program from time to time in its liquidity management. At September 30, 2000,
$523.7 million was outstanding under the commercial paper program; there were no
amounts outstanding under the credit facilities.
On June 21, 2000, Alliance sold 32.6 million newly issued Units to the Holding
Company for $1.60 billion. Alliance used the proceeds primarily to finance the
cash portion of the acquisition price of Bernstein.
At September 30, 2000, Alliance had $471.8 million of commercial paper and ECNs,
borrowings under the revolving credit facilities of $48.0 million and a $3.1
million note outstanding. In October 2000, Alliance entered into a $250 million
two-year revolving credit facility using terms substantially similar to the $425
million and $200 million revolving credit facilities. The revolving credit
facilities will be used to provide back-up liquidity for Alliance's commercial
paper program, to fund commission payments to financial intermediaries for the
sale of certain mutual funds and for general working capital purposes. The
revolving credit facilities contain covenants that, among other things, require
Alliance to meet certain financial ratios.
Consolidated Cash Flows
Net cash used by operating activities was $1.83 billion for the first nine
months of 2000 compared to net cash provided by operating activities of $363.0
million for the first nine months of 1999.
Net cash provided by investing activities was $224.5 million for the first nine
months of 2000 as compared to net cash used by investing activities of $1.87
billion for the same period in 1999. In the 2000 period, sales, maturities and
repayments of investment assets exceeded purchases by $2.15 billion. This was
partially offset by a $1.76 billion increase in short-term investments
principally at Alliance related to funds used to complete the Bernstein
acquisition in October 2000. In the comparable 1999 period, investment purchases
exceeded sales, maturities and repurchases by $1.65 billion.
Net cash provided by financing activities was $544.7 million for the first nine
months of 2000 as compared to $712.1 million for the 1999 period. In second
quarter 2000, a $1.60 billion increase in cash flows resulted from the Holding
Company's purchase of new Alliance Units while the Equitable Life $250.0 million
shareholder dividends partially offset the effect of that transaction. During
the first nine months of 2000, withdrawals from policyholders' accounts and
transfers to Separate Accounts exceeded deposits by $1.12 billion. In the first
nine months of 1999, the $433.4 million increase in short-term financings and
the $536.8 million excess of deposits to policyholders' accounts over
withdrawals and transfers to Separate Accounts were partially offset by the
$150.0 million dividend paid by Equitable Life.
32
<PAGE>
The operating, investing and financing activities described above resulted in a
decrease in cash and cash equivalents during the first nine months of 2000 of
$414.7 million to $213.3 million.
FORWARD-LOOKING STATEMENTS
The Company's management has made in this report, and from time to time may make
in its public filings and press releases as well as in oral presentations and
discussions, forward-looking statements concerning the Company's operations,
economic performance and financial condition. Forward-looking statements
include, among other things, discussions concerning the potential exposure of
the Company to market risks, as well as statements expressing management's
expectations, beliefs, estimates, forecasts, projections and assumptions, as
indicated by words such as "believes," "estimates," "intends," "anticipates,"
"expects," "projects," "should," "probably," "risk," "target," "goals,"
"objectives," or similar expressions. The Company claims the protection afforded
by the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and assumes no duty to update any
forward-looking statement. Forward-looking statements are based on management's
expectations and beliefs concerning future developments and their potential
effects and are subject to risks and uncertainties. Actual results could differ
materially from those anticipated by forward-looking statements due to a number
of important factors including those discussed elsewhere in this report and in
the Company's other public filings, press releases, oral presentations and
discussions. The following discussion highlights some of the more important
factors that could cause such differences.
Market Risk. The businesses of the Company and its Investment Subsidiaries are
subject to market risks arising from their insurance asset/liability management,
investment management and trading activities. Primary market risk exposures
exist in the Insurance and Investment Services segments and result from interest
rate fluctuations, equity price movements and changes in credit quality. The
nature of each of these risks is discussed under the caption "Quantitative and
Qualitative Disclosure About Market Risk" and in Note 13 of Notes to
Consolidated Financial Statements in the 1999 Form 10-K.
Following the sale of its shareholdings in DLJ and the sale of certain Credit
Suisse Group common stock ("CSG Shares"), the Company held CSG Shares with a
market value of approximately $1.66 billion as of November 3, 2000. Any changes
in the market value of CSG Shares will affect earnings.
Strategic Initiatives. Management continues to implement certain strategic
initiatives identified after a comprehensive review of AXA Financial's
organization and strategy conducted in late 1997. These initiatives are designed
to make AXA Financial a premier provider of financial planning, insurance and
investment management products and services. Certain changes in the organization
took place in 1999. The Holding Company formed AXA Client Solutions, LLC ("AXA
Client Solutions") in mid-September and contributed its investment in Equitable
Life to AXA Client Solutions. Also in September, EQ Financial Consultants, Inc.,
a broker-dealer subsidiary of Equitable Life, was merged into a new company, AXA
Advisors. Equitable Life then transferred AXA Advisors to AXA Distribution, a
wholly owned direct subsidiary of AXA Client Solutions. In first quarter 2000,
EquiSource of New York, Inc. and its subsidiaries were merged into AXA Network,
and Equitable Life transferred AXA Network to AXA Distribution. Subsidiaries of
AXA Distribution sell the insurance products of Equitable Life, as well as of
unaffiliated insurance companies, and other investment products and services
through retail sales associates. Equitable Life pays commissions and other fees
to AXA Network and is in turn reimbursed for expenses such as occupancy and
information technology incurred on behalf of its affiliate. Equitable Life
continues to distribute its products through its wholesale distribution
channels. Implementation of these strategic initiatives could affect certain
historic trends in the Insurance segment. Implementation is subject to various
uncertainties, including those relating to timing and expense, and the results
of the implementation of these initiatives could be other than what management
intends. The Company may, from time to time, explore selective acquisition
opportunities in its core insurance and investment management businesses.
33
<PAGE>
Insurance. Future sales of life insurance and annuity products are dependent on
numerous factors including successful implementation of the strategic
initiatives referred to above, the intensity of competition from other insurance
companies, banks and other financial institutions, the strength and
professionalism of distribution channels, the continued development of
additional channels, the financial and claims paying ratings of Equitable Life,
its reputation and visibility in the market place, its ability to develop,
distribute and administer competitive products and services in a timely,
cost-effective manner and its investment management performance. The Insurance
Group evaluates the financial condition of its reinsurers and takes other steps
to minimize its exposure to significant losses from reinsurer insolvencies.
Ceded reinsurance, including the book of DI business recently transferred, does
not relieve the originating insurer of liability. In addition, the nature and
extent of competition and the markets for products sold by the Insurance Group
may be materially affected by changes in laws and regulations, including changes
relating to savings, retirement funding and taxation as well as changes
resulting from the Gramm-Leach-Bliley Act. The Administration's fiscal year 2001
revenue proposals contain provisions which, if enacted, could have a material
adverse impact on sales of certain insurance products and would adversely affect
the taxation of insurance companies. See "Business - Segment Information -
Insurance" and "Business - Regulation - Federal Initiatives" in the 1999 Form
10-K. The profitability of the Insurance Group depends on a number of factors,
including levels of operating expenses after DAC, secular trends and the
Company's mortality, morbidity, persistency and claims experience, and profit
margins between investment results from General Account Investment Assets and
interest credited on individual insurance and annuity products. The performance
of General Account Investment Assets depends, among other things, on levels of
interest rates and the markets for equity securities and real estate, the need
for asset valuation allowances and writedowns, and the performance of equity
investments which have created, and in the future may create, significant
volatility in investment income. See "Investment Results of General Account
Investment Assets" in the 1999 Form 10-K and herein. The ability of the Company
to continue its accelerated real estate sales program without incurring net
losses will depend on real estate markets for the remaining properties held for
sale and the negotiation of transactions which confirm management's expectations
on property values. For further information, including information concerning
the writedown in the fourth quarter of 1997 in connection with management's
decision to accelerate the sale of certain real estate assets, see "Investment
Results of General Account Investment Assets - Equity Real Estate" in the 1999
Form 10-K and herein. The Company's group pension business produced pre-tax
losses in 1995 and 1996. In late 1996, a loss recognition study for the group
pension business was completed. As a result, a Pension Par premium deficiency
reserve was established which resulted in a $73.0 million pre-tax charge to
results of continuing operations at December 31, 1996. Based on the experience
that emerged on this book of business since 1996, management continues to
believe the Pension Par reserve has been calculated on a reasonable basis and is
adequate. However, there can be no assurance that it will be sufficient to
provide for all future liabilities.
Investment Services. Alliance's revenues are largely dependent on the total
value and composition of assets under its management and are, therefore,
affected by market appreciation and depreciation, additions and withdrawals of
assets, purchases and redemptions of mutual funds and shifts of assets between
accounts or products with different fee structures.
Discontinued Operations. The determination of the allowance for future losses
for the discontinued Wind-Up Annuities and GIC lines of business continues to
involve numerous estimates and subjective judgments including those regarding
expected performance of investment assets, ultimate mortality experience and
other factors which affect investment and benefit projections. 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 discontinued
operations differ from management's current best estimates underlying the
allowance, the difference would be reflected as earnings or loss from
discontinued operations within the consolidated statements of earnings. 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 "Discontinued Operations" in the 1999
Form 10-K for further information including a discussion of significant reserve
strengthening in 1997 and the assumptions used in making cash flow projections.
34
<PAGE>
Technology and Information Systems. The Company's information systems are
central to, among other things, designing and pricing products, marketing and
selling products and services, processing policyholder and investor
transactions, client recordkeeping, communicating with agents, employees and
clients, and recording information for accounting and management information
purposes. Any significant difficulty associated with the operation of such
systems, or any material delay or inability to develop needed system
capabilities, could have a material adverse affect on the results of operations
of the Company and, ultimately, its ability to achieve their strategic goals.
Legal Environment. A number of lawsuits have been filed against life and health
insurers involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents and other matters. Some of the lawsuits have
resulted in the award of substantial judgments against other insurers, including
material amounts of punitive damages, or in substantial settlements. In some
states, juries have substantial discretion in awarding punitive damages. The
Company, like other life and health insurers, is involved in such litigation.
While no such lawsuit has resulted in an award or settlement of any material
amount against the Company to date, its consolidated results of operations and
financial condition could be affected by defense and settlement costs and any
unexpected material adverse outcomes in such litigations as well as in other
material litigations pending against the Company and its subsidiaries. In
addition, examinations by Federal and state regulators could result in adverse
publicity, sanctions and fines. For further information, see "Business -
Regulation" in the 1999 Form 10-K and "Legal Proceedings" in the 1999 Form 10-K
and herein.
Future Accounting Pronouncements. In the future, new accounting pronouncements
may have material effects on the Company's consolidated statements of earnings
and shareholder's equity. See Note 2 of Notes to Consolidated Financial
Statements for the pronouncements issued but not implemented. In addition,
members of the NAIC approved its Codification project providing regulators and
insurers with uniform statutory guidance, addressing areas where statutory
accounting previously was silent and changing certain existing statutory
positions. Equitable Life will be subject to Codification to the extent and in
the form adopted in New York State, which would require action by both the New
York legislature and the New York Insurance Department. In February 2000, the
Superintendent indicated the New York Insurance Department intends to proceed
with implementation of Codification rules, subject to any provisions in New York
statutes which conflict with particular points in the Codification rules. It is
not possible to predict in what form, or when Codification will be adopted in
New York, and accordingly it is not possible to predict the effect of
Codification on Equitable Life.
Regulation. The businesses conducted by the Company and its subsidiaries and
affiliates are subject to extensive regulation and supervision by state
insurance departments and Federal and state agencies regulating, among other
things, insurance and annuities, securities transactions, investment companies,
investment advisors and customer privacy. Changes in the regulatory environment
could have a material impact on operations and results. The activities of the
Insurance Group and the Holding Company's other subsidiaries conducting
insurance related businesses are subject to the supervision of the insurance
regulators of each of the 50 states.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Quantitative and Qualitative Disclosures About Market Risk" in the 1999
Form 10-K.
35
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no new material legal proceedings and no material developments
in matters which were previously reported in the Registrant's Form 10-K for the
year ended December 31, 1999, except as described below:
In Cole, in April 2000, the Appellate Division, First Department unanimously
affirmed, with costs, the decisions of the lower court dismissing all of
plaintiffs' claims and denying plaintiffs' motion for class certification. In
June 2000, the Appellate Division denied plaintiffs' motion for reargument or,
in the alternative, leave to appeal to the New York Court of Appeals. In August
2000, plaintiffs moved for leave to appeal to the New York Court of Appeals.
This motion has been briefed and is pending before the court.
In Franze, in October 2000, the District Judge affirmed the Magistrate's Report
and Recommendation and, accordingly, denied Equitable Life's and EVILCO's motion
for summary judgment and granted plaintiffs' motion for class certification.
Equitable Life and EVLICO have filed a petition for permission to appeal the
order denying summary judgment and granting class certification.
In Kane, plaintiff's claims have been settled on an individual basis and the
action has been dismissed.
In Fischel, in June 2000, plaintiffs appealed to the Court of Appeals for the
Ninth Circuit contesting the District Court's award of legal fees to plaintiffs'
counsel in connection with a previously settled count of the complaint unrelated
to the health benefit claims. In that appeal, plaintiffs have challenged the
District Court's subject matter jurisdiction over the health benefit claims.
Briefing has not yet been completed.
In R.S.M., in April 2000, following confirmatory discovery pursuant to the
Memorandum of Understanding, plaintiffs indicated that they would proceed with
the litigation. In August 2000, plaintiffs filed a first amended and
supplemental class action complaint. The amended complaint alleges in connection
with the reorganization that, inter alia, the partnership agreement of Alliance
Holding was not validly amended, the reorganization of Alliance Holding was not
validly effected, the information disseminated to holders of units of limited
partnership interests in Alliance Holding was materially false and misleading,
and the defendants breached their fiduciary duties by structuring the
reorganization in a manner that was grossly unfair to plaintiffs. Plaintiffs
seek declaratory, monetary and injunctive relief relating to the allegations
contained in the amended complaint. In September 2000, all defendants other than
Robert H. Joseph, Jr. filed an answer to the amended complaint denying the
material allegations contained therein. In lieu of joining in the answer to the
amended complaint, Mr. Joseph filed a motion to dismiss in September 2000. In
November 2000, defendants, other than Mr. Joseph, filed a motion to dismiss the
amended complaint and their opening brief in support thereto.
In March 2000, an action entitled Brenda McEachern v. The Equitable Life
Assurance Society of the United States and Gary Raymond, Jr. was commenced
against Equitable Life and one of its agents in Circuit Court, Mobile County,
Alabama, and asserts claims under state law. The action was brought by an
individual who alleges that she purchased a variable annuity from Equitable Life
in 1997. The action purports to be on behalf of a class consisting of all
persons who from January 1, 1989 (i) purchased a variable annuity from Equitable
Life to fund a qualified retirement plan, (ii) were charged allegedly
unnecessary fees for tax deferral for variable annuities held in qualified
retirement accounts, or (iii) were sold a variable annuity while owning a
qualified retirement plan from Equitable Life. The complaint alleges various
improper sales practices, including misrepresentations in connection with the
use of variable annuities in a qualified retirement plan or similar arrangement,
charging inflated or hidden fees, and failure to disclose unnecessary tax
deferral fees. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and attorneys' fees and expenses. In May 2000, Equitable Life
removed the case to the United States District Court for the Southern District
of Alabama and filed a motion to dismiss the complaint, and the plaintiff has
filed a motion to remand the case to state court. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early stages
of an action, AXA Financial's management believes that the ultimate resolution
of this litigation should not have a material adverse effect on the consolidated
financial position of AXA Financial. AXA Financial'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 AXA Financial's consolidated results of
operations in any particular period.
36
<PAGE>
In June 2000, an action entitled Raymond Patenaude v. The Equitable Life
Assurance Society of the United States, AXA Advisors, LLC and Equitable
Distributors, Inc. was commenced in the Superior Court of California, County of
San Diego. The complaint alleges that the defendants engaged in fraudulent and
deceptive practices in connection with the marketing and sale of deferred
annuity products to fund tax-qualified contributory retirement plans. The named
plaintiff purports to act as a private attorney general on behalf of the general
public of the State of California under California consumer protection statutes
and also asserts individual common-law claims. On behalf of the named plaintiff
and the general public, the complaint asserts claims for unlawful, unfair or
fraudulent business acts and practices and for false or misleading advertising.
On behalf of the named plaintiff alone, the complaint alleges claims for fraud,
fraudulent concealment and deceit, negligent misrepresentation and negligence.
The complaint seeks injunctive relief, restitution for members of the general
public of the State of California who have been harmed by defendants' conduct,
compensatory and punitive damages on behalf of the named plaintiff, and
attorneys' fees, costs and expenses. In July 2000, the defendants removed the
case to the United States District Court for the Southern District of California
and filed a motion to dismiss the complaint. In August 2000, the plaintiff filed
a motion to remand the case to state court. By order dated October 11, 2000, the
District Court denied plaintiff's motion to remand and granted defendants'
motion to dismiss the action. Although the outcome of litigation cannot be
predicted with certainty, particularly in the early stages of an action, AXA
Financial's management believes that the ultimate resolution of this litigation
should not have a material adverse effect on the consolidated financial position
of AXA Financial. AXA Financial'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 AXA Financial's consolidated results of operations in any particular
period.
In October 2000, an action entitled Sham Malhotra, et al. v. The Equitable Life
Assurance Society of the United States, AXA Advisors, LLC and Equitable
Distributors, Inc. was commenced in the Supreme Court of the State of New York,
County of Nassau. The action was brought by two individuals who purchased
Equitable Life deferred annuity products. The action purports to be on behalf of
a class consisting of all persons who purchased an individual deferred annuity
contract or who received a certificate to a group deferred annuity contract,
sold by one of the defendants, which was used to fund a contributory retirement
plan or arrangement qualified for favorable income tax treatment; excluded from
the class are officers, directors and agents of the defendants. The complaint
alleges that the defendants engaged in fraudulent and deceptive practices in
connection with the marketing and sale of deferred annuity products to fund
tax-qualified contributory retirement plans. The complaint asserts claims for:
deceptive business acts and practices in violation of the New York General
Business Law ("GBL"); use of misrepresentations and misleading statements in
violation of the New York Insurance Law; false or misleading advertising in
violation of the GBL; fraud, fraudulent concealment and deceit; negligent
misrepresentation; negligence; unjust enrichment and imposition of a
constructive trust; declaratory and injunctive relief; and reformation of the
annuity contracts. The complaint seeks injunctive and declaratory relief, an
unspecified amount of compensatory and punitive damages, restitution for all
members of the class, and an award of attorneys' fees, costs and expenses. In
October 2000, the defendants removed the action to the United States District
Court for the Eastern District of New York. The defendants' time to respond to
the complaint has not yet expired. Although the outcome of litigation cannot be
predicted with certainty, particularly in the early stages of an action, AXA
Financial's management believes that the ultimate resolution of this litigation
should not have a material adverse effect on the consolidated financial position
of AXA Financial. AXA Financial'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 AXA Financial's consolidated results of operations in any particular
period.
In January 2000, the California Supreme Court denied Equitable Life's petition
for review of an October 1999 decision by the California Court of Appeal which
reversed the dismissal by the Superior Court of Orange County, California of an
action entitled BT-I v. The Equitable Life Assurance Society of the United
States. The action was commenced in 1995 by a real estate developer in
connection with a limited partnership formed in 1991 with Equitable Life on
behalf of Prime Property Fund ("PPF"). Equitable Life serves as investment
manager for PPF, an open-end, commingled real estate separate account of
Equitable Life for pension clients. Plaintiff alleges, among other claims, that
Equitable Life breached its fiduciary duty as general partner of the limited
partnership principally in connection with the 1995 purchase and subsequent
foreclosure by Equitable Life on behalf of PPF of the loan which financed the
partnership's property. The plaintiff seeks compensatory and punitive damages.
In reversing the Superior Court's dismissal of the plaintiff's claims, the Court
of Appeal held that a general partner who acquires a partnership obligation
breaches its fiduciary duty by foreclosing on partnership assets. The case was
remanded to the Superior Court for further proceedings, and in May 2000, the
court scheduled a jury trial for February 2001. In August 2000, Equitable Life
filed a motion for summary adjudication on plaintiff's claims, based on the
37
<PAGE>
purchase and subsequent foreclosure of the loan which financed the partnership's
property, for punitive damages. In October 2000, following the issuance of a
tentative ruling denying Equitable Life's motion, the Superior Court heard oral
argument and took the matter under submission. Also in October 2000, plaintiff
filed a motion for leave to file a supplemental complaint to add allegations
relating to the post-foreclosure transfer of certain funds from the partnership
to Equitable Life. The proposed supplemental complaint alleges, among other
things, that such conduct constitutes self-dealing and a breach of fiduciary
duty, and seeks compensatory and punitive damages based on such conduct.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, AXA Financial's management
believes that the ultimate resolution of this litigation should not have a
material adverse effect on the consolidated financial position of AXA Financial.
AXA Financial'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 AXA
Financial's consolidated results of operations in any particular period.
Following the August 30, 2000 announcement of AXA's proposal to purchase the
outstanding shares of AXA Financial common stock that it does not already own,
the following fourteen putative class action lawsuits were commenced in the
Delaware Court of Chancery: Fred ----- Buff v. AXA Financial, Inc., et al.,
Sarah Wolhendler v. Claude Bebear, et al.; Jerome and Selma Stone v. AXA
Financial, Inc., et al.; Louis Deranieri v. AXA Financial, Inc., et al.; Maxine
Phillips v. AXA Financial, Inc., et al.; Ruth Ravnitsky v. AXA Financial, Inc.,
et al.; Richard Kager v. AXA Financial, Inc., et al.; Mortimer Cohen v. AXA
Financial, Inc., et al.; Lee Koneche, et al. v. AXA Financial, Inc., et al.;
Denver Employees Retirement Plan v. AXA Financial, Inc., et al.; Harry Hoffman
v. AXA Financial, Inc., et al.; Joseph Villari v. AXA Financial, Inc., et al.;
Max Boimal v. AXA Financial, Inc., et al.; and Jay Gottlieb v. AXA Financial,
Inc., et al. AXA Financial, AXA, and directors and/or officers of AXA Financial
are named as defendants in each of these lawsuits. The various plaintiffs each
purport to represent a class consisting of owners of AXA Financial common stock
and their successors in interest, excluding the defendants and any person or
entity related to or affiliated with any of the defendants. They challenge the
adequacy of the offer announced by AXA and allege that the defendants have
engaged or will engage in unfair dealing, overreaching and/or have breached or
will breach fiduciary duties owed to the minority shareholders of AXA Financial.
The complaints seek declaratory and injunctive relief, an accounting, and
unspecified compensatory damages, costs and expenses, including attorneys' fees.
It is anticipated that the Delaware suits will be consolidated under the caption
Fred Buff v. AXA Financial, Inc., et al. A similar lawsuit was filed in the
Supreme Court of the State of New York, County of New York, after the filing of
the first Delaware action; it is captioned Harbor Finance Partners v. AXA
Financial, Inc., et al. By agreement, the defendants' time to respond to the
complaints in the Delaware and New York actions has been extended indefinitely.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, AXA Financial's management
believes that the ultimate resolution of these cases should not have a material
adverse effect on the consolidated financial position of AXA Financial. AXA
Financial'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 AXA
Financial's consolidated results of operations in any particular period.
Subsequent to the August 30, 2000 announcement of the proposed sale of DLJ,
three putative class action lawsuits have been filed in the Delaware Court of
Chancery naming AXA Financial as one of the defendants and challenging the
proposed sale of DLJ because the transaction does not include the sale of
DLJdirect tracking stock. These actions are captioned Irvin Woods, et al. v. Joe
L. Roby, et al.; Thomas Rolle v. Joe L. Roby, et al.; and Andrew Loguercio v.
Joe L. Roby, et al. The plaintiffs in these cases purport to represent a class
consisting of the holders of DLJdirect tracking stock and their successors in
interest, excluding the defendants and any person or entity related to or
affiliated with any of the defendants. Named as defendants are AXA Financial,
DLJ and the DLJ directors. The complaints assert claims for breaches of
fiduciary duties, and seek an unspecified amount of compensatory damages and
costs and expenses, including attorneys' fees. The plaintiffs in the Woods case
unsuccessfully sought a hearing in connection with their motion for an order
enjoining the transaction. The parties in these cases have agreed to extend the
time for defendants to respond to the complaints. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early stages
of an action, AXA Financial's management believes that the ultimate resolution
of these cases should not have a material adverse effect on the consolidated
financial position of AXA Financial. AXA Financial'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 AXA Financial's consolidated results of
operations in any particular period.
38
<PAGE>
Subsequent to the August 30, 2000 announcement of the proposed sale of DLJ, a
putative class action lawsuit was filed in the United States District Court,
Southern District of New York, captioned Siamac Sedighim v. Donaldson, Lufkin &
Jenrette, Inc., et al. This action challenges the proposed sale of DLJ (for
omitting the DLJdirect tracking stock) also alleges claims relating to the
initial offering of the DLJdirect tracking stock. The complaint alleges claims
for violations of the securities laws, breaches of the fiduciary duties of
loyalty, good faith and due care, aiding and abetting such breaches, and breach
of contract. The plaintiff purports to represent a class consisting of: all
purchasers of DLJdirect tracking stock in the initial public offering and
thereafter (with respect to the securities law claims); and all owners of
DLJdirect tracking stock who allegedly have been or will be injured by the
proposed sale of DLJ (with respect to all other claims). Named as defendants are
AXA Financial, Equitable Life, AXA S.A., DLJ, Donaldson, Lufkin & Jenrette
Securities Corporation, Credit Suisse Group, Diamond Acquisition Corp., and
DLJ's directors. The complaint seeks declaratory and injunctive relief, an
unspecified amount of damages, and costs and expenses, including attorney's
fees. The defendants' time to respond has not yet expired. Although the outcome
of litigation cannot be predicted with certainty, particularly in the early
stages of an action, AXA Financial's management believes that the ultimate
resolution of this litigation should not have a material adverse effect on the
consolidated financial position of AXA Financial. AXA Financial'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 AXA Financial's consolidated
results of operations in any particular period.
In the Alliance North American Government Income Trust action, on August 3,
2000, the court signed an order approving the Stipulation and Agreement of
Settlement. Shareholders of the fund had thirty days from the date the order
became final to appeal the order. The order became final on September 6, 2000.
Management of Alliance Holding and Alliance do not expect that the settlement
will have a material adverse effect on Alliance Holding's or Alliance's results
of operations or financial condition.
Since AXA Financial sold its interest in DLJ to the Credit Suisse Group on
November 3, 2000, AXA Financial will no longer disclose in its Exchange Act
reports and filings legal proceedings and related matters arising out of DLJ's
and its subsidiaries' operations.
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in connection
with their businesses. Some of the actions and proceedings have been brought on
behalf of various alleged classes of claimants and certain of these claimants
seek damages of unspecified amounts. While the ultimate outcome of such matters
cannot be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on AXA Financial's consolidated
financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On August 30, 2000, the Company filed a Current Report on
Form 8-K reporting an agreement to sell DLJ and AXA Group's
offer to purchase the minority interest shares of the
Holding Company (as amended September 1, 2000).
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Equitable Life Assurance Society of the United States has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 10, 2000 THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/Stanley B. Tulin
----------------------------------------
Name: Stanley B. Tulin
Title: Vice Chairman of the Board
and Chief Financial Officer
Date: November 10, 2000 /s/Alvin H. Fenichel
----------------------------------------
Name: Alvin H. Fenichel
Title: Senior Vice President
and Controller
40
<PAGE>
