Registration No. 333-17625
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
SEPARATE ACCOUNT FP
of
THE EQUITABLE LIFE ASSURANCE James M. Benson, President
SOCIETY OF THE UNITED STATES The Equitable Life Assurance Society of
(Exact Name of Trust) the United States
THE EQUITABLE LIFE ASSURANCE 1290 Avenue of the Americas
SOCIETY OF THE UNITED STATES New York, New York 10104
(Exact Name of Depositor) (Name and Address of Agent for Service)
1290 Avenue of the Americas
New York, New York 10104
(Address of Depositor's Principal
Executive Offices)
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Telephone Number, Including Area Code: (212) 554-1234
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Please send copies of all communications to:
MARY P. BREEN, ESQ. with a copy to:
Vice President and Thomas C. Lauerman
Associate General Counsel Freedman, Levy, Kroll & Simonds
The Equitable Life Assurance 1050 Connecticut Avenue, N.W., Suite 825
Society of the United States Washington, D.C. 20036
1290 Avenue of the Americas
New York, New York 10104
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Securities Being Registered: Units of Interest in Separate Account FP
It is proposed that this filing will become effective (check appropriate line):
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_X___ on May 1, 1997 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on ( ) pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Registrant filed the 24f-2 Notice for the year ended
December 31, 1996 on February 27, 1997.
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
VARIABLE LIFE INSURANCE POLICIES
FUNDED THROUGH SEPARATE ACCOUNT FP
IL PROTECTOR(SM)
IL COLI II(SM)
IL COLI
INCENTIVE LIFE PLUS(SM)
SURVIVORSHIP 2000
SPECIAL OFFER POLICY
INCENTIVE LIFE 2000
CHAMPION 2000
INCENTIVE LIFE
PROSPECTUS SUPPLEMENT DATED MAY 1, 1997
This supplement updates certain information in the prospectus you received for
your Equitable variable life insurance policy* and any prior supplements to that
prospectus.** Capitalized terms used in this supplement have the same meanings
as in the prospectus. You should keep this supplement with your prospectus and
any previous prospectus supplement. We will send you another copy of any
prospectus or supplement, without charge, on written request.
EQUITABLE. The information under the heading "EQUITABLE" in your prospectus is
updated as follows:
EQUITABLE. The Equitable Life Assurance Society of the United States
(Equitable), a New York stock life insurance company, has been in business since
1859. We are a wholly-owned subsidiary of The Equitable Companies Incorporated
(the Holding Company). The largest shareholder of the Holding Company is AXA-UAP
(AXA), a French insurance holding company. As of December 31, 1996, AXA
beneficially owned 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of the convertible preferred stock held by
AXA). Under its investment arrangements with Equitable and the Holding Company,
AXA is able to exercise significant influence over the operations and capital
structure of the Holding Company and its subsidiaries, including Equitable. AXA
is the holding company for an international group of insurance and related
financial services companies. Equitable, the Holding Company and their
subsidiaries managed approximately $239.8 billion of assets as of December 31,
1996, including third party assets of approximately $184.8 billion. Equitable's
home office is 1290 Avenue of the Americas, New York, New York 10104. We are
licensed to do business in all 50 states, Puerto Rico, the Virgin Islands and
the District of Columbia. We maintain local offices throughout the United
States. At December 31, 1996, we had approximately $114.6 billion face amount of
variable life insurance in force, as compared to $103.9 billion at December 31,
1995. Prior to January 1, 1997, the variable life insurance policies listed
above were issued by Equitable's wholly-owned subsidiary, Equitable Variable
Life Insurance Company (Equitable Variable). Equitable Variable was merged into
Equitable as of January 1, 1997.
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*This supplement updates certain information contained in the IL Prospectuses
dated July 25, 1996 and January 1, 1997; IL COLI II Prospectuses dated July 24,
1996 and January 1, 1997; the Incentive Life Plus Prospectuses dated December
19, 1994, May 1, 1995, September 15, 1995, May 1, 1996 and January 1, 1997; the
IL COLI supplements thereto dated September 15, 1995, May 1, 1996 and January 1,
1997, and the Special Offer Policy supplements thereto dated May 1, 1995,
September 15, 1995 and May 1, 1996; the Survivorship 2000 Prospectuses dated
August 18, 1992, May 1, 1993, 1994 and 1995 and January 1, 1997; the Incentive
Life 2000 Prospectuses dated November 27, 1991 and May 1, 1993 and 1994, and the
Special Offer Policy supplements thereto dated November 27, 1991, January 29,
1993, May 1, 1993, 1994 and 1995; the Champion 2000 Prospectuses dated November
27, 1991 and May 1, 1993 and 1994; and the Incentive Life Prospectuses dated
August 29, 1989, February 27, 1991 and May 1, 1990, 1993 and 1994.
**If the date of your prospectus is prior to January 1, 1997, you received a
prospectus supplement dated January 1, 1997. You may have also received a
supplement dated May 1, 1996. These supplements are still relevant and should be
retained with your prospectus.
EVM-116 Copyright 1997 The Equitable Life Assurance Society
of the United States. All rights reserved.
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INVESTMENT PORTFOLIOS. As of May 1, 1997, your policy offers the following
twenty-four investment portfolios, along with the guaranteed interest option.
The twenty-four investment portfolios are as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
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FIXED INCOME SERIES: EQUITY SERIES: ASSET ALLOCATION SERIES:
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<S> <C> <C> <C>
Domestic Fixed Income Domestic Equity International Equity o Alliance Conservative
o Alliance Money Market o T. Rowe Price Equity o Alliance Global Investors
o Alliance Intermediate Income o Alliance International o EQ/Putnam Balanced
Government Securities o EQ/Putnam Growth & o T. Rowe Price o Alliance Balanced
o Alliance Quality Bond Income Value International Stock o Alliance Growth
Aggressive Fixed Income o Alliance Growth & o Morgan Stanley Investors
o Alliance High Yield Income Emerging Markets o Merrill Lynch World
o Alliance Equity Index Equity (available on Strategy
o Merrill Lynch Basic or about Sept. 2,
Value Equity 1997)
o Alliance Common Stock Aggressive Equity
o MFS Research o Alliance Aggressive
Stock
o Warburg Pincus Small
Company Value
o Alliance Small Cap
Growth
o MFS Emerging Growth
Companies
</TABLE>
PERFORMANCE INFORMATION. The performance information under the heading "HUDSON
RIVER TRUST RATES OF RETURN" in the prospectus and any illustrations of policy
values based on such information are deleted.
THE SEPARATE ACCOUNT AND THE TRUSTS. The information under the heading "THE
TRUST," "THE TRUST'S INVESTMENT ADVISER" and "INVESTMENT POLICIES OF THE TRUST'S
PORTFOLIOS" in your prospectus is replaced with the following sections:
THE TRUSTS
The Hudson River Trust ("HRT") and the EQ Advisors Trust ("EQAT") consist of the
investment portfolios (listed below) in which the Funds of the Separate Account
invest according to your instructions.
<TABLE>
<CAPTION>
HRT PORTFOLIOS* EQAT PORTFOLIOS
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<S> <C> <C> <C>
Fixed Income Series: Equity Series:
o Alliance Money Market o Alliance Quality Bond o T. Rowe Price Equity o Morgan Stanley
o Alliance Intermediate o Alliance High Yield Income Emerging Markets
Government Securities o EQ/Putnam Growth & Equity (available on
Equity Series: Income Value or about Sept. 2, 1997)
o Alliance Growth & Income o Merrill Lynch o Warburg Pincus Small
o Alliance Equity Index o Alliance International Basic Value Equity Company Value
o Alliance Common Stock o Alliance Aggressive o MFS Research o MFS Emerging Growth
o Alliance Global Stock o T. Rowe Price Companies
o Alliance Small Cap International Stock
Growth Asset Allocation Series:
Asset Allocation Series: o EQ/Putnam Balanced o Merrill Lynch
Investors World Strategy
o Alliance Balanced o Alliance Growth
Investors
</TABLE>
*The names of these portfolios have been amended to include "Alliance" in their
names.
The Trusts are open-end, management investment companies registered under
the 1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which relates
to a different portfolio of that Trust. The HRT commenced operations in January
1976 with a predecessor of its Alliance Common Stock Portfolio. The EQAT
commenced operations on May 1, 1997. The Trusts do not impose sales charges or
"loads" for buying and selling their shares. All dividends and other
distributions on a portfolio's shares are reinvested in full and fractional
shares of the portfolio to which they relate. Each Fund invests in either Class
IA or Class IB shares of a corresponding portfolio. HRT portfolios sell Class IA
shares to the Funds and EQAT portfolios sell Class IB shares to the Funds.
The EQAT sells its shares to Equitable separate accounts in connection with
Equitable's variable life insurance and annuity products. The HRT sells its
shares to separate accounts of insurance companies, both affiliated and not
affiliated with Equitable. We currently do not foresee any disadvantages to our
policyowners arising out of this. However, HRT's Board of Trustees intends to
monitor events in order to identify any material irreconcilable conflicts that
possibly may arise and to determine what action, if any, should be taken in
response. If we believe that HRT's response to any of those events
insufficiently protects our policyowners, we will see to it that appropriate
action is taken to do so. Also, if we ever believe that any of the Trusts'
portfolios is so large as to materially impair the investment performance of the
portfolio or the Trust involved, we will examine other investment options.
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All of the portfolios, except for the Morgan Stanley Emerging Markets Equity
Portfolio and Merrill Lynch World Strategy Portfolio, are diversified for 1940
Act purposes. The Trustees of the HRT or the EQAT may establish additional
Portfolios at any time. More detailed information about the Trusts, their
investment objectives, policies, restrictions, risks, expenses, multiple class
distribution systems, the Rule 12b-1 distribution plan relating to Class IB
shares and all other aspects of their operations, appears in the HRT prospectus
(beginning after this supplement), the EQAT prospectus (beginning after the
attached HRT prospectus), or in the related Statements of Additional
Information, which are available upon request.
THE HRT'S INVESTMENT ADVISER
The HRT is advised by Alliance Capital Management L.P. (ALLIANCE), which is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940 (the "Advisers Act"). Alliance, a publicly-traded limited
partnership, is indirectly majority-owned by Equitable. On December 31, 1996,
Alliance was managing over $182.8 billion in assets. Alliance acts as investment
adviser to various separate accounts and general accounts of Equitable and other
affiliated insurance companies. Alliance also provides management and consulting
services to mutual funds, endowments funds, insurance companies, foreign
entities, qualified and non-tax qualified corporate funds, public and private
pension and profit-sharing plans, foundations and tax-exempt organizations.
Alliance's main office is located at 1345 Avenue of the Americas, New York, New
York 10105.
THE EQAT'S MANAGER AND INVESTMENT ADVISERS
The EQAT is managed by EQ Financial Consultants, Inc. ("Manager"). The Manager
has overall responsibility for the general management of EQAT. The Manager is an
investment adviser registered under the Advisers Act. The Manager currently
furnishes specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. The Manager is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable.
The Manager is responsible for, among other things, selecting the investment
advisers for EQAT's Portfolios, and evaluating and monitoring the investment
programs and results of the advisers for each EQAT Portfolio.
Each EQAT Adviser makes investment decisions on behalf of its EQAT Portfolio(s),
and places all orders for the purchase and sale of investments for the
Portfolio's account.
Rowe Price-Fleming International, Inc., T. Rowe Price Associates, Inc., Putnam
Investment Management, Inc., Massachusetts Financial Services Company, Morgan
Stanley Asset Management, Inc., Warburg, Pincus Counsellors, Inc. and Merrill
Lynch Asset Management, L.P. serve as the investment advisers (each an "EQAT
Adviser" and together the "EQAT Advisers") to one or more of the EQAT
Portfolios. Each EQAT Adviser is a well known investment adviser and mutual fund
manager in the U.S. and/or Europe. Additional information regarding each EQAT
Adviser appears in the EQAT prospectus, attached at the end of this supplement.
INVESTMENT POLICIES OF THE TRUSTS' PORTFOLIOS. Each portfolio has a different
investment objective which it tries to achieve by following separate investment
policies. The objectives and policies of each portfolio will affect its return
and its risks. There is no guarantee that these objectives will be achieved. The
policies and objectives of the portfolios are as follows:
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT POLICY OBJECTIVE
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FIXED INCOME SERIES:
DOMESTIC FIXED INCOME:
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<S> <C> <C>
ALLIANCE MONEY Primarily high quality short-term money market High level of current income while
MARKET.................. instruments. preserving assets and maintaining liquidity.
ALLIANCE INTERMEDIATE Primarily debt securities issued or guaranteed by High current income consistent with
GOVERNMENT the U.S. Government, its agencies and relative stability of principal.
SECURITIES.............. instrumentalities. Each investment will have a final
maturity of not more than 10 years or a duration not
exceeding that of a 10-year Treasury note.
ALLIANCE QUALITY BOND... Primarily investment grade fixed-income securities. High current income consistent with
preservation of capital.
AGGRESSIVE FIXED INCOME:
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ALLIANCE HIGH YIELD..... Primarily a diversified mix of high yield, High return by maximizing current income
fixed-income securities involving greater volatility and, to the extent consistent with that
of price and risk of principal and income than high objective, capital appreciation.
quality fixed-income securities. The medium and
lower quality debt securities in which the Portfolio
may invest are known as "junk bonds."
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</TABLE>
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<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT POLICY OBJECTIVE
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EQUITY SERIES:
DOMESTIC EQUITY:
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<S> <C> <C>
T. ROWE PRICE EQUITY Primarily dividend paying common stocks of Substantial dividend income and also
INCOME.................. established companies. capital appreciation.
EQ/PUTNAM GROWTH & Primarily common stocks that offer potential for Capital growth and, secondarily, current
INCOME VALUE ........... capital growth and may, consistent with the income.
Portfolio's investment objective, invest in
common stocks that offer potential for current
income.
ALLIANCE GROWTH & Primarily income producing common stocks and High total return through a combination of
INCOME.................. securities convertible into common stocks. current income and capital appreciation.
ALLIANCE EQUITY INDEX... Selected securities in the S&P's 500 Index (the Total return performance (before trust
"Index") which the adviser believes will, in the expenses and Separate Account annual
aggregate, approximate the performance results of expenses) that approximates the investment
the Index. performance of the Index (including
reinvestment of dividends) at a risk level
consistent with that of the Index.
MERRILL LYNCH BASIC Securities, primarily equities, that the Portfolio Capital appreciation and, secondarily,
VALUE EQUITY............ adviser believes are undervalued and therefore income.
represent basic investment value.
ALLIANCE COMMON Primarily common stock and other equity-type Long-term growth of capital and increasing
STOCK................... instruments. income.
MFS RESEARCH............ A substantial portion of assets invested in common Long-term growth of capital and future
stock or securities convertible into common stock of income.
companies believed by the Portfolio adviser to
possess better than average prospects for long-term
growth.
INTERNATIONAL EQUITY:
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ALLIANCE GLOBAL......... Primarily equity securities of non-United States as Long-term growth of capital.
well as United States companies.
ALLIANCE INTERNATIONAL.. Primarily equity securities selected principally to Long-term growth of capital.
permit participation in non-United States companies
with prospects for growth.
T. ROWE PRICE Primarily common stocks of established non-United Long-term growth of capital.
INTERNATIONAL STOCK..... States companies.
MORGAN STANLEY EMERGING Primarily equity securities of emerging market country Long-term capital appreciation.
MARKETS EQUITY.......... (i.e. foreign) issuers.
AGGRESSIVE EQUITY:
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ALLIANCE AGGRESSIVE Primarily common stocks and other equity-type Long-term growth of capital.
STOCK................... securities issued by medium and other smaller sized
companies with strong growth potential.
WARBURG PINCUS SMALL Primarily in a portfolio of equity securities of small Long-term capital appreciation.
COMPANY VALUE........... capitalization companies (i.e., companies having
market capitalizations of $1 billion or less at
the time of initial purchase) that the Portfolio
adviser considers to be relatively undervalued.
ALLIANCE SMALL CAP Primarily U.S. common stock and other equity-type Long-term growth of capital.
GROWTH.................. securities issued by smaller companies with favorable
growth prospects.
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</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT POLICY OBJECTIVE
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AGGRESSIVE EQUITY (CONT.):
<S> <C> <C>
MFS EMERGING Primarily in common stocks of emerging growth Long-term growth of capital.
GROWTH COMPANIES........ companies that the Portfolio adviser believes are
early in their life cycle but which have the
potential to become major enterprises.
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ASSET ALLOCATION SERIES:
ALLIANCE CONSERVATIVE Diversified mix of publicly-traded, fixed-income and High total return without, in the
INVESTORS............... equity securities; asset mix and security selection adviser's opinion, undue risk to
are primarily based upon factors expected to reduce principal.
risk. The Portfolio is generally expected to hold
approximately 70% of its assets in fixed income
securities and 30% in equity securities.
EQ/PUTNAM BALANCED...... A well-diversified portfolio of stocks and bonds that Balanced investment.
will produce both capital growth and current income.
ALLIANCE BALANCED....... Primarily common stocks, publicly-traded debt High return through a combination of
securities and high quality money market instruments. current income and capital appreciation.
The Portfolio is generally expected to hold 50% of
its assets in equity securities and 50% in fixed
income securities.
ALLIANCE GROWTH Diversified mix of publicly-traded, fixed-income and High total return consistent with the
INVESTORS............... equity securities; asset mix and security selection adviser's determination of reasonable risk.
based upon factors excepted to increase possibility of
high long-term return. The Portfolio is generally
expected to hold approximately 70% of its assets in
equity securities and 30% in fixed income securities.
MERRILL LYNCH WORLD Primarily of equity and fixed income securities, High total investment return.
STRATEGY................ including convertible securities, of U. S. and foreign
issuers.
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</TABLE>
DEDUCTIONS AND CHARGES
FROM THE TRUSTS. The information under the section "FROM THE TRUST" in your
prospectus is revised as follows:
o The Separate Account Funds purchase Class IA shares of corresponding
portfolios of the HRT or Class IB shares of corresponding portfolios of the
EQAT at net asset value. That price reflects investment management fees, any
Rule 12b-1 distribution fees, indirect expenses, such as brokerage
commissions, and certain other operating expenses.
The Hudson River Trust. Effective May 1, 1997, a new investment advisory
agreement relating to each of the HRT portfolios was entered into between HRT
and Alliance, HRT's Investment Adviser. The table below shows (i) the
investment management fees paid by the HRT in 1996 and (ii) other expenses
deducted from HRT assets in 1996, both restated to reflect the fees and other
expenses that would have been paid to Alliance if the present investment
advisory agreement had been in effect as of January 1, 1996. These restated
fees and expenses are based on average net assets for 1996. For actual
investment management fees and other expenses paid by HRT in 1996, see the
HRT prospectus. Investment management fees may increase or decrease based on
the level of portfolio net assets. These fees are subject to maximum rates,
as described in the attached HRT prospectus. Other HRT expenses are likely to
fluctuate from year to year. Both investment management fees and other
expenses are expressed in the table on the next page as an annual percentage
of each portfolio's daily average net assets:
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<TABLE>
<CAPTION>
1996 FEES AND EXPENSES RESTATED AS IF SUBJECT TO 1997 ADVISORY AGREEMENT
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RESTATED 1996 RESTATED 1996 RESTATED 1996
HRT PORTFOLIO MANAGEMENT FEE OTHER EXPENSES TOTAL EXPENSES
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<S> <C> <C> <C>
Alliance Money Market 0.35% 0.04% 0.39%
Alliance Intermediate Govt. 0.50% 0.09% 0.59%
Securities
Alliance Quality Bond 0.53% 0.05% 0.58%
Alliance High Yield 0.60% 0.06% 0.66%
Alliance Growth & Income 0.55% 0.05% 0.60%
Alliance Equity Index 0.33% 0.05% 0.38%
Alliance Common Stock 0.38% 0.03% 0.41%
Alliance Global 0.65% 0.08% 0.73%
Alliance International 0.90% 0.18% 1.08%
Alliance Aggressive Stock 0.55% 0.03% 0.58%
Alliance Small Cap Growth* 0.90%** 0.10%*** 1.00%***
Alliance Conservative Investors 0.48% 0.07% 0.55%
Alliance Balanced 0.42% 0.05% 0.47%
Alliance Growth Investors 0.53% 0.06% 0.59%
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<FN>
*Commenced operations on May 1, 1997. **Maximum management fee payable. ***Estimated 1997 expenses.
</FN>
</TABLE>
EQ Advisors Trust. The table below shows (i) the annual rates payable by the
EQAT for management fees in 1997, (ii) Rule 12b-1 distribution fees and (iii)
other estimated expenses to be deducted from EQAT assets in 1997. Other EQAT
expenses are likely to fluctuate from year to year. The management fees are not
subject to any reduction based on the level of portfolio net assets. The
management fees, 12b-1 fees and other expenses are expressed in the table below
as an annual percentage of each portfolio's daily average net assets:
<TABLE>
<CAPTION>
ESTIMATED 1997 ESTIMATED 1997
EQAT PORTFOLIO 1997 MANAGEMENT 12B-1 FEES OTHER EXPENSES* TOTAL EXPENSES
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<S> <C> <C> <C> <C>
T. Rowe Price Equity Income 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Growth & Income Value 0.55% 0.25% 0.05% 0.85%
Merrill Lynch Basic Value Equity 0.55% 0.25% 0.05% 0.85%
MFS Research 0.55% 0.25% 0.05% 0.85%
T. Rowe Price International Stock 0.75% 0.25% 0.20% 1.20%
Morgan Stanley Emerging Markets 1.15% 0.25% 0.35% 1.75%
Equity
Warburg Pincus Small Company Value 0.65% 0.25% 0.10% 1.00%
MFS Emerging Growth Companies 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Balanced 0.55% 0.25% 0.10% 0.90%
Merrill Lynch World Strategy 0.70% 0.25% 0.25% 1.20%
</TABLE>
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* After fee waivers or assumptions by EQAT's Manager pursuant
to an expense limitation agreement. See the attached EQAT
prospectus.
INVESTMENT PERFORMANCE. Footnote 7 to the Separate Account FP financial
statements included herein contains information about the net return for each
Fund which commenced operations prior to December 31, 1996. The attached
prospectus for The Hudson River Trust contains rates of return and other
portfolio performance information of the HRT for various periods ended December
31, 1996. No historical performance information for the EQAT and for the
Alliance Small Cap Growth Portfolio of the HRT is available. Remember, the
changes in the Policy Account value of your policy depend not only on the
performance of the portfolios, but also on the deductions and charges under your
policy. To obtain the current unit values of the Separate Account Funds, call
(212) 314-3310.
The values reported in footnote 7 for all Policies are computed using net rates
of return for the corresponding portfolios of the HRT. The returns reported in
footnote 7 for each of the policy forms are reduced only by any mortality and
expense risk charge deducted from Separate Account assets.
YOUR POLICY ACCOUNT VALUE
HOW WE DETERMINE THE UNIT VALUE. The description of "business day" and the unit
values applicable to different types of transactions is revised as follows:
We determine unit values for the Funds at the end of each business day.
Generally, a business day is any day the New York Stock Exchange is open for
trading.
A transaction date is the day we perform automatic transactions, such as policy
anniversary reports and monthly charge deductions, or process requested
transactions, such as remittances, disbursements and transfers. If your request
for a policy transaction is not accompanied by complete information or is
directed to the wrong address, the transaction date will be the date we receive
such complete information at our administrative office. If your request for a
policy transaction reaches our administrative office on a day we are closed, or
after the New York Stock Exchange closes, the transaction date will be the next
following business day.
The unit value that applies to a transaction will be the unit value calculated
at the close of business on the transaction date. When an automatic transaction
is scheduled on a non-business day, the unit value applied will be the unit
value calculated for the next business day. The unit value
6
<PAGE>
for any business day is equal to the unit value for the preceding business day
multiplied by the net investment factor for that Fund on that business day.
DISTRIBUTION. Certain of the information presented under the caption
"DISTRIBUTION" in your prospectus is revised as follows: EQ Financial
Consultants, Inc. (EQF) is the principal underwriter of the HRT and one of the
principal underwriters of the EQAT, and is also a distributor of our variable
life insurance policies and variable annuity contracts. EQF is registered with
the SEC as an investment adviser under the Investment Advisers Act of 1940 and
also is the Manager of the EQAT. EQF's principal business address is 1755
Broadway, New York, NY 10019. EQF is registered with the SEC as a broker-dealer
under the Securities Exchange Act of 1934 (1934 Act) and is a member of the
National Association of Securities Dealers, Inc. In 1995 and 1996, Equitable
Variable paid EQF a fee of $325,380 annually for its services as distributor of
its policies.
ILLUSTRATIONS OF POLICY BENEFITS. Certain of the information under this caption
in your prospectus is revised as follows: The new aggregate expense assumption
for the portfolios is 0.63% per annum (0.59% per annum for investment management
fees and 0.04% per annum for other expenses). The investment management fee
assumption is the average of the advisory fees payable for each HRT Portfolio
(except Alliance Small Cap Growth) based on assets as of December 31, 1996,
restated to reflect certain changes effective May 1, 1997 in the investment
advisory agreement between the HRT and its Investment Adviser, and the maximum
advisory fee payable for the EQAT and the Alliance Small Cap Growth Portfolios.
The other expense assumption is the weighted average of the restated other
expenses of the HRT Portfolios (except Alliance Small Cap Growth) based on
assets as of December 31, 1996, and estimates of the annual other expenses
expected to be paid by the EQAT and Alliance Small Cap Growth Portfolios
(including any applicable 12b-1 distribution fees). The tables under this
caption in your prospectus have not been restated to reflect this new portfolio
expense assumption. For a personalized illustration reflecting the fees and
expenses under your policy, contact your Equitable agent.
MANAGEMENT. A list of our directors and, to the extent they are responsible for
variable life insurance operations, our principal officers and a brief statement
of their business experience for the past five years is contained in Appendix A
to this supplement.
LONG-TERM MARKET TRENDS. Appendix B to this supplement presents historical
return trends for various types of securities which may be useful for
understanding how different investment strategies may affect long-term results.
FINANCIAL STATEMENTS. The financial statements of Separate Account FP and
Equitable included in this prospectus supplement have been audited for the years
ended December 31, 1996, 1995 and 1994 by the accounting firm of Price
Waterhouse LLP, independent accountants, as stated in their reports. The
financial statements of Separate Account FP and Equitable for the years ended
December 31, 1996, 1995 and 1994 included in this prospectus supplement have
been so included in reliance on the reports of Price Waterhouse LLP, given on
the authority of such firm as experts in accounting and auditing.
The financial statements of Equitable contained in this prospectus supplement
should be considered only as bearing upon the ability of Equitable to meet its
obligations under the policies. They should not be considered as bearing upon
the investment experience of the funds in the Separate Account. The financial
statements of Separate Account FP include perniods prior to the merger when
Separate Account FP was part of Equitable Variable Life Insurance Company
("Equitable Variable"). As mentioned in a previously distributed supplement,
Equitable Variable was merged with and into Equitable on January 1, 1997.
7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accounts..................................................................................... FSA-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1996...................................................... FSA-3
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994................................ FSA-4
Statements of Changes in Net Assets for the Years Ended December 31, 1996, 1995 and 1994..................... FSA-8
Notes to Financial Statements................................................................................ FSA-12
</TABLE>
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Policyowners of Separate Account FP
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Money Market Fund,
Intermediate Government Securities Fund, Quality Bond Fund, High Yield Fund,
Growth & Income Fund, Equity Index Fund, Common Stock Fund, Global Fund,
International Fund, Aggressive Stock Fund, Conservative Investors Fund, Balanced
Fund and Growth Investors Fund, separate investment funds of The Equitable Life
Assurance Society of the United States ("Equitable Life") Separate Account FP
(formerly Equitable Variable Life Insurance Company Separate Account FP) at
December 31, 1996 and the results of their operations and changes in each of
their net assets for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Equitable Life's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares in The Hudson River Trust at
December 31, 1996 with the transfer agent, provide a resonable basis for the
opinion expressed above. The rates of return information presented in note 7 for
the year ended December 31, 1992, and for each of the periods indicated prior
thereto, were audited by other independent accountants whose report dated
February 16, 1993 expressed an unqualified opinion on the financial statements
containing such information.
Price Waterhouse LLP
New York, New York
February 10, 1997
FSA-2
<PAGE>
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT QUALITY HIGH GROWTH & EQUITY COMMON
MARKET SECURITIES BOND YIELD INCOME INDEX STOCK
FUND FUND FUND FUND FUND FUND FUND
----------- ------------- ------------ ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River
Trust -- at market
value (Notes 2 and 6)
Cost: $ 242,546,651.. $242,570,674
44,817,781.. $44,676,302
127,911,618.. $125,949,796
96,502,438.. $102,167,262
32,957,253.. $38,031,591
73,126,833.. $94,575,057
1,277,628,295.. $1,572,061,192
374,535,031..
39,937,334..
747,842,158..
167,148,611..
388,200,062..
631,813,336..
Receivable for The Hudson
River Trust shares sold.. -- -- -- -- -- -- 967,531
Receivable for policy
related transactions .... 8,940,540 77,313 -- 105,241 122,406 188,428 --
------------ ------------ ------------ ------------ ----------- ----------- --------------
Total Assets................ 251,511,214 44,753,615 125,949,796 102,272,503 38,153,997 94,763,485 1,573,028,723
------------ ------------ ------------ ------------ ----------- ----------- --------------
LIABILITIES
Payable for The Hudson
River Trust shares
purchased ............... 9,060,754 87,411 28,516 149,241 129,487 188,527 --
Payable for policy related
transactions ............ -- -- 173,197 -- -- -- 983,555
Amount retained by
Equitable Life
in Separate Account
FP (Note 4) ............. 577,366 538,792 533,770 733,423 558,057 337,447 1,267,289
------------ ----------- ------------ ------------ ----------- ----------- --------------
Total Liabilities .......... 9,638,120 626,203 735,483 882,664 687,544 525,974 2,250,844
------------ ----------- ------------ ------------ ----------- ----------- --------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS.......... $241,873,094 $44,127,412 $125,214,313 $101,389,839 $37,466,453 $94,237,511 $1,570,777,879
============ =========== ============ ============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS BALANCED INVESTORS
FUND FUND FUND FUND FUND FUND
------------ ------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River
Trust -- at market
value (Notes 2 and 6)
Cost: $ 242,546,651..
44,817,781..
127,911,618..
96,502,438..
32,957,253..
73,126,833..
1,277,628,295..
374,535,031.. $433,153,085
39,937,334.. $41,795,127
747,842,158.. $794,459,393
167,148,611.. $174,848,746
388,200,062.. $430,582,886
631,813,336.. $698,964,029
Receivable for shares of
The Hudson River Trust ... 802,100 -- 3,729,663 114,675 142,333 --
Receivable for policy
related transactions ..... -- 159,777 -- -- -- 41,689
------------ ----------- ------------ ------------ ------------ ------------
Total Assets................. 433,955,185 41,954,904 798,189,056 174,963,421 430,725,219 699,005,718
------------ ----------- ------------ ------------ ------------ ------------
LIABILITIES
Payable for The Hudson
River Trust shares
purchased ................ -- 135,983 -- -- -- 245,089
Payable for policy
related transactions ..... 577,736 -- 3,989,373 97,966 399,398 --
Amount retained by
Equitable Life
in Separate Account
FP (Note 4) .............. 600,145 242,714 600,552 526,975 631,766 521,008
------------ ----------- ------------ ------------ ------------ ------------
Total Liabilities ........... 1,177,881 378,697 4,589,925 624,941 1,031,164 766,097
------------ ----------- ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS........... $432,777,304 $41,576,207 $793,599,131 $174,338,480 $429,694,055 $698,239,621
============ =========== ============ ============ ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------------------ -----------------------------------
1996 1995 1994 1996 1995 1994
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ............ $9,126,793 $9,225,401 $5,368,883 $2,367,498 $2,010,283 $ 5,671,984
Expenses (Note 3):
Mortality and expense risk charges ............... 1,025,149 954,556 826,379 245,038 197,721 527,675
---------- ----------- ----------- ---------- ---------- -----------
NET INVESTMENT INCOME ................................. 8,101,644 8,270,845 4,542,504 2,122,460 1,812,562 5,144,309
---------- ----------- ----------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............. (110,954) (432,347) 95,530 (490,315) (810,768) (10,163,976)
Realized gain distribution from
The Hudson River Trust ........................ -- -- -- -- -- --
---------- ----------- ----------- ---------- --------- -----------
NET REALIZED GAIN (LOSS) .............................. (110,954) (432,347) 95,530 (490,315) (810,768) (10,163,976)
Unrealized appreciation/(depreciation) on investments:
Beginning of period .............................. 89,976 32,760 (14,267) 145,522 (2,736,863) (1,617,237)
End of period .................................... 24,023 89,976 32,760 (141,479) 145,522 (2,736,863)
---------- ----------- ----------- ---------- ---------- -----------
Change in unrealized appreciation/(depreciation)
during the period ................................ (65,953) 57,216 47,027 (287,001) 2,882,385 (1,119,626)
---------- ----------- ----------- ---------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS ...................................... (176,907) (375,131) 142,557 (777,316) 2,071,617 (11,283,602)
---------- ----------- ----------- ---------- --------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $7,924,737 $7,895,714 $4,685,061 $1,345,144 $3,884,179 $(6,139,293)
========== =========== =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
QUALITY BOND FUND
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ............ $8,972,983 $ 7,958,285 $ 8,123,722
Expenses (Note 3):
Mortality and expense risk charges ............... 869,312 767,627 689,178
----------- ----------- -----------
NET INVESTMENT INCOME ................................. 8,103,671 7,190,658 7,434,544
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............. (1,130,915) (632,666) (410,697)
Realized gain distribution from
The Hudson River Trust ........................ -- -- --
----------- ----------- -----------
NET REALIZED GAIN (LOSS) ............................... (1,130,915) (632,666) (410,697)
Unrealized appreciation/(depreciation) on investments:
Beginning of period .............................. (2,105,676) (15,521,200) (1,886,621)
End of period .................................... (1,961,822) (2,105,676) (15,521,200)
----------- ----------- -----------
Change in unrealized appreciation/(depreciation)
during the period ................................ 143,854 13,415,524 (13,634,579)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS ...................................... (987,061) 12,782,858 (14,045,276)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $ 7,116,610 $19,973,516 $(6,610,732)
=========== =========== ===========
<FN>
See Notes to Financial Statements.
+ Formerly known as Separate Account FP of Equitable Variable Life Insurance Company.
</FN>
</TABLE>
FSA-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HIGH YIELD FUND GROWTH & INCOME FUND
----------------------------------------- ------------------------------------
1996 1995 1994 1996 1995 1994
------------ ------------ ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .... $ 8,696,039 $ 6,518,568 $ 4,578,946 $ 525,200 $ 380,677 $ 108,492
Expenses (Note 3):
Mortality and expense risk charges ....... 518,429 371,369 305,522 155,175 69,716 19,204
----------- ----------- ----------- ---------- ---------- ---------
NET INVESTMENT INCOME ......................... 8,177,610 6,147,199 4,273,424 370,025 310,961 89,288
----------- ----------- ----------- ---------- ---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 939,559 (179,454) (328,199) 5,198 2,791 (11,709)
Realized gain distribution from
The Hudson River Trust ................ 6,119,053 -- -- 1,943,415 -- --
----------- ----------- ----------- ---------- ---------- ---------
NET REALIZED GAIN (LOSS) ...................... 7,058,612 (179,454) (328,199) 1,948,613 2,791 (11,709)
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... 3,823,981 (873,103) 4,734,999 2,123,346 (141,585) (904)
End of period ............................ 5,664,824 3,823,981 (873,103) 5,074,338 2,123,346 (141,585)
----------- ----------- ----------- ---------- ---------- ---------
Change in unrealized appreciation/
(depreciation) during the period ......... 1,840,843 4,697,084 (5,608,102) 2,950,992 2,264,931 (140,681)
----------- ----------- ----------- ---------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS .............................. 8,899,455 4,517,630 (5,936,301) 4,899,605 2,267,722 (152,390)
----------- ----------- ----------- ---------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ............................ $17,077,065 $10,664,829 $(1,662,877) $5,269,630 $2,578,683 $ (63,102)
=========== =========== =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND
------------------------------------------
1996 1995 1994*
----------- ------------ ----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .... $ 1,751,848 $ 964,775 $596,180
Expenses (Note 3):
Mortality and expense risk charges ....... 605,961 289,199 152,789
----------- ----------- --------
NET INVESTMENT INCOME .......................... 1,145,887 675,576 443,391
----------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 8,013,073 3,060 (6,949)
Realized gain distribution from
The Hudson River Trust ................ 3,889,944 536,890 134,154
----------- ----------- --------
NET REALIZED GAIN (LOSS) ...................... 11,903,017 539,950 127,205
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... 12,451,765 (399,286) --
End of period ............................ 21,448,224 12,451,765 (399,286)
----------- ----------- --------
Change in unrealized appreciation/
(depreciation) during the period ......... 8,996,459 12,851,051 (399,286)
----------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS .............................. 20,899,476 13,391,001 (272,081)
------------ ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ............................. $22,045,363 $14,066,577 $171,310
=========== =========== ========
<FN>
See Notes to Financial Statements.
* Commencement of Operations on October 1, 1994.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK FUND GLOBAL STOCK FUND
------------------------------------------- ---------------------------------------
1996 1995 1994 1996 1995 1994
-------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The
Hudson River Trust..................... $ 11,773,551 $ 14,259,262 $ 11,755,355 $ 7,019,392 $ 5,152,442 $2,768,605
Expenses (Note 3):
Mortality and expense
risk charges......................... 8,267,795 6,050,368 4,741,008 2,314,066 1,743,898 1,211,620
------------ ------------ ----------- ----------- ----------- ----------
NET INVESTMENT INCOME...................... 3,505,756 8,208,894 7,014,347 4,705,326 3,408,544 1,556,985
------------ ------------ ----------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
(Note 2):
Realized gain (loss)
on investments......................... 30,128,838 16,793,683 292,144 4,971,547 3,049,444 3,347,704
Realized gain distribution
from The Hudson
River Trust............................ 157,423,606 63,838,178 43,936,280 18,802,992 9,214,950 4,821,242
------------ ------------ ----------- ----------- ----------- ----------
NET REALIZED GAIN (LOSS)................... 187,552,444 80,631,861 44,228,424 23,774,539 12,264,394 8,168,946
Unrealized appreciation/
(depreciation) on investments:
Beginning of period.................... 181,824,279 (2,048,649) 71,350,568 36,525,596 3,130,280 7,062,877
End of period.......................... 294,432,897 181,824,279 (2,048,649) 58,618,054 36,525,596 3,130,280
------------ ------------ ----------- ----------- ----------- ----------
Change in unrealized
appreciation/(depreciation)
during the period...................... 112,608,618 183,872,928 (73,399,217) 22,092,458 33,395,316 (3,932,597)
------------ ----------- ------------ ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................... 300,161,062 264,504,789 (29,170,793) 45,866,997 45,659,710 4,236,349
------------ ------------ ------------ ----------- ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $303,666,818 $272,713,683 $(22,156,446) $50,572,323 $49,068,254 $5,793,334
============ ============ ============ =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND AGGRESSIVE STOCK FUND
--------------------------- -----------------------------------------
1996 1995* 1996 1995 1994
----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The
Hudson River Trust..................... $ 575,524 $195,500 $ 1,661,263 $ 1,268,689 $ 400,102
Expenses (Note 3):
Mortality and expense
risk charges......................... 164,149 36,471 4,086,388 2,702,978 1,944,639
---------- -------- ------------ ------------ ------------
NET INVESTMENT INCOME...................... 411,375 159,029 (2,425,125) (1,434,289) (1,544,537)
---------- -------- ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
(Note 2):
Realized gain (loss)
on investments......................... (28,490) (790) 30,549,608 11,560,966 (6,075,250)
Realized gain distribution
from The Hudson
River Trust............................ 737,771 51,741 133,080,595 61,903,470 --
---------- -------- ------------ ------------ ------------
NET REALIZED GAIN (LOSS)................... 709,281 50,951 163,630,203 73,464,436 (6,075,250)
Unrealized appreciation
(depreciation) on investments:
Beginning of period.................... 667,906 -- 80,271,118 30,761,318 35,185,988
End of period.......................... 1,857,793 667,906 46,617,235 80,271,118 30,761,318
---------- -------- ------------ ------------ ------------
Change in unrealized
appreciation (depreciation)
during the period...................... 1,189,887 667,906 (33,653,883) 49,509,800 (4,424,670)
---------- -------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................... 1,899,168 718,857 129,976,320 122,974,236 (10,499,920)
---------- -------- ------------ ------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $2,310,543 $877,886 $127,551,195 $121,539,947 $(12,044,457)
========== ======== ============ ============ ============
<FN>
See Notes to Financial Statements.
* Commencement of Operations on April 3, 1995.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
-----------------------------------------------------------------------------------
CONSERVATIVE INVESTORS FUND BALANCED FUND
--------------------------------------- -----------------------------------------
1996 1995 1994 1996 1995 1994
----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust.... $ 7,737,745 $ 8,169,109 $ 6,205,574 $13,094,730 $12,276,328 $ 10,557,487
Expenses (Note 3):
Mortality and expense risk charges....... 1,046,858 921,294 750,164 2,490,188 2,237,982 2,103,510
----------- ----------- ----------- ----------- ----------- ------------
NET INVESTMENT INCOME........................ 6,690,887 7,247,815 5,455,410 10,604,542 10,038,346 8,453,977
----------- ----------- ----------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments...... (752,434) (378,551) (421,502) (873,535) (2,466,524) 858,164
Realized gain distribution from
The Hudson River Trust................. 4,429,977 1,068,272 -- 34,113,772 10,894,130 --
----------- ----------- ----------- ----------- ----------- ------------
NET REALIZED GAIN (LOSS)..................... 3,677,543 689,721 (421,502) 33,240,237 8,427,606 858,164
Unrealized appreciation/(depreciation)
on investments:
Beginning of period...................... 10,362,120 (8,767,697) 1,915,037 43,097,187 (2,878,875) 37,960,661
End of period............................ 7,700,135 10,362,120 (8,767,697) 42,382,824 43,097,187 (2,878,875)
----------- ----------- ----------- ----------- ----------- ------------
Change in unrealized appreciation/
(depreciation) during the period........... (2,661,985) 19,129,817 (10,682,734) (714,363) 45,976,062 (40,839,536)
----------- ----------- ----------- ----------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................. 1,015,558 19,819,538 (11,104,236) 32,525,874 54,403,668 (39,981,372)
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $ 7,706,445 $27,067,353 $(5,648,826) $43,130,416 $64,442,014 $(31,527,395)
=========== =========== =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
----------------------------------------
GROWTH INVESTORS FUND
----------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust.... $15,504,412 $ 15,855,901 $ 10,663,204
Expenses (Note 3):
Mortality and expense risk charges....... 3,746,683 2,796,354 1,995,747
----------- ------------ ------------
NET INVESTMENT INCOME........................ 11,757,729 13,059,547 8,667,457
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments...... 1,799,247 1,752,185 241,591
Realized gain distribution from
The Hudson River Trust................. 73,474,967 7,421,853 --
----------- ------------ ------------
NET REALIZED GAIN (LOSS)..................... 75,274,214 9,174,038 241,591
Unrealized appreciation/(depreciation)
on investments:
Beginning of period...................... 81,785,873 (770,693) 20,567,604
End of period............................ 67,150,693 81,785,873 (770,693)
----------- ------------ ------------
Change in unrealized appreciation/
(depreciation) during the period........... (14,635,180) 82,556,566 (21,338,297)
----------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................. 60,639,034 91,730,604 (21,096,706)
----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $72,396,763 $104,790,151 $(12,429,249)
=========== ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MONEY MARKET FUND INTERMEDIATE GOVERNMENT SECURITIES FUND
-------------------------------------------- ------------------------------------------
1996 1995 1994 1996 1995 1994
------------- ------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............... $ 8,101,644 $ 8,270,845 $ 4,542,504 $ 2,122,460 $ 1,812,562 $ 5,144,309
Net realized gain (loss) ............ (110,954) (432,347) 95,530 (490,315) (810,768) (10,163,976)
Change in unrealized appreciation/
(depreciation) on investments ...... (65,953) 57,216 47,027 (287,001) 2,882,385 (1,119,626)
------------ ------------ ------------ ----------- ----------- ------------
Net increase (decrease)in net assets
from operations ................... 7,924,737 7,895,714 4,685,061 1,345,144 3,884,179 (6,139,293)
------------ ------------ ------------ ----------- ----------- ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ............... 101,890,108 96,773,056 82,536,703 10,397,104 11,016,347 18,915,140
Benefits and other policy related
transactions (Note 3) ............. (38,404,209) (39,770,849) (32,432,771) (7,387,385) (6,286,070) (5,813,181)
Net transfers among funds ........... (36,607,946) 4,776,165 (25,466,044) 2,645,675 953,149 (125,116,319)
------------ ------------ ------------ ----------- ----------- ------------
Net increase (decrease)in net assets
from policy related transactions .. 26,877,953 61,778,372 24,637,888 5,655,394 5,683,426 (112,014,360)
------------ ------------ ------------ ----------- ----------- ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) ...... (63,127) (36,640) (24,067) (22,170) (72,636) 15,335
------------ ------------ ------------ ----------- ----------- ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS....... 34,739,563 69,637,446 29,298,882 6,978,368 9,494,969 (118,138,318)
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD . 207,133,531 137,496,085 108,197,203 37,149,044 27,654,075 145,792,393
------------ ------------ ------------ ----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ....... $241,873,094 $207,133,531 $137,496,085 $44,127,412 $37,149,044 $ 27,654,075
============ ============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
QUALITY BOND FUND
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............... $ 8,103,671 $ 7,190,658 $ 7,434,544
Net realized gain (loss) ............ (1,130,915) (632,666) (410,697)
Change in unrealized appreciation/
(depreciation) on investments ...... 143,854 13,415,524 (13,634,579)
------------ ------------ ------------
Net increase (decrease) in net assets
from operations ................... 7,116,610 19,973,516 (6,610,732)
------------ ------------ ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ............... 5,753,712 2,516,135 850,240
Benefits and other policy related
transactions (Note 3) ............. (32,021,058) (3,189,044) (2,891,278)
Net transfers among funds ........... 6,117,471 2,462,969 25,765,197
------------ ------------ ------------
Net increase (decrease) in net assets
from policy related transactions .. (20,149,875) 1,790,060 23,724,159
------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) ...... (39,868) (712,602) 255,654
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS....... (13,073,133) 21,050,974 17,369,081
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD . 138,287,446 117,236,472 99,867,391
------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ....... $125,214,313 $138,287,446 $117,236,472
============ ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HIGH YIELD FUND GROWTH & INCOME FUND
------------------------------------------- -----------------------------------------
1996 1995 1994 1996 1995 1994
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................. $ 8,177,610 $ 6,147,199 $ 4,273,424 $ 370,025 $ 310,961 $ 89,288
Net realized gain (loss) .............. 7,058,612 (179,454) (328,199) 1,948,613 2,791 (11,709)
Change in unrealized appreciation/
(depreciation) on investments ....... 1,840,843 4,697,084 (5,608,102) 2,950,992 2,264,931 (140,681)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease)in net assets
from operations...................... 17,077,065 10,664,829 (1,662,877) 5,269,630 2,578,683 (63,102)
------------ ----------- ----------- ----------- ----------- ----------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ................. 19,454,716 15,333,474 14,287,345 11,382,745 6,464,035 2,953,965
Benefits and other policy
related transactions (Note 3) ....... (16,165,764) (8,211,013) (7,162,537) (2,909,569) (1,385,132) (481,430)
Net transfers among funds ............. 9,301,980 4,789,450 (11,048,174) 5,211,758 5,274,221 3,033,230
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
from policy related transactions .... 12,590,932 11,911,911 (3,923,366) 13,684,934 10,353,124 5,505,765
------------ ----------- ----------- ----------- ----------- ----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) .......... (209,120) (100,679) 16,028 (106,424) (221,877) 6,113
------------ ----------- ----------- ----------- ----------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .......... 29,458,877 22,476,061 (5,570,215) 18,848,140 12,709,930 5,448,776
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD ..... 71,930,962 49,454,901 55,025,116 18,618,313 5,908,383 459,607
------------ ----------- ----------- ----------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ........... $101,389,839 $71,930,962 $49,454,901 $37,466,453 $18,618,313 $5,908,383
============ =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND
--------------------------------------------
1996 1995 1994*
------------ ------------ --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................. $ 1,145,887 $ 675,576 $ 443,391
Net realized gain (loss) .............. 11,903,017 539,950 127,205
Change in unrealized appreciation/
(depreciation) on investments ....... 8,996,459 12,851,051 (399,286)
----------- ----------- -----------
Net increase (decrease)
from operations...................... 22,045,363 14,066,577 171,310
----------- ----------- -----------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ................. 33,692,683 10,308,871 690,540
Benefits and other policy related
transactions (Note 3) ............... (56,493,042) (2,111,532) (472,818)
Net transfers among divisions ......... 23,434,912 18,305,589 30,736,505
----------- ----------- -----------
Net increase (decrease) in net assets
policy related transactions ......... 634,553 26,502,928 30,954,227
----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) .......... (66,020) (71,293) (134)
----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .......... 22,613,896 40,498,212 31,125,403
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD ..... 71,623,615 31,125,403 --
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ........... $94,237,511 $71,623,615 $31,125,403
=========== =========== ===========
<FN>
See Notes to Financial Statements.
* Commencement of Operations on October 1, 1994.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK FUND GLOBAL STOCK FUND
------------------------------------------------- ---------------------------------------------
1996 1995 1994 1996 1995 1994
--------------- --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
FROM OPERATIONS:
Net investment income ........ $ 3,505,756 $ 8,208,894 $ 7,014,347 $ 4,705,326 $ 3,408,544 $ 1,556,985
Net realized gain (loss) ..... 187,552,444 80,631,861 44,228,424 23,774,539 12,264,394 8,168,946
Change in unrealized
appreciation/(depreciation)
on investments ............. 112,608,618 183,872,928 (73,399,217) 22,092,458 33,395,316 (3,932,597)
-------------- -------------- ------------ ------------ ------------ ------------
Net increase (decrease)in net
assets from operations ..... 303,666,818 272,713,683 (22,156,446) 50,572,323 49,068,254 5,793,334
-------------- -------------- ------------ ------------ ------------ ------------
FROM POLICY RELATED
TRANSACTIONS:
Net premiums (Note 3) ........ 271,193,481 216,068,996 171,525,812 96,457,308 92,666,618 77,766,997
Benefits and other policy
related transactions
(Note 3) ................... (154,302,728) (118,456,643) (93,481,219) (43,292,191) (37,507,499) (23,371,745)
Net transfers among funds ...... 4,064,266 (34,354,864) 19,730,410 (4,363,741) (12,472,104) 47,610,957
-------------- -------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions ................. 120,955,019 63,257,489 97,775,003 48,801,376 42,687,015 102,006,209
-------------- -------------- ------------ ------------ ------------ ------------
NET (INCREASE) DECREASE IN
AMOUNT RETAINED BY
EQUITABLE LIFE IN
SEPARATE ACCOUNT FP
(Note 4) ..................... (429,232) (392,099) 44,948 (93,415) (96,720) (17,737)
-------------- -------------- ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET
ASSETS ATTRIBUTABLE TO
POLICYOWNERS ................. 424,192,605 335,579,073 75,663,505 99,280,284 91,658,549 107,781,806
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
BEGINNING OF PERIOD .......... 1,146,585,274 811,006,201 735,342,696 333,497,020 241,838,471 134,056,665
-------------- -------------- ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
END OF PERIOD ................ $1,570,777,879 $1,146,585,274 $811,006,201 $432,777,304 $333,497,020 $241,838,471
============== ============== ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND AGGRESSIVE STOCK FUND
--------------------------- ----------------------------------------------
1996 1995* 1996 1995 1994
------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
FROM OPERATIONS:
Net investment income ........ $ 411,375 $ 159,029 $ (2,425,125) $ (1,434,289) $ (1,544,537)
Net realized gain (loss) ..... 709,281 50,951 163,630,203 73,464,436 (6,075,250)
Change in unrealized
appreciation/(depreciation)
on investments ............. 1,189,887 667,906 (33,653,883) 49,509,800 (4,424,670)
----------- ----------- ------------ ------------ ------------
Net increase (decrease)in net
assets from operations ..... 2,310,543 877,886 127,551,195 121,539,947 (12,044,457)
----------- ----------- ------------ ------------ ------------
FROM POLICY RELATED
TRANSACTIONS:
Net premiums (Note 3) ........ 12,055,154 2,028,670 167,830,465 121,962,483 101,932,221
Benefits and other policy
related transactions
(Note 3) ................... (2,295,079) (339,723) (85,246,883) (63,165,185) (48,604,650)
Net transfers among funds ...... 17,095,516 9,885,952 28,481,572 19,367,834 4,346,636
----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions ................. 26,855,591 11,574,899 111,065,154 78,165,132 57,674,207
----------- ----------- ------------ ------------ ------------
NET (INCREASE) DECREASE IN
AMOUNT RETAINED BY
EQUITABLE LIFE IN
SEPARATE ACCOUNT FP
(Note 4) ..................... (21,865) (20,847) (205,349) (188,813) 35,791
----------- ----------- ------------ ------------ ------------
INCREASE (DECREASE) IN NET
ASSETS ATTRIBUTABLE TO
POLICYOWNERS ................. 29,144,269 12,431,938 238,411,000 199,516,266 45,665,541
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
BEGINNING OF PERIOD .......... 12,431,938 -- 555,188,131 355,671,865 310,006,324
----------- ----------- ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
END OF PERIOD ................ $41,576,207 $12,431,938 $793,599,131 $555,188,131 $355,671,865
=========== =========== ============ ============ ============
<FN>
See Notes to Financial Statements.
* Commencement of Operations on April 3, 1995.
+ Formerly known as Separate Account FP of Equitable Variable Life Insurance Company.
</FN>
</TABLE>
FSA-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------------------------------------------------
CONSERVATIVE INVESTORS FUND BALANCED FUND
--------------------------------------------- ---------------------------------------------
1996 1995 1994 1996 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........... $ 6,690,887 $ 7,247,815 $ 5,455,410 $ 10,604,542 $ 10,038,346 $ 8,453,977
Net realized gain (loss) ........ 3,677,543 689,721 (421,502) 33,240,237 8,427,606 858,164
Change in unrealized appreciation/
(depreciation) on investments.. (2,661,985) 19,129,817 (10,682,734) (714,363) 45,976,062 (40,839,536)
------------ ------------ ------------ ------------ ------------ ------------
Net increase(decrease)in net
assets from operations ........ 7,706,445 27,067,353 (5,648,826) 43,130,416 64,442,014 (31,527,395)
------------ ------------ ------------ ------------ ------------ ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ........... 38,133,118 41,419,959 48,492,315 60,530,048 63,451,955 70,116,900
Benefits and other policy related
transactions (Note 3) ......... (25,456,269) (22,866,003) (21,612,430) (50,274,632) (48,742,571) (45,655,363)
Net transfers among funds ....... (18,095,700) (3,379,296) (2,076,793) (22,122,080) (18,908,540) (19,954,097)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions .................. 5,418,851 15,174,660 24,803,092 (11,866,664) (4,199,156) 4,507,440
------------ ------------ ------------ ------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT FP (Note 4) . (36,213) (95,412) 22,600 (134,906) (93,214) 47,322
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .... 2,251,381 42,146,601 19,176,866 31,128,846 60,149,644 (26,972,633)
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, BEGINNING OF PERIOD ..... 172,087,099 129,940,498 110,763,632 398,565,209 338,415,565 365,388,198
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, END OF PERIOD ........... $174,338,480 $172,087,099 $129,940,498 $429,694,055 $398,565,209 $338,415,565
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------
GROWTH INVESTORS FUND
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........... $ 11,757,729 $ 13,059,547 $ 8,667,457
Net realized gain (loss) ........ 75,274,214 9,174,038 241,591
Change in unrealized appreciation/
(depreciation) on investments.. (14,635,180) 82,556,566 (21,338,297)
------------ ------------ ------------
Net increase (decrease) in net
assets from operations ........ 72,396,763 104,790,151 (12,429,249)
------------ ------------ ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ........... 159,654,177 155,616,059 139,140,391
Benefits and other policy related
transactions (Note 3) ......... (81,943,749) (68,357,709) (54,863,821)
Net transfers among funds ....... (7,652,116) (3,269,896) 20,294,785
------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions .................. 70,058,312 83,988,454 104,571,355
------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT FP (Note 4) . (93,120) (120,493) 15,372
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .... 142,361,955 188,658,112 92,157,478
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, BEGINNING OF PERIOD ..... 555,877,666 367,219,554 275,062,076
------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, END OF PERIOD ........... $698,239,621 $555,877,666 $367,219,554
============ ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
On September 19, 1996 the Board of Directors of The Equitable Life
Assurance Society of the United States ( "Equitable Life") approved an
Agreement and Plan of Merger by and between Equitable Life and Equitable
Variable Life Insurance Company (the "Merger Agreement"). The merger was
completed on January 1, 1997. On that date, and in accordance with the
provisions of the Merger Agreement, the separate existence of Equitable
Variable Life Insurance Company ("Equitable Variable Life") was ceased and
Equitable Life survived the merger. From January 1, 1997, Equitable Life is
liable in place of Equitable Variable Life for the liabilities and
obligations of Equitable Variable Life, including liabilities under
policies and contracts issued by Equitable Variable Life, and all of
Equitable Variable Life's assets became assets of Equitable Life.
Equitable Variable Life, a wholly-owned subsidiary of Equitable Life,
established Separate Account FP (the Account) as a unit investment trust
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940. The Account consists of thirteen investment funds: the
Money Market Fund, the Intermediate Government Securities Fund, the Quality
Bond Fund, the High Yield Fund, the Growth & Income Fund, the Equity Index
Fund, the Common Stock Fund, the Global Fund, the International Fund, the
Aggressive Stock Fund, the Conservative Investors Fund, the Balanced Fund,
and the Growth Investors Fund. The assets in each Fund are invested in
Class IA shares of a designated portfolio (Portfolio) of a mutual fund, The
Hudson River Trust (the Trust). Each Portfolio has separate investment
objectives.
The Account supports the operations of Incentive Life, flexible premium
variable life insurance policies, Incentive Life 2000, flexible premium
variable life insurance policies, Champion 2000, modified premium variable
whole life insurance policies, Survivorship 2000, flexible premium joint
survivorship variable life insurance policies, Incentive Life Plus,(SM)
flexible premium variable life insurance policies, IL Protector,(SM)
flexible premium variable life insurance policies, IL COLI, flexible premium
variable life insurance policies, IL COLI II, flexible premium variable life
insurance policies, and SP-Flex, variable life insurance policies with
additional premium option, collectively, the Policies, and the Incentive
Life 2000, Champion 2000 and Survivorship 2000 policies are referred to as
the Series 2000 Policies. Incentive Life Plus policies offered with a
prospectus dated on or after September 15, 1995, are referred to as
Incentive Life Plus Second Series. Incentive Life Plus policies issued with
a prior prospectus are referred to as Incentive Life Plus Original Series.
All Policies are issued by Equitable Life. The assets of the Account are the
property of Equitable Life. However, the portion of the Account's assets
attributable to the Policies will not be chargeable with liabilities arising
out of any other business Equitable Life may conduct.
Policyowners may allocate amounts in their individual accounts to the Funds
of the Account and/or (except for SP-Flex policies) to the guaranteed
interest rate account of Equitable Life's General Account. Net transfers to
(from) the guaranteed interest rate account of the General Account and other
Separate Accounts of ($7,511,567), $6,569,672 and $35,120,632 for the years
ended 1996, 1995 and 1993, respectively, are included in Net Transfers Among
Funds. The net assets of any Fund of the Account may not be less than the
aggregate of the policyowners' accounts allocated to that Fund. Additional
assets are set aside in Equitable Life's General Account to provide for (1)
the unearned portion of the monthly charges for mortality costs, and (2)
other policy benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded as income at the end of each quarter on the
ex-dividend date. Capital gains are distributed by the Trust at the end of
each year.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The operations of the Account are included in the consolidated Federal
income tax return of Equitable Life. Under the provisions of the Policies,
Equitable Life has the right to charge the Account for Federal income tax
attributable to the Account. No charge is currently being made against the
Account for such tax since, under current tax law, Equitable Life pays no
tax on investment income and capital gains reflected in variable life
insurance policy reserves. However, Equitable Life retains the right to
charge for any Federal income tax incurred which is attributable to the
Account if the law is changed. Charges for state and local taxes, if any,
attributable to the Account also may be made.
3. Asset Charges
Under the Policies, Equitable Life assumes mortality and expense risks and,
to cover these risks, deducts charges from the assets of the Account
currently at annual rates of 0.60% of the net assets attributable to
Incentive Life, Incentive Life 2000, Incentive Life Plus Second Series and
Champion 2000 policyowners, 0.90% of net assets attributable to Survivorship
2000 policyowners, 0.80% for IL Protector policyowners, and 0.85% for
SP-Flex policyowners, Incentive Life Plus Original Series, IL COLI, and IL
COLI II deduct this charge from the Policy Account. Under SP-Flex, Equitable
Life also deducts charges from the assets of the Account for mortality and
administrative costs of 0.60% and 0.35%, respectively, of net assets
attributable to SP-Flex policies.
Under Incentive Life, Incentive Life Plus, Series 2000, IL Protector and IL
COLI II policies, mortality and administrative charges are assessed in a
different manner than SP-Flex policies.
Before amounts are allocated to the Account for Incentive Life, Incentive
Life Plus, IL COLI, IL COLI II and the Series 2000 Policies, Equitable Life
deducts a charge for taxes and either an initial policy fee (Incentive Life)
or a premium sales charge (Incentive Life Plus, IL COLI II and Series 2000
Policies) from premiums. Under SP-Flex, the entire initial premium is
allocated to the Account. Before any additional premiums under SP-Flex are
allocated to the Account, however, an administrative charge is deducted.
The amounts attributable to Incentive Life, Incentive Life Plus, IL
Protector, IL COLI, IL COLI II and the Series 2000 policyowners' accounts
are assessed monthly by Equitable Life for mortality and administrative
charges. These charges are withdrawn from the Account along with amounts for
additional benefits. Under the Policies, amounts for certain policy-related
transactions (such as policy loans and surrenders) are transferred out of
the Separate Account.
4. Amounts Retained by Equitable Life in Separate Account FP
The amount retained by Equitable Life in the Account arises principally from
(1) contributions from Equitable Life, and (2) that portion, determined
ratably, of the Account's investment results applicable to those assets in
the Account in excess of the net assets for the Policies. Amounts retained
by Equitable Life are not subject to charges for mortality and expense risks
or mortality and administrative costs.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the surplus contributions (withdrawals) by
Equitable Life by investment fund:
Years Ended December 31,
-------------------------------------
INVESTMENT FUND 1996 1995 1994
--------------- ---- ---- ----
Money Market -- $ (250,000) --
Intermediate Government Securities -- (165,000) --
Quality Bond $ (125,000) (4,800,000) --
High Yield -- (100,000) --
Growth & Income (75,000) (685,000) --
Equity Index -- -- $ 200,000
Common Stock (185,000) $ (630,000) --
Global -- (130,000) --
International -- 200,000 --
Aggressive Stock (125,000) (350,000) --
Conservative Investors (80,000) -- --
Balanced (90,000) -- --
Growth Investors (175,000) -- --
Short-Term World Income -- -- (5,165,329)
----------- ----------- -----------
$ (855,000) $(6,910,000) $(4,965,329)
=========== =========== ===========
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. Distribution and Servicing Agreements
Equitable Life has entered into a Distribution and Servicing Agreement with
EQ Financial Consultants Inc., whereby registered representatives of EQ
Financial Consultants Inc., authorized as variable life insurance agents
under applicable state insurance laws, sell the Policies. The registered
representatives are compensated on a commission basis by Equitable Life.
6. Share Substitution
On February 22, 1994, Equitable Variable Life, the Account and the Trust
substituted shares of the Trust's Intermediate Government Securities
Portfolio for shares of the Trust's Short-Term World Income Portfolio. The
amount transferred to Intermediate Government Securities Portfolio was
$2,192,109. The statements of operations and statements of changes in net
assets for the Intermediate Government Securities Portfolio is combined
with the Short-Term World Income Portfolio for periods prior to the merger
on February 22, 1994. The Short-Term World Income Fund is not available for
future investment.
7. Investment Returns
The Separate Account rates of return attributable to Incentive Life,
Incentive Life 2000, Incentive Life Plus Second Series and Champion 2000
policyowners are different than those attributable to Survivorship 2000,
Incentive Life Plus Original Series, IL Protector, IL COLI, IL COLI II and
to SP-Flex policyowners because asset charges are deducted at different
rates under each policy (see Note 3).
The tables on the following pages show the gross and net investment returns
with respect to the Funds for the periods shown. The net return for each
Fund is based upon net assets for a policy whose policy commences with the
beginning date of such period and is not based on the average net assets in
the Fund during such period. Gross return is equal to the total return
earned by the underlying Trust investment.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996
RATES OF RETURN:
INCENTIVE LIFE,
- ---------------
INCENTIVE LIFE 2000,
- --------------------
INCENTIVE LIFE PLUS SECOND SERIES
- ---------------------------------
AND CHAMPION 2000*
- ------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
MONEY MARKET FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.33% 5.74% 4.02% 3.00% 3.56% 6.18% 8.24% 9.18% 7.32% 6.63%
Net return................ 4.70% 5.11% 3.39% 2.35% 2.94% 5.55% 7.59% 8.53% 6.68% 5.99%
<CAPTION>
APRIL 1(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
INTERMEDIATE GOVERNMENT -----------------------------------------------------------
SECURITIES FUND 1996 1995 1994 1993 1992 1991
- --------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross return.............. 3.78% 13.33% (4.37)% 10.58% 5.60% 12.26%
Net return................ 3.15% 12.65% (4.95)% 9.88% 4.96% 11.60%
YEARS ENDED OCTOBER 1(A) TO
DECEMBER 31, DECEMBER 31,
------------------------------------------------
QUALITY BOND FUND 1996 1995 1994 1993
- ----------------- ---- ---- ---- ----
Gross return.............. 5.36% 17.02% (5.10)% (0.51)%
Net return................ 4.73% 16.32% (5.67)% (0.66)%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
HIGH YIELD FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.89% 19.92% (2.79)% 23.15% 12.31% 24.46% (1.12)% 5.13% 9.73% 4.68%
Net return................ 22.14% 19.20% (3.37)% 22.41% 11.64% 23.72% (1.71)% 4.50% 9.08% 4.05%
YEARS ENDED OCTOBER 1(A) TO
DECEMBER 31, DECEMBER 31,
-------------------------------------------
GROWTH & INCOME FUND 1996 1995 1994 1993
- -------------------- ---- ---- ---- ----
Gross return.............. 20.09% 24.07% (0.58)% (0.25)%
Net return................ 19.36% 23.33% (1.17)% (0.41)%
<CAPTION>
YEARS ENDED SEPTEMBER 30(A)
DECEMBER 31, TO DECEMBER 31,
---------------------------------------------------
EQUITY INDEX FUND 1996 1995 1994
- ----------------- ---- ---- ----
<S> <C> <C> <C>
Gross return.............. 22.39% 36.48% 1.08%
Net return................ 21.65% 35.66% 0.58%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
COMMON STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 24.28% 32.45% (2.14)% 24.84% 3.22% 37.88% (8.12)% 25.59% 22.43% 7.49%
Net return................ 23.53% 31.66% (2.73)% 24.08% 2.60% 37.06% (8.67)% 24.84% 21.70% 6.84%
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------------------------------------------
GLOBAL FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 14.60% 18.81% 5.23% 32.09% (0.50)% 30.55% (6.07)% 26.93% 10.88% (13.27)%
Net return................ 13.91% 18.11% 4.60% 31.33% (1.10)% 29.77% (6.63)% 26.17% 10.22% (13.45)%
YEARS ENDED APRIL 3(A) TO
DECEMBER DECEMBER 31,
31,
----------------------------
INTERNATIONAL FUND 1996 1995
- ------------------ ---- ----
Gross return.............. 9.82% 11.29%
Net return................ 9.15% 10.79%
<FN>
- ----------
* Sales of Incentive Life 2000 and Champion 2000 commenced on March 2, 1992. Sales of Incentive Life Plus Second Series commenced
on September 15, 1995.
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
AGGRESSIVE STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.20% 31.63% (3.81)% 16.77% (3.16)% 86.86% 8.17% 43.50% 1.17% 7.31%
Net return................ 21.46% 30.85% (4.39)% 16.05% (3.74)% 85.75% 7.51% 42.64% 0.53% 6.66%
<CAPTION>
ASSET ALLOCATION SERIES
OCTOBER 2(A)
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
CONSERVATIVE --------------------------------------------------------------------------------
INVESTORS FUND 1996 1995 1994 1993 1992 1991 1990 1989
- -------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.21% 20.40% (4.10)% 10.76% 5.72% 19.87% 6.37% 3.09%
Net return................ 4.57% 19.68% (4.67)% 10.15% 5.09% 19.16% 5.73% 2.94%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
BALANCED FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 11.68% 19.75% (8.02)% 12.28% (2.84)% 41.26% 0.24 % 25.83% 13.27% (0.85)%
Net return................ 11.00% 19.03% (8.57)% 11.64% (3.42)% 40.42% (0.36)% 25.08% 12.59% (1.45)%
<CAPTION>
GROWTH INVESTORS FUND 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 12.61% 26.37% (3.15)% 15.26% 4.90% 48.89% 10.66% 3.98%
Net return................ 11.93% 25.62% (3.73)% 14.58% 4.27% 48.01% 10.00% 3.82%
</TABLE>
<TABLE>
<CAPTION>
RATES OF RETURN:
SURVIVORSHIP 2000
- -----------------
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------
MONEY MARKET FUND 1996 1995 1994 1993 1992
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 5.33% 5.74% 4.02% 3.00% 1.11%
Net return................ 4.38% 4.80% 3.08% 2.04% 0.77%
<CAPTION>
INTERMEDIATE GOVERNMENT
SECURITIES FUND 1996 1995 1994 1993 1992
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 3.78% 13.33% (4.37)% 10.58% 0.90%
Net return................ 2.84% 12.31% (5.23)% 9.55% 0.56%
<CAPTION>
OCTOBER 1(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------
QUALITY BOND FUND 1996 1995 1994 1993
- ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross return.............. 5.36% 17.02% (5.10)% (0.51)%
Net return................ 4.41% 15.97% (5.95)% (0.73)%
<CAPTION>
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------
HIGH YIELD FUND 1996 1995 1994 1993 1992
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 22.89% 19.92% (2.79)% 23.15% 1.84%
Net return................ 21.77% 18.84% (3.66)% 22.04% 1.50%
<CAPTION>
OCTOBER 1(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------
GROWTH & INCOME FUND 1996 1995 1994 1993
- -------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross return.............. 20.09% 24.07% (0.58)% (0.25)%
Net return................ 19.00% 22.96% (1.47)% (0.48)%
<FN>
- ----------
* Sales of Incentive Life 2000 and Champion 2000 commenced on March 2, 1992. Sales of Incentive Life Plus Second Series commenced
on September 15, 1995.
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
YEARS ENDED MARCH 1(A) TO
DECEMBER 31, DECEMBER 31,
---------------------------------------------
EQUITY INDEX FUND 1996 1995 1994
- ----------------- ---- ---- ----
Gross return.............. 22.39% 36.48% 1.08%
Net return................ 21.28% 35.26% 0.33%
<TABLE>
<CAPTION>
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------
COMMON STOCK FUND 1996 1995 1994 1993 1992
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 24.28% 32.45% (2.14)% 24.84% 5.28%
Net return................ 23.15% 31.26% (3.02)% 23.70% 4.93%
GLOBAL FUND
- -----------
Gross return.............. 14.60% 18.81% 5.23% 32.09% 4.87%
Net return................ 13.56% 17.75% 4.29% 30.93% 4.52%
AGGRESSIVE STOCK FUND
- ---------------------
Gross return.............. 22.20% 31.63% (3.81)% 16.77% 11.49%
Net return................ 21.09% 30.46% (4.68)% 15.70% 11.11%
</TABLE>
YEARS ENDED APRIL 3(A) TO
DECEMBER 31, DECEMBER 31,
----------------------------------
INTERNATIONAL FUND 1996 1995
- ------------------ ---- ----
Gross return.............. 9.82% 11.29%
Net return................ 8.82% 10.55%
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
CONSERVATIVE INVESTORS -----------------------------------------------------------------
FUND 1996 1995 1994 1993 1992
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 5.21% 20.40% (4.10)% 10.76% 1.38%
Net return................ 4.26% 19.32% (4.96)% 9.81% 1.04%
BALANCED FUND 1996 1995 1994 1993 1992
- ------------- ---- ---- ---- ---- ----
Gross return.............. 11.68% 19.75% (8.02)% 12.28% 5.37%
Net return................ 10.67% 18.68% (8.84)% 11.30% 5.02%
GROWTH INVESTORS FUND 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Gross return.............. 12.61% 26.37% (3.15)% 15.26% 6.89%
Net return................ 11.59% 25.24% (4.02)% 14.24% 6.53%
<FN>
- ----------------
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
RATES OF RETURN:
INCENTIVE LIFE PLUS ORIGINAL SERIES*(B)
- ---------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1995
---- ----
Money Market Fund.............. 5.33% 5.69%
Intermediate Government
Securities Fund................ 3.78% 13.31%
Quality Bond Fund.............. 5.36% 17.13%
High Yield Fund................ 22.89% 19.95%
Growth & Income Fund........... 20.09% 24.38%
Equity Index Fund.............. 22.38% 36.53%
Common Stock Fund.............. 24.28% 33.07%
Global Fund.................... 14.60% 19.38%
YEAR ENDED DECEMBER 31, APRIL 30 TO DECEMBER 31, (A)
----------------------------------------------------
1996 1995
---- ----
International Fund............. 9.81% 11.29%
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995
---- ----
Aggressive Stock Fund.......... 22.20% 33.00%
ASSET ALLOCATION SERIES
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
---- ----
Conservative Investors Fund.... 5.21% 20.59%
Balanced Fund.................. 11.68% 20.32%
Growth Investors Fund.......... 12.61% 26.92%
- ---------------------------
*Sales of Incentive Life Plus Original Series commenced on January 6, 1995.
(a) Date as of which net premiums under the policies were first allocated to
the Fund. The returns for the periods indicated are not annual rates of
return.
(b) There are no Separate Account asset charges for this policy and therefore
the gross and net rates of return are the same. The rate of return for the
year ended December 31, 1995 indicated is not an annual rate of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
RATES OF RETURN:
IL PROTECTOR*(b)
- ----------------
AUGUST 5 TO DECEMBER 31,(A)
----------------------------
1996
----
Money Market Fund..................... 2.98%
Intermediate Government
Securities Fund....................... 4.49%
Quality Bond Fund..................... 7.86%
High Yield Fund....................... 13.90%
Growth & Income Fund.................. 15.63%
Equity Index Fund..................... 16.25%
Common Stock Fund..................... 17.44%
Global Fund........................... 6.78%
Inernational Fund..................... 2.11%
Aggressive Stock Fund................. 6.22%
ASSET ALLOCATION SERIES
AUGUST 5 TO DECEMBER 31,(A)
----------------------------
1996
----
Conservative Investors Fund........... 7.94%
Balanced Fund......................... 8.67%
Growth Investors Fund................. 9.38%
- ----------
*Sales of Incentive Life Protector commenced on August 5, 1996.
(a) Date as of which net premiums under the policies were first allocated to the
Fund. The returns for the periods indicated are not
annual rates of return.
(b) There are no Separate Account asset changes for this policy and therefore
the gross and net rates of return are the same.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
RATES OF RETURN:
SP-FLEX
- -------
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
MONEY MARKET FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.33% 5.74% 4.02% 3.00% 3.56% 6.17% 8.24% 9.18% 7.32% 2.15%
Net return................ 3.44% 3.86% 2.17% 1.13% 1.71% 4.29% 6.30% 7.24% 5.41% 1.62%
</TABLE>
APRIL 1(A)
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
INTERMEDIATE GOVERNMENT --------------------------------------------------
SECURITIES FUND 1996 1995 1994 1993 1992 1991
- --------------- ---- ---- ---- ---- ---- ----
Gross return.............. 3.78% 13.33% (4.37)% 10.58% 5.60% 12.10%
Net return................ 1.91% 11.31% (6.08)% 8.57% 3.71% 10.59%
SEPTEMBER 1(A)
YEARS ENDED TO
DECEMBER 31, DECEMBER 31,
----------------------------------------------
QUALITY BOND FUND 1996 1995 1994
- ----------------- ---- ---- ----
Gross return.............. 5.36% 17.02% (2.20)%
Net return................ 3.47% 14.94% (2.35)%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
HIGH YIELD FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.89% 19.92% (2.79)% 23.15% 12.31% 24.46% (1.12)% 5.13% 9.73% 1.95%
Net return................ 20.68% 17.79% (4.52)% 20.96% 10.30% 22.25% (2.89)% 3.26% 7.78% 1.39%
</TABLE>
SEPTEMBER 1(A)
YEARS ENDED TO
DECEMBER 31, DECEMBER 31,
----------------------------------------------
GROWTH & INCOME FUND 1996 1995 1994
- -------------------- ---- ---- ----
Gross return.............. 20.09% 24.07% (3.40)%
Net return................ 17.93% 21.87% (3.55)%
EQUITY INDEX FUND 1996 1995 1994
- ----------------- ---- ---- ----
Gross return.............. 22.39% 36.48% (2.54)%
Net return................ 20.19% 34.06% (2.69)%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
COMMON STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 24.28% 32.45% (2.14)% 24.84% 3.23% 37.87% (8.12)% 25.59% 22.43% (22.57)%
Net return................ 22.04% 30.10% (3.88)% 22.60% 1.38% 35.43% (9.76)% 23.36% 20.26% (23.00)%
GLOBAL FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Gross return.............. 14.60% 18.81% 5.23% 32.09% (0.50)% 30.55% (6.07)% 26.93% 10.88% (11.40)%
Net return................ 12.54% 16.70% 3.36% 29.77% (2.28)% 28.23% (7.75)% 24.67% 8.90% (11.86)%
</TABLE>
YEARS ENDED APRIL 3(A) TO
DECEMBER 31, DECEMBER 31,
------------------------------
INTERNATIONAL FUND 1996 1995
- ------------------ ---- ----
Gross return.............. 9.82% 11.29%
Net return................ 7.84% 9.82%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
AGGRESSIVE STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.20% 31.63% (3.81)% 16.77% (3.16)% 86.86% 8.17% 43.50% 1.17 % (24.28)%
Net return................ 20.00% 29.30% (5.53)% 14.67% (4.89)% 83.54% 6.23% 40.95% (0.66)% (24.68)%
<FN>
- ----------
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
YEARS ENDED SEPTEMBER 1(A) TO
ASSET ALLOCATION SERIES DECEMBER 31, DECEMBER 31,
CONSERVATIVE INVESTORS ------------------------------------------------------
FUND 1996 1995 1994
- ---- ---- ---- ----
Gross return.......... 5.21% 20.40% (1.83)%
Net return............ 3.32% 18.26% (1.98)%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------------------------------------------------
BALANCED FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.......... 11.68% 19.75% (8.02)% 12.28% (2.83)% 41.27% 0.24 % 25.83% 13.27% (20.26)%
Net return............ 9.67% 17.62% (9.66)% 10.31% (4.57)% 38.75% (1.56)% 23.59% 11.25% (20.71)%
</TABLE>
YEARS ENDED SEPTEMBER 1(A) TO
DECEMBER 31, DECEMBER 31,
GROWTH INVESTORS ------------------------------------------------------
FUND 1996 1995 1994
- ---- ---- ---- ----
Gross return........... 12.61% 26.37% (3.16)%
Net return............. 10.58% 24.12% (3.31)%
- ----------
(a) Date as of which net premiums under the policies were first allocated to the
Fund. The gross return and the net return for the periods indicated are not
annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995 and for
postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business is
conducted principally by Equitable Life and its wholly owned life
insurance subsidiary, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which will continue to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), Equitable Real Estate Investment
Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate. AXA-UAP ("AXA"),
a French holding company for an international group of insurance and
related financial services companies, is the Holding Company's largest
shareholder, owning approximately 60.8% at December 31, 1996 (63.6%
assuming conversion of Series E Convertible Preferred Stock held by AXA
and 54.4% if all securities convertible into, and options on, common
stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") lines of business. The Company established a
pre-tax provision for the estimated future losses of the GIC line of
business and a premium deficiency reserve for the Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect of
accounting change by $19.2 million, net of Federal income taxes of $10.3
million for 1996. The financial statements for 1995 and 1994 have been
retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million, and $(2.6)
million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in investment
gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were
computed using the forecasted cash flows of the respective properties
discounted at a rate equal to the Company's cost of funds. The adoption
of the statement resulted in the release of valuation allowances of
$152.4 million and recognition of impairment losses of $144.0 million on
real estate held and used. Real estate which management has committed to
disposing of by sale or abandonment is classified as real estate to be
disposed of. Valuation allowances on real estate to be disposed of
continue to be computed using the lower of estimated fair value or
depreciated cost, net of disposition costs. Implementation of the SFAS
No. 121 impairment requirements relative to other assets to be disposed
of resulted in a charge for the cumulative effect of an accounting
change of $23.1 million, net of a Federal income tax benefit of $12.4
million, due to the writedown to fair value of building improvements
relating to facilities being vacated beginning in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans within
the scope of this statement are measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company provides for
impairment of loans through an allowance for possible losses. The
adoption of this statement did not have a material effect on the level
of these allowances or on the Company's consolidated statements of
earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Companies which elect to
continue to apply APB Opinion No. 25 must provide pro forma net income
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock option plans sponsored by the
Holding Company, DLJ and Alliance in accordance with the provisions of
APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset to
unrealized gains (losses) in consolidated shareholder's equity as of the
balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
include a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as claim
incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a reasonable
basis and are adequate, there can be no assurance reserves will be
sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding $175.0 million of reserve strengthening in
1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes were charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities were
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost of
$3,915.7 million and $3,748.9 million, respectively, had estimated fair
values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(258.0) million, $1,077.2 million and $(742.2)
million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an investment
gain of $20.6 million as a result of the issuance of Alliance Units in
this transaction. At December 31, 1996, the Company's ownership of
Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The Company continues to hold its
1% general partnership interest in Alliance. The Company recognized an
investment gain of $52.4 million as a result of these transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from significant deterioration in creditworthiness.
The amortized cost of the security sold was $4.2 million. The aggregate
amortized cost of the securities transferred was $81.3 million with
gross unrealized investment losses of $.1 million transferred to equity.
At December 1, 1995, $1,750.7 million of securities classified as held
to maturity were transferred to the available for sale portfolio. As a
result, unrealized gains of $88.5 million on fixed maturities were
recognized, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
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
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. Subsequently,
the GIC Segment remitted $1,155.4 million in cash to continuing
operations in partial repayment of borrowings by the GIC Segment. No
gains or losses were recognized on these transactions. Amounts due to
continuing operations at December 31, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction of
debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,406.4 million and $1,629.7 million at December 31, 1996
and 1995, respectively, as collateral for certain long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life no longer is required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's and EREIM's benefits are based on a
cash balance formula or years of service and final average earnings, if
greater, under certain grandfathering rules in the plans. Alliance's
benefits are based on years of credited service, average final base
salary and primary social security benefits. The Company's funding
policy is to make the minimum contribution required by the Employee
Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1996, 1995 and 1994, the Company made
estimated postretirement benefits payments of $18.9 million, $31.1
million and $29.8 million, respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on interest-sensitive
individual annuities contracts. The outstanding notional amounts at
December 31, 1996 of contracts purchased and sold were $5,050.0 million
and $500.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $22.5 million and is being amortized ratably over
the contract periods ranging from 3 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's involvement
in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains
or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair values
for single premium deferred annuities ("SPDA") are estimated using
projected cash flows discounted at current offering rates. The estimated
fair values for supplementary contracts not involving life contingencies
("SCNILC") and annuities certain are derived using discounted cash flows
based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 million. Management believes
the Company will not incur any material losses as a result of these
commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
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. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date, no
such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the policies, and that statements in the policies
and elsewhere concerning premium increases constituted fraudulent
concealment, misrepresentations in violation of New York Insurance Law
Section 4226 and deceptive practices under New York General Business Law
Section 349. The complaint seeks a declaratory judgment, injunctive
relief restricting the methods by which Equitable Life increases
premiums on the policies in the future, a refund of premiums, and
punitive damages. Plaintiffs also have indicated that they will seek
damages in an unspecified amount. Equitable Life moved to dismiss the
complaint in its entirety on the grounds that it fails to state a claim
and that uncontroverted documentary evidence establishes a complete
defense to the claims. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These actions are asserted on behalf of proposed
classes of Pennsylvania issued or renewed policyholders and Texas issued
or renewed policyholders, insured under the policies. The Pennsylvania
and Texas actions seek compensatory and punitive damages and injunctive
relief restricting the methods by which Equitable Life increases
premiums in the future based on the common law and statutes of those
states. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigations, 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 results of operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, EOC, in New York state court, entitled Sidney
C. Cole et al. v. The Equitable Life Assurance Society of the United
States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley and Dillon litigations should
not have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigations, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated v.
The Equitable Life Assurance Society of the United States, and Equitable
Variable Life Insurance Company, was filed in Massachusetts state court
making claims similar to those in the Franze action and alleging
violations of the Massachusetts securities laws. The plaintiff purports
to represent all persons in Massachusetts who purchased variable life
insurance contracts from Equitable Life and EVLICO from January 9, 1993
to the present. The Massachusetts action seeks rescission of the
contracts or compensatory damages, attorneys' fees, expenses and
injunctive relief. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action,
the Company's management believes that the ultimate resolution of the
litigations discussed in this paragraph should not have a material
adverse effect on the financial position of the Company. Due to the
early stages of such litigation, the Company's management cannot make an
estimate of loss, if any, or predict whether or not any such litigation
will have a material adverse effect on the Company's results of
operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on the Company's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which seeks certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, seeks an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The
principal allegations of the Complaint are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of
the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") and certain other defendants
for unspecified compensatory and punitive damages in the United States
District Court for the Southern District of New York. The suit was
brought on behalf of the purchasers of 126,457 units consisting of
$126,457,000 aggregate principal amount of 13 1/2% senior notes due 2001
and 126,457 warrants to purchase shares of common stock of Rickel issued
by Rickel in October 1994. The complaint alleges violations of Federal
securities laws and common law fraud against DLJSC, as the underwriter
of the units and as an owner of 7.3% of the common stock of Rickel, Eos
Partners, L.P., and General Electric Capital Corporation, each as owners
of 44.2% of the common stock of Rickel, and members of the Board of
Directors of Rickel, including a DLJSC Managing Director. The complaint
seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in
connection with the offering of the units, alleging that the defendants
knew of financial losses and a decline in value of Rickel in the months
prior to the offering and did not disclose such information. The
complaint also alleges that Rickel failed to pay its semi-annual
interest payment due on the units on December 15, 1995 and that Rickel
filed a voluntary petition for reorganization pursuant to Chapter 11 of
the United States Bankruptcy Code on January 10, 1996. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe the
outcome of this litigation will have a material adverse effect on its
financial condition. Due to the early stage of this litigation, based on
the information currently available to it, DLJ's management cannot make
an estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe that
the ultimate outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of such
litigation, based upon the information currently available to it, DLJ's
management cannot make an estimate of loss, if any, or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million, $110.6
million, $100.3 million, $72.3 million, $59.3 million and $427.3 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1997 and the succeeding four years are $9.8 million, $6.0
million, $4.5 million, $2.4 million, $.8 million and $.1 million
thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1996, 1995 and 1994, statutory net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect the Company's accounting change adopted in the fourth quarter
of 1996 for long-duration participating life contracts in accordance
with the provisions prescribed by SFAS No. 120. Net earnings for the
three months ended December 31, 1996 includes a charge of $339.3 million
related to writeoffs of DAC on DI contracts of $94.3 million, reserve
strengthening on DI business of $113.7 million, pension par of $47.5
million and the discontinued GIC Segment of $83.8 million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess of
the proceeds over the book value in DLJ at the date of sale of $340.2
million has been reflected as a capital contribution. In 1995, DLJ
completed the initial public offering ("IPO") of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27 per share. Concurrent with the IPO, the
Company contributed equity securities to DLJ having a market value of
$21.2 million. Upon completion of the IPO, the Company's ownership
percentage was reduced to 36.1%. The Company's ownership interest will
be further reduced upon the issuance of common stock after the vesting
of forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in APB Opinion No. 25. Had compensation expense of the Company's stock
option incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, the Company's pro forma net earnings for 1996
and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
MANAGEMENT APPENDIX A
Here is a list of our directors and, to the extent they are responsible for
variable life insurance operations, our principal officers and a brief statement
of their business experience for the past five years. Unless otherwise noted,
their address is 1290 Avenue of the Americas, New York, New York 10104.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Claude Bebear Director of Equitable since July 1991. Chairman of the Board of the Holding Company
AXA-UAP (February 1996-present) and a Director of other affiliates of Equitable. Chairman of the
23, Avenue Matignon Executive Board of AXA-UAP ("AXA-UAP") since January 1997. Prior thereto, he was Chairman
75008 Paris, France and Chief Executive Officer of AXA S.A. Chief Executive Officer of the AXA-UAP Group
(formerly known as the AXA Group) since 1974 and Chairman or Director of numerous
subsidiaries and affiliated companies of the AXA-UAP Group.
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Brocksom Director of Equitable since July 1992. Chief Executive Officer, AXA Equity & Law Life
AXA Equity & Law Assurance Society PLC ("AXA Equity & Law") and various directorships and officerships with
Elbury 9 AXA Equity & Law affiliated companies.
Weedon Lane
Buckinghamshire HP 6505
England
- ------------------------------------------------------------------------------------------------------------------------------------
Francoise Colloc'h Director of Equitable since July 1992. Senior Executive Vice President Human Resources and
AXA-UAP Communications of AXA-UAP, and various positions with AXA-UAP affiliated companies. Director
23, Avenue Matignon of the Holding Company.
75008 Paris, France
- ------------------------------------------------------------------------------------------------------------------------------------
Henri de Castries Director of Equitable since September 1993. Vice Chairman of the Board of the Holding
AXA-UAP Company since February 1996. Senior Executive Vice President Financial Services and Life
23, Avenue Matignon Insurance Activities of AXA-UAP since 1996. Also Director or Officer of various subsidiaries
75008 Paris, France and affiliates of the AXA-UAP Group. Director of the Holding Company and of other Equitable
affiliates. Previously held other officerships with the AXA Group.
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph L. Dionne Director of Equitable since May 1982. Chairman (since April 1988) and Chief Executive
The McGraw-Hill Companies Officer (since April 1983) of The McGraw-Hill Companies. Director of the Holding Company.
1221 Avenue of the Americas
New York, NY 10020
- ------------------------------------------------------------------------------------------------------------------------------------
William T. Esrey Director of Equitable since July 1986. Chairman (since April 1990) and Chief Executive
Sprint Corporation Officer (since 1985) of Sprint Corporation. Director of the Holding Company.
P.O. Box 11315
Kansas City, MO 64112
- ------------------------------------------------------------------------------------------------------------------------------------
Jean-Rene Fourtou Director of Equitable since July 1992. Chairman and Chief Executive Officer, Rhone-Poulenc
Rhone-Poulenc S.A. S.A. since 1986. Member of the Supervisory Board of AXA-UAP. Director of the Holding
25, Quai Paul Doumer Company.
92408 Courbevoie Cedex
France
- ------------------------------------------------------------------------------------------------------------------------------------
Norman C. Francis Director of Equitable since March 1989. President, Xavier University of Louisiana.
Xavier University of Louisiana
7325 Palmetto Street
New Orleans, LA 70125
- ------------------------------------------------------------------------------------------------------------------------------------
Donald J. Greene Director of Equitable since July 1991. Partner, LeBoeuf, Lamb, Greene & MacRae since 1965.
LeBouef, Lamb, Greene & MacRae Director of the Holding Company.
125 West 55th Street
New York, NY 10019-4513
- ------------------------------------------------------------------------------------------------------------------------------------
A-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
John T. Hartley Director of Equitable since August 1987. Retired Chairman and Chief Executive Officer of
Harris Corporation Harris Corporation (retired since July 1995); previously held other officerships with Harris
1025 NASA Boulevard Corporation. Director of the Holding Company.
Melbourne, FL 32919
- ------------------------------------------------------------------------------------------------------------------------------------
John H.F. Haskell, Jr. Director of Equitable since July 1992. Managing Director of Dillon, Read & Co., Inc. since
Dillon, Read & Co., Inc. 1975 and member of its Board of Directors. Director of the Holding Company.
535 Madison Avenue
New York, NY 10022
- ------------------------------------------------------------------------------------------------------------------------------------
Mary R. (Nina) Henderson Director of Equitable since December 1996. President of CPC Specialty Markets Group of CPC
CPC Specialty Markets Group International, Inc. since 1993. Prior thereto, President of CPC Specialty Products and Best
700 Sylvan Avenue Foods Exports. Director of the Holding Company
Englewood Cliffs, NJ 07632
- ------------------------------------------------------------------------------------------------------------------------------------
W. Edwin Jarmain Director of Equitable since July 1992. President of Jarmain Group Inc. since 1979; also an
Jarmain Group Inc. Officer or Director of several affiliated companies. Chairman and Director of FCA
121 King Street West International Ltd. Director of various AXA affiliated companies. Previously held other
Suite 2525, Box 36 officerships with FCA International. Director of the Holding Company.
Toronto, Ontario M5H 3T9,
Canada
- ------------------------------------------------------------------------------------------------------------------------------------
G. Donald Johnston, Jr. Director of Equitable since January 1986. Retired Chairman and Chief Executive Officer, JWT
184-400 Ocean Road Group, Inc. and J. Walter Thompson Company.
John's Island
Vero Beach, FL 32963
- ------------------------------------------------------------------------------------------------------------------------------------
Winthrop Knowlton Director of Equitable since October 1973. Chairman of the Board of Knowlton Brothers, Inc.
Knowlton Brothers, Inc. since May 1989; also President of Knowlton Associates, Inc. since September 1987; Director
530 Fifth Avenue of the Holding Company.
New York, NY 10036
- ------------------------------------------------------------------------------------------------------------------------------------
Arthur L. Liman Director of Equitable since March 1984. Partner, Paul, Weiss, Rifkind, Wharton & Garrison
Paul, Weiss, Rifkind, since 1966. Director of the Holding Company.
Wharton and Garrison
1285 Avenue of the Americas
New York, NY 10019
- ------------------------------------------------------------------------------------------------------------------------------------
George T. Lowy Director of Equitable since July 1992. Partner, Cravath, Swaine & Moore since 1965.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
- ------------------------------------------------------------------------------------------------------------------------------------
Didier Pineau-Valencienne Director of Equitable since February 1996. Chairman and Chief Executive Officer of
Schneider S.A. Schneider S.A. since 1981 and Chairman or Director of numerous subsidiaries and affiliated
64-70, Avenue Jean-Baptiste Clement companies of Schneider. Director of AXA-UAP and the Holding Company.
92646 Boulogne-Billancourt Cedex
France
- ------------------------------------------------------------------------------------------------------------------------------------
George J. Sella, Jr. Director of Equitable since May 1987. Retired Chairman and Chief Executive Officer of
P.O. Box 397 American Cyanamid Company (until April 1993); previously held other officerships with
Newton, NJ 07860 American Cyanamid. Director of the Holding Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Dave H. Williams Director of Equitable since March 1991. Chairman and Chief Executive Officer of Alliance
Alliance Capital Management since 1977 and Chairman or Director of numerous subsidiaries and affiliated companies
Corporation of Alliance. Director of the Holding Company.
1345 Avenue of the Americas
New York, NY 10105
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS and DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
William T. McCaffrey Director, Senior Executive Vice President and Chief Operating Officer of Equitable (all
since February 1996). Executive Vice President and Chief Administrative Officer (since
February 1994) of the Holding Company. Director of various Equitable affiliated companies.
Previously held other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph J. Melone Chairman, Chief Executive Officer and President of Equitable. Chief Executive Officer of the
Holding Company since February 1996 and Director and President of the Holding Company since
May 1992. Director of various Equitable and AXA-UAP affiliated companies.
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
A. Frank Beaz Senior Vice President, Equitable. Executive Vice President, EQ Financial Consultants, Inc.
("EQF") (since May 1995). Director, Equitable Realty Assets Corporation since December 1996.
Previously held other officerships with Equitable.
- ------------------------------------------------------------------------------------------------------------------------------------
Leon B. Billis Senior Vice President, Equitable. Previously held other officerships with Equitable.
- ------------------------------------------------------------------------------------------------------------------------------------
Harvey Blitz Senior Vice President and Deputy Chief Financial Officer, Equitable. Senior Vice
President, the Holding Company; Vice President and Director, EQ Advisors Trust (EQAT);
Chairman of Frontier Trust Company and Director of various Equitable affiliated companies.
Previously held other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin R. Byrne Vice President and Treasurer, Equitable and the Holding Company; Treasurer, EquiSource and
Frontier Trust Company. Vice President and Treasurer, Equitable Casualty Insurance Company
and EQAT. Previously held other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Jerry M. de St. Paer Executive Vice President, Equitable. Senior Executive Vice President (since May 1996) and
Chief Financial Officer (since May 1992) of the Holding Company. Executive Vice President
and Chief Operating Officer (since September 1994) of Equitable Investment Corporation.
Director of various Equitable affiliated companies. Previously held various officerships
with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon G. Dinsmore Senior Vice President, Equitable. Executive Vice President, EQF. Vice President, EQAT.
Director of other Equitable affiliated companies. Previously held other officerships with
Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Alvin H. Fenichel Senior Vice President and Controller, Equitable and the Holding Company. Previously held
other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Paul J. Flora Senior Vice President and Auditor, Equitable. Vice President and Auditor, Holding Company
(since September 1994). Vice President/Auditor, National Westminster Bank (November 1984 to
June 1993).
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Garber Executive Vice President and General Counsel, Equitable and the Holding Company. Previously
held other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Donald R. Kaplan Vice President and Chief Compliance Officer, Equitable. Previously held other officerships
with Equitable.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Martin Senior Vice President, Equitable. Chairman and Chief Executive Officer, EQF. Vice President,
EQAT and HRT. Director, Equitable Underwriting and Sales Agency (Bahamas), Ltd. (since May
1996) and Colorado (since January 1995). Previously held other officerships with Equitable
and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Peter D. Noris Executive Vice President and Chief Investment Officer, Equitable. Executive Vice President
(since May 1995) and Chief Investment Officer (since July 1995), Holding Company. Trustee,
HRT and President and Trustee, EQAT. Director of Alliance and Equitable Real Estate.
Executive Vice President EQF. Prior to May 1995, Vice President/Manager, Insurance Companies
Investment Strategies Group, Salomon Brothers, Inc. Prior to November 1992, with Morgan
Stanley & Co., Inc., as Principal, Fixed Income Insurance Group.
- ------------------------------------------------------------------------------------------------------------------------------------
A-3
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony C. Pasquale Senior Vice President, Equitable. Director of Equitable Agri-Business, Inc. Previously held
other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Rich Senior Vice President, Equitable. Prior to October 1994, Vice President of Underwriting,
John Hancock Mutual Life Insurance Co.
- ------------------------------------------------------------------------------------------------------------------------------------
Pauline Sherman Company, Vice President, Secretary and Associate General Counsel, Equitable and the Holding
both since September 1995. Previously held other officerships with Equitable.
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel B. Shlesinger Senior Vice President and Actuary, Equitable. Director, Chairman and Chief Executive
Officer, The Equitable of Colorado, Inc. since 1985. Vice President, HRT and EQAT.
Previously held other officerships with Equitable and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
Jose S. Suquet Executive Vice President and Chief Agency Officer, Equitable, since August 1994. Prior
thereto, with Equitable as Sales/Agency Manager.
- ------------------------------------------------------------------------------------------------------------------------------------
Stanley B. Tulin Senior Executive Vice President and Chief Financial Officer, Equitable since April 1996.
Executive Vice President, Holding Company. Vice President, EQAT. Prior thereto, Chairman,
Insurance Consulting and Actuarial Practice, Coopers & Lybrand.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE>
COMMUNICATING PERFORMANCE DATA APPENDIX B
In reports or other communications to policyowners or in advertising material,
we may describe general economic and market conditions affecting the Separate
Account and the Trusts and may compare the performance or ranking of the
Separate Account Funds and the Trusts' portfolios with (1) that of other
insurance company separate accounts or mutual funds included in the rankings
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or similar
investment services that monitor the performance of insurance company separate
accounts or mutual funds, (2) other appropriate indices of investment securities
and averages for peer universes of funds, or (3) data developed by us derived
from such indices or averages. Advertisements or other communications furnished
to present or prospective policyowners may also include evaluations of a
Separate Account Fund or Trust portfolio by financial publications that are
nationally recognized such as Barron's, Morningstar's Variable Annuities / Life,
Business Week, Forbes, Fortune, Institutional Investor, Money, Kiplinger's
Personal Finance, Financial Planning, Investment Adviser, Investment Management
Weekly, Money Management Letter, Investment Dealers Digest, National
Underwriter, Pension & Investments, USA Today, Investor's Daily, The New York
Times, The Wall Street Journal, the Los Angeles Times and the Chicago Tribune.
Performance data for peer universes of funds with similar investment objectives
are compiled by Lipper Analytical Services, Inc. (Lipper) in its Lipper Variable
Insurance Products Performance Analysis Service (Lipper Survey) and Morningstar,
Inc. in the Morningstar Variable Annuity / Life Report (Morningstar Report).
The Lipper Survey records performance data as reported to it by over 800 funds
underlying variable annuity and life insurance products. The Lipper Survey
divides these actively managed funds into 25 categories by portfolio objectives.
The Lipper Survey contains two different universes, which differ in terms of the
types of fees reflected in performance data. The "Separate Account" universe
reports performance data net of investment management fees, direct operating
expenses and asset-based charges applicable under variable insurance and annuity
contracts. The "Mutual Fund" universe reports performance net only of investment
management fees and direct operating expenses, and therefore reflects
asset-based charges that relate only to the underlying mutual fund.
The Morningstar Report consists of over 700 variable life and annuity funds, all
of which report their data net of investment management fees, direct operating
expenses and separate account level charges.
LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following chart presents historical return trends
for various types of securities. The information presented, while not directly
related to the performance of the Funds of the Separate Account or the Trusts'
portfolios, may help to provide a perspective on the potential returns of
different asset classes over different periods of time. By combining this
information with your knowledge of your own financial needs, you may be able to
better determine how you wish to allocate your Incentive Life Plus premiums.
Historically, the investment performance of common stocks over the long term has
generally been superior to that of long or short-term debt securities, although
common stocks have been subject to more dramatic changes in value over short
periods of time. The Common Stock Fund of the Separate Account may, therefore,
be a desirable selection for policyowners who are willing to accept such risks.
Policyowners who have a need to limit short-term risk, may find it preferable to
allocate a smaller percentage of their net premiums to those funds that invest
primarily in common stock. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The chart on page B-2 illustrates the average annual compound rates of return
over selected time periods between December 31, 1926 and December 31, 1996 for
common stocks, long-term government bonds, long-term corporate bonds,
intermediate-term government bonds and Treasury Bills. The Consumer Price Index
is shown as a measure of inflation for comparison purposes. The average annual
returns assume the reinvestment of dividends, capital gains and interest.
The information presented is an historical record of unmanaged groups of
securities and is neither an estimate nor a guarantee of future results. In
addition, investment management fees and expenses and charges associated with a
variable life insurance policy, are not reflected.
The rates of return illustrated do not represent returns of the Separate Account
or the Trusts and do not constitute a representation that the performance of the
Separate Account Funds or the Trusts' portfolios will correspond to rates of
return such as those illustrated in the chart. For a comparative illustration of
performance results of The Hudson River Trust, see page B-1 of the HRT
prospectus. For a comparative illustration of performance results of certain
public mutual funds which are similar to the EQAT portfolios and managed by
EQAT's Advisers, see page A-1 of the EQAT prospectus.
B-1
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RATES OF RETURN
FOR THE
FOLLOWING LONG-TERM LONG-TERM INTERMEDIATE- U.S. CONSUMER
PERIODS ENDING COMMON GOVERNMENT CORPORATE TERM GOV'T TREASURY PRICE
12/31/96: STOCKS BONDS BONDS BONDS BILLS INDEX
- -------- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1 year.................. 23.07% -0.93% 1.40% 2.10% 5.21% 3.58%
3 years................. 19.66 6.36 6.72 4.19 4.90 2.93
5 years................. 15.20 8.98 8.52 6.17 4.22 2.89
10 years................. 15.28 9.39 9.48 7.77 5.46 3.70
20 years................. 14.55 9.54 9.71 9.14 7.28 5.15
30 years................. 11.85 7.75 8.24 8.27 6.73 5.39
40 years................. 11.18 6.51 6.99 7.08 5.80 4.47
50 years................. 12.59 5.33 5.76 5.89 4.89 4.08
60 years................. 11.19 5.06 5.38 5.32 4.10 4.13
Since 1926............... 10.71 5.08 5.64 5.21 3.74 3.12
Inflation Adjusted
Since 1926............... 7.36 1.90 2.44 2.02 0.60
</TABLE>
- ----------------------------
*Source: Ibbotson, Roger G. and Rex A. Sinquefield, STOCKS, BONDS, BILLS, AND
INFLATION (SBBI), 1982, updated in STOCKS, BONDS, BILLS, AND INFLATION 1997
YEARBOOK,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
Common Stocks (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
Long-term Government Bonds -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
Long-term Corporate Bonds -- For the period 1969 - 1996, represented by the
Salomon Brothers Long-Term, High-Grade Corporate Bond Index; for the period 1946
- - 1968, the Salomon Brothers' Index was backdated using Salomon Brothers'
monthly yield data and a methodology similar to that used by Salomon for 1969 -
1996; for the period 1926 - 1945, the Standard and Poor's monthly High-Grade
Corporate Composite yield data were used, assuming a 4 percent coupon and a
twenty-year maturity.
Intermediate-term Government Bonds -- Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five-year maturity.
U.S. Treasury Bills -- Measured by rolling over each month a one-bill portfolio
containing, at the beginning of each month, the bill having the shortest
maturity not less than one month.
Inflation -- Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
B-2
<PAGE>
IL
COLI IISM
Prospectus Dated May 1, 1997
IL COLI II is an individual flexible premium variable life insurance policy
issued by The Equitable Life Assurance Society of the United States (Equitable).
The policy is designed to be offered to eligible purchasers and to be used for a
variety of business purposes.
The policy offers flexible premium payments, a choice of two death benefit
options, decreases to the policy's Face Amount of insurance and a choice of
funding options, including a guaranteed interest option and the following
twenty-four investment portfolios:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
- -------------------------------------------------------------------------------------------------------------------
FIXED INCOME SERIES: EQUITY SERIES: ASSET ALLOCATION SERIES:
- ---------------------------- --------------------------------------------------------- ---------------------------
<S> <C> <C> <C>
Domestic Fixed Income Domestic Equity International Equity o Alliance Conservative
- --------------------- --------------- -------------------- Investors
o Alliance Money Market o T. Rowe Price Equity o Alliance Global o EQ/Putnam Balanced
o Alliance Intermediate Income o Alliance International o Alliance Balanced
Government Securities o EQ/Putnam Growth & o T. Rowe Price o Alliance Growth
o Alliance Quality Bond Income Value International Stock Investors
o Alliance Growth & o Morgan Stanley o Merrill Lynch World
Aggressive Fixed Income Income Emerging Markets Strategy
- ----------------------- o Alliance Equity Index Equity (available on
o Alliance High Yield o Merrill Lynch Basic or about Sept. 2,
Value Equity 1997)
o Alliance Common Stock
o MFS Research Aggressive Equity
-----------------
o Alliance Aggressive
Stock
o Warburg Pincus Small
Company Value
o Alliance Small Cap
Growth
o MFS Emerging Growth
Companies
</TABLE>
We do not guarantee the investment performance of these investment portfolios,
which involve varying degrees of risk.
Although premiums are flexible, additional premiums may be required to keep the
policy in effect. The policy may terminate if its value (net of any policy loan)
is too small to pay the policy's monthly charges. The policy can be guaranteed
to stay in force, regardless of investment performance, through the death
benefit guarantee provision (if available).
You can borrow against or withdraw money from the policy, within limits. Loans
and withdrawals will reduce the policy's death benefit and cash surrender value.
You can also surrender the policy.
Your Equitable agent can provide you with information about all forms of life
insurance available from us and help you decide which may best meet your needs.
Replacing existing insurance with an IL COLI II or other policy may not be to
your advantage.
You may examine the policy for a limited period and cancel it for a full refund
of premiums paid.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS CONTAINS INFORMATION THAT SHOULD BE KNOWN BEFORE INVESTING IN IL COLI
II. THIS PROSPECTUS IS NOT VALID UNLESS IT IS ATTACHED TO CURRENT PROSPECTUSES
FOR BOTH THE HUDSON RIVER TRUST AND THE EQ ADVISORS TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Copyright 1997 The Equitable Life Assurance Society of the United States.
All rights reserved.
EVM-114 Cat. No. 127295
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY OF IL COLI II FEATURES...............................1
PART 1 -- DETAILED INFORMATION ABOUT EQUITABLE AND
IL COLI II INVESTMENT CHOICES.............................7
THE COMPANY THAT ISSUES IL COLI II.................7
THE SEPARATE ACCOUNT AND THE TRUSTS................7
The Separate Account.............................7
The Trusts.......................................7
The HRT's Investment Adviser.....................8
The EQAT's Manager and Investment Advisers.......8
Investment Policies Of The Trusts' Portfolios....9
THE GUARANTEED INTEREST ACCOUNT...................11
Adding Interest In The Unloaned Guaranteed
Interest Account..............................11
Transfers Out Of The Guaranteed Interest Account11
PART 2-- DETAILED INFORMATION ABOUT IL COLI II.............11
FLEXIBLE PREMIUMS.................................11
Planned Periodic And Death Benefit Guarantee
Premiums......................................11
Premium And Monthly Charge Allocations..........12
DEATH BENEFITS....................................12
Guaranteeing The Death Benefit..................12
CHANGES IN INSURANCE PROTECTION...................13
Decreasing The Face Amount......................13
Changing The Death Benefit Option...............13
Substitution Of Insured Person..................13
When Policy Changes Go Into Effect..............13
MATURITY BENEFIT..................................13
LIVING BENEFIT OPTION.............................13
SUPPLEMENTAL INSURANCE ON THE INSURED PERSON......14
YOUR POLICY ACCOUNT VALUE.........................14
Amounts In The Separate Account.................14
How We Determine The Unit Value.................14
Transfers Of Policy Account Value...............14
Telephone Transfers.............................15
Charge For Transfers............................15
BORROWING FROM YOUR POLICY ACCOUNT................15
How To Request A Loan...........................15
Policy Loan Interest............................15
When Interest Is Due............................16
Repaying The Loan...............................16
The Effects Of A Policy Loan....................16
PARTIAL WITHDRAWALS AND SURRENDER.................16
Partial Withdrawals.............................16
Surrender For Net Cash Surrender Value..........16
DEDUCTIONS AND CHARGES............................16
Deductions From Premiums........................16
Deductions From Your Policy Account.............17
Charges Of The Trusts...........................18
ADDITIONAL INFORMATION ABOUT IL COLI II...........18
Your Policy Can Terminate.......................18
You May Restore A Policy After It Terminates....18
Policy Periods, Anniversaries, Dates And Ages...19
TAX EFFECTS.......................................19
Policy Proceeds.................................19
Policy Terminations.............................20
Living Benefits.................................21
Diversification.................................21
Policy Changes..................................21
Tax Changes.....................................21
Estate And Generation Skipping Taxes............21
Pension And Profit-Sharing Plans................21
Other Employee Benefit Programs.................22
Our Taxes.......................................22
When We Withhold Income Taxes...................22
PART 3-- ADDITIONAL INFORMATION............................22
YOUR VOTING PRIVILEGES............................22
Trust Voting Privileges.........................22
How We Determine Your Voting Shares.............22
Separate Account Voting Rights..................22
OUR RIGHT TO CHANGE HOW WE OPERATE................22
OUR REPORTS TO POLICYOWNERS.......................23
LIMITS ON OUR RIGHT TO CHALLENGE THE POLICY.......23
YOUR PAYMENT OPTIONS..............................23
YOUR BENEFICIARY..................................23
ASSIGNING YOUR POLICY.............................23
WHEN WE PAY POLICY PROCEEDS.......................24
DIVIDENDS.........................................24
REGULATION........................................24
SPECIAL CIRCUMSTANCES.............................24
DISTRIBUTION......................................24
LEGAL PROCEEDINGS.................................24
ACCOUNTING AND ACTUARIAL EXPERTS..................25
ADDITIONAL INFORMATION............................25
MANAGEMENT........................................26
PART 4 -- ILLUSTRATIONS OF POLICY BENEFITS..................30
SEPARATE ACCOUNT FP FINANCIAL STATEMENTS..................FSA-1
EQUITABLE FINANCIAL STATEMENTS..............................F-1
APPENDIX A--COMMUNICATING PERFORMANCE DATA..................A-1
LONG-TERM MARKET TRENDS.........................A-1
AVERAGE ANNUAL RATES OF RETURN..................A-2
- --------------------------------------------------------------------------------
In this prospectus "we," "our" and "us" mean Equitable, a New York stock life
insurance company. "You" and "your" mean the owner of the policy. We refer to
the person who is covered by the policy as the "insured person" because the
insured person and the policyowner may not be the same. Unless indicated
otherwise, the discussion in this prospectus assumes that there is no policy
loan outstanding and that the policy is not in a grace period.
THE POLICY IS NOT AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. EQUITABLE DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN
AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT THERETO OR IN ANY
SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY EQUITABLE.
- --------------------------------------------------------------------------------
<PAGE>
WHAT IS VARIABLE LIFE INSURANCE?
Variable life insurance is one kind of permanent cash value life insurance. Like
other kinds of permanent cash value life insurance, such as whole life and
universal life insurance, variable life insurance generally provides two
benefits: an income tax-free death benefit and a cash value that grows
tax-deferred.
What sets variable life insurance apart from universal life and whole life is
that variable life insurance allows the policyowner to direct premiums to
different mutual fund options. This enables a policyowner to harness the growth
potential of, for example, the equity markets, but the policyowner also bears
the risk of investment losses. In contrast, whole life insurance provides a
minimum guaranteed cash value and universal life applies a minimum guaranteed
interest rate to premiums. Some variable life insurance policies offer some of
the other features of universal or whole life such as premium flexibility
(universal life) or death benefit guarantees (whole life).
Equitable offers an array of permanent cash value insurance products and your
Equitable agent can help you determine which product best suits your insurance
needs.
SUMMARY OF IL COLI II FEATURES
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE TERMS OF THE POLICY
WHEN ISSUED AND THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS (SEE TABLE OF CONTENTS ON OPPOSITE PAGE).
ELIGIBILITY TO PURCHASE
IL COLI II has been designed to be used as a potential source of funds to pay
benefits under non-qualified executive deferred compensation plans, salary
continuation plans or for other business purposes. In order to qualify to
purchase IL COLI II, the following conditions must be satisfied:
o a minimum of five policies must be issued, each on the life of a different
eligible insured person;
o the minimum initial premium under each of the policies must be remitted to
Equitable by the policyowner;
o the aggregate annualized first year planned periodic premium for all policies
must be at least $150,000; and
o certain undertakings, which may be required by Equitable in certain
situations, are submitted to Equitable.
PUTTING MONEY INTO THE POLICY
FLEXIBLE PREMIUMS
o Premiums may be invested whenever and in whatever amount you determine,
within limits. Other than the initial premium, there are no scheduled or
required premium payments (however, under certain conditions, additional
premiums may be needed to keep a policy in effect). See FLEXIBLE PREMIUMS on
page 11.
POLICY ACCOUNT
o Net premiums are put in your Policy Account and can be allocated to a
Guaranteed Interest Account and to one or more funds of Equitable's Separate
Account FP (each a Fund, and together, the Funds or the Separate Account).
The Funds invest in corresponding portfolios of The Hudson River Trust (HRT)
or the EQ Advisors Trust (EQAT), each of which is a mutual fund. See THE
SEPARATE ACCOUNT and THE TRUSTS, both on page 7.
o Transfers can be made among the various funding options, BUT TRANSFERS OUT OF
THE GUARANTEED INTEREST ACCOUNT CAN ONLY BE MADE DURING A LIMITED TIME AND IN
LIMITED AMOUNTS. See TRANSFERS OUT OF THE GUARANTEED INTEREST ACCOUNT on page
11 for a description of these limitations. Transfers into the Guaranteed
Interest Account and among the Funds may generally be made at any time. See
TRANSFERS OF POLICY ACCOUNT VALUE on page 14.
o There is no minimum guaranteed cash value for amounts allocated to the Funds.
The value of amounts allocated to the Guaranteed Interest Account will depend
on the interest rates declared and guaranteed each year by Equitable (4%
minimum, before deductions). See THE GUARANTEED INTEREST ACCOUNT on page 11.
TAKING MONEY OUT OF THE POLICY
o Loans may be taken against 90% of a policy's Cash Surrender Value (Policy
Account value) subject to certain conditions. Loan interest accrues daily at
a rate determined annually. Currently, amounts set aside to secure the loan
earn interest at a rate 1% lower than the rate charged for policy loan
interest. See BORROWING FROM YOUR POLICY ACCOUNT on page 10.
o Partial Withdrawals of Net Cash Surrender Value (Cash Surrender Value less
any loan and accrued loan interest) may be taken after the first policy year,
subject to our approval and certain conditions. See PARTIAL WITHDRAWALS on
page 16.
o The policy may be surrendered for its Net Cash Surrender Value, less any lien
securing a Living Benefit payment, at which time insurance coverage will end.
See SURRENDER FOR NET CASH SURRENDER VALUE on page 16.
INSURANCE PROTECTION FEATURES
DEATH BENEFITS
o Option A, a fixed benefit equal to the policy's Face Amount.
o Option B, a variable benefit equal to the Face Amount plus the Policy Account
value.
1
<PAGE>
o The total minimum Face Amount (including any death benefit coverage under any
policy rider) is $100,000.
o In some cases a higher death benefit may apply in order to meet Federal
income tax law requirements. See DEATH BENEFITS on page 12.
o After the second policy year, you can decrease the Face Amount or change your
death benefit option. Conditions apply to Face Amount and death benefit
option changes. See CHANGES IN INSURANCE PROTECTION on page 13.
o After the second policy year, you may be able to substitute the insured
person. See SUBSTITUTION OF INSURED PERSON on page 13.
DEATH BENEFIT GUARANTEE
o The death benefit guarantee provision guarantees that under certain
conditions, the policy will remain in force even if the Net Cash Surrender
Value is too small to pay the monthly charges. The death benefit guarantee
provision is not available if you have elected any death benefit coverage
under the supplemental term insurance rider. The death benefit guarantee
provision may be limited or not available in some states. See GUARANTEEING
THE DEATH BENEFIT on page 12 for a description of these provisions and the
conditions that apply.
MATURITY BENEFIT
o A maturity benefit equal to the amount in your Policy Account, less any
policy loan, any lien securing a Living Benefit payment and accrued interest,
is payable on the policy anniversary nearest the insured person's 100th
birthday (Final Policy Date), if the insured person is still living on that
date. See MATURITY BENEFIT on page 13.
LIVING BENEFIT
o The Living Benefit rider enables the policyowner to receive a portion of the
policy's death benefit (excluding any death benefit payable under the
supplemental term insurance rider) if the insured person has a terminal
illness. The Living Benefit rider will be added to most policies at issue for
no additional cost. See LIVING BENEFIT OPTION on page 13.
SUPPLEMENTAL INSURANCE ON THE INSURED PERSON
o You may purchase at issue death benefit coverage on the insured person
through a supplemental term insurance rider. Choosing coverage under the
supplemental term insurance rider in lieu of coverage under the base policy
will reduce total charges and increase Policy Account values on a current
charge basis. The more supplemental term insurance coverage you elect, the
greater will be the amount of the reduction in charges and increase in Policy
Account values on a current charge basis. However, the supplemental term
insurance rider has higher guaranteed maximum cost of insurance charges than
the base policy. On a guaranteed charge basis, the use of the rider will
increase charges and decrease Policy Account values. In addition, if you
elect any coverage under this rider, the death benefit guarantee provision
will not be available and the Living Benefit rider will not apply to the
supplemental term insurance. See SUPPLEMENTAL INSURANCE ON THE INSURED PERSON
on page 14.
DEDUCTIONS AND CHARGES
FROM PREMIUMS (See DEDUCTIONS FROM PREMIUMS on page 16.)
o Charge for taxes imposed by states and other jurisdictions. Such charges
currently range from .75% to 5% (Virgin Islands).
o Premium Sales Charge equal to 9% of premiums paid through the tenth policy
year and 3% of premiums paid thereafter. Equitable currently intends to
reduce the 9% charge once premiums paid equal a specified amount.
FROM THE POLICY ACCOUNT (See DEDUCTIONS FROM YOUR POLICY ACCOUNT on page 17.)
o Maximum administrative charge of $18.50 per month for the first three policy
years and $6.00 thereafter, plus a charge per thousand of Face Amount at
issue (excluding any death benefit coverage under the supplemental term
insurance rider) ranging from $0.15 to $0.26 per month for the first ten
policy years (depending upon the issue age of the insured person) and equal
to $0.06 per month thereafter. Equitable intends to reduce these charges on a
current basis. See DEDUCTIONS FROM YOUR POLICY ACCOUNT on page 17.
o Current monthly cost of insurance rates for preferred risk insureds for the
base policy range from less than one cent per thousand of net amount at risk
at the youngest age to $50.00 per thousand of net amount at risk at the
oldest age (99). The net amount at risk is the difference between the Policy
Account value and the current death benefit. Guaranteed cost of insurance
rates for preferred risk insureds for the base policy range from $0.08
(youngest age) to $83.33 (age 99). These same ranges in cost of insurance
rates apply to the supplemental term insurance rider, except that the rates
are based upon per thousand of rider benefit.
o Current monthly charge for certain mortality and expense risks at an annual
rate of .20% of the unloaned Policy Account value (guaranteed not to exceed
.40% per annum).
o Certain policy transactions will result in the following charges:
o Transfers - Currently, we charge $25 per transfer after the twelfth
transfer in a policy year. We reserve the right to charge $25 per
transfer.
o Partial Withdrawals - An expense charge of $25 or 2% of the amount
requested, whichever is less, is made for each partial withdrawal.
o Substitution of Insured Person - A $100 expense charge will be
deducted for each substitution of insured person.
2
<PAGE>
FROM THE TRUSTS
o The Separate Account Funds purchase Class IA shares of corresponding
portfolios of the HRT or Class IB shares of corresponding portfolios of the
EQAT at net asset value. That price reflects investment management fees, any
Rule 12b-1 distribution fees, indirect expenses, such as brokerage
commissions, and certain other operating expenses.
The Hudson River Trust. Effective May 1, 1997, a new investment advisory
agreement relating to each of the HRT portfolios was entered into between HRT
and Alliance, HRT's Investment Adviser. The table below shows (i) the
investment management fees paid by the HRT in 1996 and (ii) other expenses
deducted from HRT assets in 1996, both restated to reflect the fees and other
expenses that would have been paid by the portfolios if the present
investment advisory agreement had been in effect as of January 1, 1996. These
restated fees and expenses are based on average net assets for 1996. For
actual investment management fees and other expenses paid by HRT in 1996, see
the HRT prospectus. Investment management fees may increase or decrease based
on the level of portfolio net assets. These fees are subject to maximum
rates, as described in the attached HRT prospectus. Other HRT expenses are
likely to fluctuate from year to year. Both investment management fees and
other expenses are expressed in the table below as an annual percentage of
each portfolio's daily average net assets:
<TABLE>
<CAPTION>
1996 FEES AND EXPENSES RESTATED AS IF SUBJECT TO 1997 ADVISORY AGREEMENT
--------------------------------------------------------------------------
RESTATED 1996 RESTATED 1996 RESTATED 1996
HRT PORTFOLIO MANAGEMENT FEE OTHER EXPENSES TOTAL EXPENSES
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Money Market 0.35% 0.04% 0.39%
Alliance Intermediate Govt. Securities 0.50% 0.09% 0.59%
Alliance Quality Bond 0.53% 0.05% 0.58%
Alliance High Yield 0.60% 0.06% 0.66%
Alliance Growth & Income 0.55% 0.05% 0.60%
Alliance Equity Index 0.33% 0.05% 0.38%
Alliance Common Stock 0.38% 0.03% 0.41%
Alliance Global 0.65% 0.08% 0.73%
Alliance International 0.90% 0.18% 1.08%
Alliance Aggressive Stock 0.55% 0.03% 0.58%
Alliance Small Cap Growth* 0.90%** 0.10%*** 1.00%***
Alliance Conservative Investors 0.48% 0.07% 0.55%
Alliance Balanced 0.42% 0.05% 0.47%
Alliance Growth Investors 0.53% 0.06% 0.59%
- ---------------------------------
<FN>
*Commenced operations on May 1, 1997. **Maximum management fee payable. ***Estimated 1997 expenses.
</FN>
</TABLE>
EQ Advisors Trust. The table below shows (i) the annual rates payable by the
EQAT for management fees in 1997, (ii) Rule 12b-1 distribution fees and (iii)
other estimated expenses to be deducted from EQAT assets in 1997. Other EQAT
expenses are likely to fluctuate from year to year. The management fees are not
subject to any reduction based on the level of portfolio net assets. The
management fees, 12b-1 fees and other expenses are expressed in the table below
as an annual percentage of each portfolio's daily average net assets:
<TABLE>
<CAPTION>
1997 MANAGEMENT ESTIMATED 1997 ESTIMATED 1997
EQAT PORTFOLIO FEE 12B-1 FEES OTHER EXPENSES* TOTAL EXPENSES
- ------------------------------------- ------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
T. Rowe Price Equity Income 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Growth & Income Value 0.55% 0.25% 0.05% 0.85%
Merrill Lynch Basic Value Equity 0.55% 0.25% 0.05% 0.85%
MFS Research 0.55% 0.25% 0.05% 0.85%
T. Rowe Price International Stock 0.75% 0.25% 0.20% 1.20%
Morgan Stanley Emerging Markets Equity 1.15% 0.25% 0.35% 1.75%
Warburg Pincus Small Company Value 0.65% 0.25% 0.10% 1.00%
MFS Emerging Growth Companies 0.55% 0.25% 0.05% 0.85%
EQ/Putnam Balanced 0.55% 0.25% 0.10% 0.90%
Merrill Lynch World Strategy 0.70% 0.25% 0.25% 1.20%
- -------------------------------------
<FN>
* After fee waivers or assumptions by EQAT's Manager pursuant to an expense
limitation agreement. See the attached EQAT prospectus.
</FN>
</TABLE>
VARIATIONS
o Equitable is subject to the insurance laws and regulations in every
jurisdiction in which IL COLI II is sold. As a result, various time periods
and other terms and conditions described in this prospectus may vary from
state to state. These variations will be reflected in the policy.
o The terms of IL COLI II may also vary where special circumstances result in a
reduction in our costs.
ADDITIONAL INFORMATION
CANCELLATION RIGHT
o You have a right to examine the policy. You may cancel the policy by sending
it to our Administrative Office with a written request to cancel. Your
request to cancel the policy must be postmarked no later than 10 days after
you receive the policy. Insurance coverage ends when you send your request.
3
<PAGE>
o If you cancel the policy, we will refund the premiums you paid. In certain
cases where the policy was purchased as a result of an exchange of one of our
life insurance policies, we may reinstate the prior policy.
o There may be income tax and withholding implications if you cancel.
POLICY TERMINATION
o The policy will go into default if the Net Cash Surrender Value is
insufficient to cover monthly charges and the death benefit guarantee
provision is not in effect. If this occurs, you will be notified and given
the opportunity to maintain the policy in force by making additional
payments. You may be able to restore a terminated policy within a limited
time period, but this will require additional evidence of insurability. See
YOUR POLICY CAN TERMINATE on page 18 and YOU MAY RESTORE A POLICY AFTER IT
TERMINATES on page 18.
TAX EFFECTS
o Generally, under current Federal income tax law, death benefits are not
subject to income tax and Policy Account earnings are not subject to income
tax as long as they remain in the Policy Account. Death benefits and Policy
Account earnings may, however, have corporate alternative minimum tax
consequences. Loans, partial withdrawals, surrender, maturity, policy
termination, or a substitution of insured may result in recognition of income
for tax purposes. See TAX EFFECTS on page 19.
RATES OF RETURN OF THE HRT
The rates of return shown in the table below are based on the actual investment
performance of The Hudson River Trust Portfolios (other than the Alliance Small
Cap Growth Portfolio), after deduction for investment management fees and direct
operating expenses of the Trust, for periods ending December 31, 1996. The
historical performance of the Alliance Common Stock and Alliance Money Market
Portfolios for periods prior to March 22, 1985, when these funds were managed
separate accounts and subject to a different fee structure, has been restated to
reflect the investment management fees and estimated direct operating expenses
that commenced on that date. The Alliance Common Stock Portfolio and its
predecessors have been in existence since 1976. No shares of the Alliance Small
Cap Growth Portfolio were outstanding as of December 31, 1996.
The HRT yields shown below are derived from the actual rate of return of the HRT
portfolio for the period, which is then adjusted to omit capital changes in the
portfolio during the period. We show the SEC standardized 7-day yield for the
Alliance Money Market Portfolio and 30-day yield for the Alliance Intermediate
Government Securities, Alliance Quality Bond and Alliance High Yield Portfolios.
These rates of return and yields are not illustrative of how actual investment
performance would affect the benefits under your policy. Moreover, these rates
of return and yields are not an estimate or guarantee of future performance.
THESE RATES OF RETURN AND YIELDS ARE FOR THE HRT ONLY AND DO NOT REFLECT THE
ADMINISTRATIVE AND COST OF INSURANCE CHARGES, SALES CHARGES, TAX CHARGES AND THE
MORTALITY AND EXPENSE RISK CHARGE APPLICABLE UNDER AN IL COLI II POLICY. SUCH
CHARGES WOULD REDUCE THE RETURNS AND YIELDS SHOWN. SEE ILLUSTRATIONS OF IL COLI
II CASH SURRENDER VALUES BASED ON HISTORICAL INVESTMENT RESULTS BELOW.
<TABLE>
<CAPTION>
RATES OF RETURN FOR PERIODS ENDING DECEMBER 31, 1996
--------------------------------------------------------------------------
SEC SINCE
HRT PORTFOLIO YIELDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION(A)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Fixed Income Series:
Alliance Money Market...................... 5.18% 5.33% 5.03% 4.31% 5.90% -- 7.28%
Alliance Intermediate Government Securities 5.60 3.78 3.99 5.60 -- -- 6.95
Alliance Quality Bond...................... 5.94 5.36 5.38 -- -- -- 4.79
Alliance High Yield........................ 10.65 22.89 12.73 14.66 -- -- 11.41
The Equity Series:
Alliance Growth & Income................... 20.09 14.00 -- -- -- 12.77
Alliance Equity Index...................... 22.39 -- -- -- -- 20.25
Alliance Common Stock...................... 24.28 17.22 15.72 15.83 15.49% 15.22
Alliance Global............................ 14.60 12.74 13.50 -- -- 11.70
Alliance International..................... 9.82 -- -- -- -- 12.14
Alliance Aggressive Stock.................. 22.20 15.66 11.83 18.60 -- 20.22
The Asset Allocation Series:
Alliance Conservative Investors............ 5.21 6.70 7.32 -- -- 9.03
Alliance Balanced.......................... 11.68 7.15 6.06 10.38 -- 12.05
Alliance Growth Investors.................. 12.61 11.29 10.76 -- -- 15.57
<FN>
- -------------
(a) The Alliance International Portfolio received its initial funding on April 3, 1995; the Alliance Equity Index Portfolio on
March 1, 1994; the Alliance Growth & Income and Alliance Quality Bond Portfolios on October 1, 1993; the Alliance
Intermediate Government Securities Portfolio on April 1, 1991; the Alliance Conservative Investors and the Alliance Growth
Investors Portfolios on October 2, 1989; the Alliance Global Portfolio on August 27, 1987; the Alliance High Yield
Portfolio on January 2, 1987; the Alliance Aggressive Stock and Alliance Balanced Portfolios on January 27, 1986; the
predecessor of the Alliance Money Market Portfolio on July 13, 1981; and the predecessor of the Alliance Common Stock
Portfolio on January 13, 1976.
</FN>
</TABLE>
Additional investment performance information appears in the attached HRT
prospectus.
NEW PORTFOLIOS. The EQAT portfolios and the Alliance Small Cap Growth Portfolio
of the HRT commenced operations beginning May 1, 1997. Therefore, no actual
historical rates of return for these portfolios are available. For investment
performance of public mutual funds (or
4
<PAGE>
combinations thereof) advised by the same EQAT or HRT Investment Adviser that
have investment objectives, policies, strategies and risks that their advisers
believe to be substantially similar to those of corresponding portfolios of the
EQAT or HRT, see the respective EQAT or HRT prospectus, attached to this
prospectus. Such results are intended to show a potential investor the past
results of a similar style of investment management and are not intended to be a
substitute for actual performance, nor are such results an estimate or guarantee
of future results for the EQAT or Alliance Small Cap Growth Portfolios. Keep in
mind that such results do not reflect the deductions and charges under your
policy, which, if applied, would reduce the returns shown.
ILLUSTRATIONS OF CASH SURRENDER VALUES BASED ON HISTORICAL INVESTMENT RESULTS.
The table on the next page was developed to demonstrate how the actual
investment experience of the HRT and its predecessors would have affected the
Cash Surrender Value of hypothetical IL COLI II policies held for specified
periods of time. The table illustrates premiums and Cash Surrender Values of
thirteen hypothetical IL COLI II policies, each with a 100% premium allocation
to a different Fund. The illustration also assumes that, in each case, the
insured is a 45-year-old male, preferred non-tobacco user and that each policy
has an increasing death benefit, a $200,000 initial Face Amount (not including
any supplemental term insurance rider) and a $10,392 annual premium. The table
does not reflect any allocation to any of the EQAT portfolios or the Alliance
Small Cap Growth Portfolio because those portfolios had not commenced operations
prior to May 1, 1997.
The table assumes that each policy was purchased on the first day of a calendar
year. For Trust portfolios whose inception dates fall before June 30, the policy
is assumed to have been purchased at the beginning of, and earned the actual
return over, that entire calendar year of inception. For Trust portfolios whose
inception dates fall after June 30, the policy is assumed to have been purchased
at the beginning of the first full calendar year of that portfolio's operation.
The table then illustrates what the Cash Surrender Value would have been after
one policy year, after five policy years, after 10 policy years and as of
December 31, 1996.
5
<PAGE>
ILLUSTRATIONS OF IL COLI II CASH SURRENDER VALUES
BASED ON HISTORICAL INVESTMENT RESULTS, $200,000 OF INITIAL INSURANCE PROTECTION
AND CURRENT CHARGES(1)
MALE AGE 45
PREFERRED RISK NON-TOBACCO USER
<TABLE>
<CAPTION>
ASSUMED POLICY
PURCHASE DATE (2) AT END OF FIRST POLICY YEAR AT END OF FIFTH POLICY YEAR
----------------- -------------------------------- ------------------------------
TOTAL CASH SURRENDER TOTAL CASH SURRENDER
BEGINNING PREMIUM VALUE PREMIUM VALUE
OF YEAR: PAID PAID
----------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
THE FIXED INCOME SERIES:
- ------------------------
Alliance Money Market......................... 1982 $10,392 $ 9,638 $51,960 $54,346
Alliance Int. Gov't Securities................ 1991 10,392 9,558 51,960 51,181
Alliance Quality Bond......................... 1994 10,392 8,039 -- --
Alliance High Yield........................... 1987 10,392 8,904 51,960 56,081
THE EQUITY SERIES:
- ------------------
Alliance Growth & Income...................... 1994 10,392 8,436 -- --
Alliance Equity Index......................... 1994 10,392 8,586 -- --
Alliance Common Stock......................... 1976 10,392 9,302 51,960 80,478
Alliance Global............................... 1988 10,392 9,452 51,960 56,967
Alliance International........................ 1995 10,392 9,487 -- --
Alliance Aggressive Stock..................... 1986 10,392 11,665 51,960 68,973
THE ASSET ALLOCATION SERIES:
- ----------------------------
Alliance Conservative Investors............... 1990 10,392 9,045 51,960 49,698
Alliance Balanced............................. 1986 10,392 11,063 51,960 58,419
Alliance Growth Investors..................... 1990 10,392 9,434 51,960 58,358
</TABLE>
<TABLE>
<CAPTION>
FROM POLICY PURCHASE THROUGH
AT END OF TENTH POLICY YEAR DECEMBER 31, 1996
------------------------------- --------------------------------
TOTAL CASH TOTAL CASH
PREMIUM SURRENDER PREMIUM SURRENDER VALUE
PAID VALUE PAID
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
THE FIXED INCOME SERIES:
- ------------------------
Alliance Money Market......................... $103,920 $130,665 $155,880 $208,920
Alliance Int. Gov't Securities................ -- -- 62,352 61,679
Alliance Quality Bond......................... -- -- 31,176 29,108
Alliance High Yield........................... 103,920 177,672 103,920 177,672
THE EQUITY SERIES:
- ------------------
Alliance Growth & Income...................... -- -- 31,176 35,300
Alliance Equity Index......................... -- -- 31,176 38,778
Alliance Common Stock......................... 103,920 214,490 218,232 1,325,501
Alliance Global............................... -- -- 93,528 157,612
Alliance International........................ -- -- 20,784 19,665
Alliance Aggressive Stock..................... 103,920 255,558 114,312 322,602
THE ASSET ALLOCATION SERIES:
- ----------------------------
Alliance Conservative Investors............... -- -- 72,744 82,219
Alliance Balanced............................. 103,920 154,151 114,312 181,763
Alliance Growth Investors..................... -- -- 72,744 104,491
</TABLE>
THE DEATH BENEFIT GUARANTEE PREMIUM FOR THIS POLICY IS $3,568.04. SEE
GUARANTEEING THE DEATH BENEFIT ON PAGE 12.
THESE VALUES ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
(1) Policy values reflect all charges assessed under the policy and by the
Trust including an assumed charge for taxes of 2%. Current non-guaranteed
cost of insurance, administrative, mortality and expense risk and Premium
Sales charges have been used to determine policy values; such charges may
be increased in the future, but will never exceed the guaranteed maximum
charges set forth in DEDUCTIONS AND CHARGES on page 16. If guaranteed cost
of insurance, administrative, mortality and expense risk and Premium Sales
charges were used, the results would be lower.
(2) Assumed Policy Purchase Date is based upon inception of the HRT porfolio.
Please refer to explanation of table on previous page.
6
<PAGE>
PART 1: DETAILED INFORMATION ABOUT EQUITABLE AND IL COLI II
INVESTMENT CHOICES
THE COMPANY THAT ISSUES IL COLI II
EQUITABLE. Equitable, a New York stock life insurance company, has been in
business since 1859. We are a wholly-owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA), a French insurance holding company. As of December 31,
1996, AXA beneficially owned 63.8% of the outstanding shares of common stock of
the Holding Company (assuming conversion of the convertible preferred stock held
by AXA). Under its investment arrangements with Equitable and the Holding
Company, AXA is able to exercise significant influence over the operations and
capital structure of the Holding Company and its subsidiaries, including
Equitable. AXA is the holding company for an international group of insurance
and related financial services companies. Equitable, the Holding Company and
their subsidiaries managed approximately $239.8 billion of assets as of December
31, 1996, including third party assets of approximately $184.8 billion.
Equitable's home office is 1290 Avenue of the Americas, New York, New York
10104. We are licensed to do business in all 50 states, Puerto Rico, the Virgin
Islands and the District of Columbia. We maintain local offices throughout the
United States. At December 31, 1996, we had approximately $114.6 billion face
amount of variable life insurance in force, as compared to $103.9 billion at
December 31, 1995. Prior to January 1, 1997, IL COLI II policies were issued by
Equitable's wholly-owned subsidiary, Equitable Variable Life Insurance Company
(Equitable Variable). Equitable Variable was merged into Equitable as of January
1, 1997.
THE SEPARATE ACCOUNT AND THE TRUSTS
THE SEPARATE ACCOUNT. The Separate Account was established on September 21, 1995
under the Insurance Law of the State of New York. The Separate Account is a type
of investment company called a unit investment trust and is registered with the
Securities and Exchange Commission (SEC) under the Investment Company Act of
1940 (1940 Act). This registration does not involve any supervision by the SEC
of the management or investment policies of the Separate Account. The Separate
Account is a successor to a separate account that was established by Equitable
Variable on April 19, 1985. The assets of that separate account became assets of
the Separate Account on January 1, 1997 when Equitable Variable was merged into
Equitable.
Under New York law, we own the assets of the Separate Account and use them to
support your policy and other variable life insurance policies. The portion of
the Separate Account's assets supporting these policies may not be used to
satisfy liabilities arising out of any other business we may conduct. This means
that the assets supporting Policy Account values maintained in the Separate
Account are not subject to the claims of our other creditors.
The Separate Account has several Funds, each of which invests in either Class IA
shares of a corresponding portfolio of the HRT or Class IB shares of a
corresponding portfolio of the EQAT. You may allocate some or all premiums among
the Funds.
In addition to premiums made under the policies, we may allocate to the Separate
Account monies received under other variable life insurance policies. Owners of
all such policies will participate in the Separate Account in proportion to the
amounts they have in the Funds that relate to their policies. We may also retain
in the Separate Account assets that are in excess of the reserves and other
liabilities relating to Policy Account values, or we may transfer them to our
general account.
If any changes are made that result in a material change in the underlying
investments of a Fund, policy owners will be notified. We may make other changes
in the policies that do not reduce any Cash Surrender Value, Death Benefit,
Policy Account value, or other accrued rights or benefits.
THE TRUSTS
The Hudson River Trust ("HRT") and the EQ Advisors Trust ("EQAT") consist of the
investment portfolios (listed below) in which the Funds of the Separate Account
invest according to your instructions.
<TABLE>
<CAPTION>
HRT PORTFOLIOS EQAT PORTFOLIOS
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Series: Equity Series:
o Alliance Money Market o Alliance Quality Bond o T. Rowe Price Equity o Morgan Stanley
o Alliance Intermediate o Alliance High Yield Income Emerging Markets
Government Securities o EQ/Putnam Growth & Equity
Income Value o Warburg Pincus
o Merrill Lynch Small Company Value
Equity Series: Basic Value Equity o MFS Emerging
o Alliance Growth & Income o Alliance International o MFS Research Growth Companies
o Alliance Equity Index o Alliance Aggressive Stock o T. Rowe Price
o Alliance Common Stock o Alliance Small Cap Growth International Stock
o Alliance Global
Asset Allocation Series: Asset Allocation Series:
o Alliance Conservative o Alliance Growth o EQ/Putnam Balanced o Merrill Lynch
Investors Investors World Strategy
o Alliance Balanced
</TABLE>
7
<PAGE>
The Trusts are open-end, management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual fund,
each Trust issues several different series of stock, each of which relates to a
different portfolio of that Trust. The HRT commenced operations in January 1976
with a predecessor of its Alliance Common Stock Portfolio. The EQAT commenced
operations on May 1, 1997. The Trusts do not impose sales charges or "loads" for
buying and selling their shares. All dividends and other distributions on a
portfolio's shares are reinvested in full and fractional shares of the portfolio
to which they relate. Each Fund invests in either Class IA or Class IB shares of
a corresponding portfolio. HRT portfolios sell Class IA shares to the Funds and
EQAT portfolios sell Class IB shares to the Funds.
The EQAT sells its shares to Equitable separate accounts in connection with
Equitable's variable life insurance and annuity products. The HRT sells its
shares to separate accounts of insurance companies, both affiliated and not
affiliated with Equitable. We currently do not foresee any disadvantages to our
policyowners arising out of this. However, HRT's Board of Trustees intends to
monitor events in order to identify any material irreconcilable conflicts that
possibly may arise and to determine what action, if any, should be taken in
response. If we believe that HRT's response to any of those events
insufficiently protects our policyowners, we will see to it that appropriate
action is taken to do so. Also, if we ever believe that any of the Trusts'
portfolios is so large as to materially impair the investment performance of the
portfolio or the Trust involved, we will examine other investment options.
All of the portfolios, except for the Morgan Stanley Emerging Markets Equity
Portfolio and Merrill Lynch World Strategy Portfolio, are diversified for 1940
Act purposes. The Trustees of the HRT or the EQAT may establish additional
Portfolios at any time. More detailed information about the Trusts, their
investment objectives, policies, restrictions, risks, expenses, multiple class
distribution systems, the Rule 12b-1 distribution plan relating to Class IB
shares and all other aspects of their operations, appears in the HRT prospectus
(beginning after this prospectus), the EQAT prospectus (beginning after the HRT
prospectus), or in the related Statements of Additional Information, which are
available upon request.
THE HRT'S INVESTMENT ADVISER
The HRT is advised by Alliance Capital Management L.P. (ALLIANCE), which is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940 (the "Advisers Act"). Alliance, a publicly-traded limited
partnership, is indirectly majority-owned by Equitable. On December 31, 1996,
Alliance was managing over $182.8 billion in assets. Alliance acts as investment
adviser to various separate accounts and general accounts of Equitable and other
affiliated insurance companies. Alliance also provides management and consulting
services to mutual funds, endowments funds, insurance companies, foreign
entities, qualified and non-tax qualified corporate funds, public and private
pension and profit-sharing plans, foundations and tax-exempt organizations.
Alliance's main office is located at 1345 Avenue of the Americas, New York, New
York 10105.
THE EQAT'S MANAGER AND INVESTMENT ADVISERS
The EQAT is managed by EQ Financial Consultants, Inc. ("Manager"). The Manager
has overall responsibility for the general management of EQAT. The Manager is an
investment adviser registered under the Advisers Act. The Manager currently
furnishes specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. The Manager is a Delaware corporation
and an indirect, wholly owned subsidiary of Equitable.
The Manager is responsible for, among other things, selecting the investment
advisers for EQAT's Portfolios, and evaluating and monitoring the investment
programs and results of the advisers for each EQAT Portfolio.
Each EQAT Adviser makes investment decisions on behalf of its EQAT Portfolio(s),
and places all orders for the purchase and sale of investments for the
Portfolio's account.
Rowe Price-Fleming International, Inc., T. Rowe Price Associates, Inc., Putnam
Investment Management, Inc., Massachusetts Financial Services Company, Morgan
Stanley Asset Management, Inc., Warburg, Pincus Counsellors, Inc. and Merrill
Lynch Asset Management, L.P. serve as the investment advisers (each an "EQAT
Adviser" and together the "EQAT Advisers") to one or more of the EQAT
portfolios. Each EQAT Adviser is a well-known investment adviser and mutual fund
manager in the U.S. and/or Europe. Additional information regarding each EQAT
Adviser appears in the EQAT prospectus, attached at the end of this prospectus.
8
<PAGE>
INVESTMENT POLICIES OF THE TRUSTS' PORTFOLIOS. Each portfolio has a different
investment objective which it tries to achieve by following separate investment
policies. The objectives and policies of each portfolio will affect its return
and its risks. There is no guarantee that these objectives will be achieved. The
policies and objectives of the portfolios are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME SERIES:
DOMESTIC FIXED INCOME:
ALLIANCE MONEY Primarily high quality short-term money market High level of current income while
MARKET.................. instruments. preserving assets and maintaining liquidity.
ALLIANCE INTERMEDIATE Primarily debt securities issued or guaranteed by High current income consistent with
GOVERNMENT the U.S. Government, its agencies and relative stability of principal.
SECURITIES.............. instrumentalities. Each investment will have a final
maturity of not more than 10 years or a duration not
exceeding that of a 10-year Treasury note.
ALLIANCE QUALITY BOND... Primarily investment grade fixed-income securities. High current income consistent with
preservation of capital.
AGGRESSIVE FIXED INCOME:
ALLIANCE HIGH YIELD..... Primarily a diversified mix of high yield, High return by maximizing current income
fixed-income securities involving greater volatility and, to the extent consistent with that
of price and risk of principal and income than high objective, capital appreciation.
quality fixed-income securities. The medium and
lower quality debt securities in which the Portfolio
may invest are known as "junk bonds."
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES:
DOMESTIC EQUITY:
T. ROWE PRICE EQUITY Primarily dividend paying common stocks of Substantial dividend income and also
INCOME.................. established companies. capital appreciation.
EQ/PUTNAM GROWTH & Primarily common stocks that offer potential for Capital growth and, secondarily, current
INCOME VALUE ........... capital growth and may, consistent with the income.
Portfolio's investment objective, invest in
common stocks that offer potential for current
income.
ALLIANCE GROWTH & Primarily income producing common stocks and High total return through a combination of
INCOME.................. securities convertible into common stocks. current income and capital appreciation.
ALLIANCE EQUITY INDEX... Selected securities in the S&P's 500 Index (the Total return performance (before trust
"Index") which the adviser believes will, in the expenses and Separate Account annual
aggregate, approximate the performance results of expenses) that approximates the investment
the Index. performance of the Index (including
reinvestment of dividends) at a risk level
consistent with that of the Index.
MERRILL LYNCH BASIC Securities, primarily equities, that the Portfolio Capital appreciation and, secondarily,
VALUE EQUITY............ adviser believes are undervalued and therefore income.
represent basic investment value.
ALLIANCE COMMON Primarily common stock and other equity-type Long-term growth of capital and increasing
STOCK................... instruments. income.
MFS RESEARCH............ A substantial portion of assets invested in common Long-term growth of capital and future
stock or securities convertible into common stock of income.
companies believed by the Portfolio adviser to
possess better than average prospects for
long-term growth.
INTERNATIONAL EQUITY:
ALLIANCE GLOBAL......... Primarily equity securities of non-United States as Long-term growth of capital.
well as United States companies.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY: (CONT)
ALLIANCE INTERNATIONAL.. Primarily equity securities selected principally to Long-term growth of capital.
permit participation in non-United States companies
with prospects for growth.
T. ROWE PRICE Primarily common stocks of established non-United Long-term growth of capital.
INTERNATIONAL STOCK..... States companies.
MORGAN STANLEY EMERGING Primarily equity securities of emerging market country Long-term capital appreciation.
MARKETS EQUITY.......... (i.e., foreign) issuers.
AGGRESSIVE EQUITY:
ALLIANCE AGGRESSIVE Primarily common stocks and other equity-type Long-term growth of capital.
STOCK................... securities issued by medium and other smaller sized
companies with strong growth potential.
WARBURG PINCUS SMALL Primarily in a portfolio of equity securities of small Long-term capital appreciation.
COMPANY VALUE........... capitalization companies (i.e., companies having
market capitalizations of $1 billion or less at
the time of initial purchase) that the Portfolio
adviser considers to be relatively undervalued.
ALLIANCE SMALL CAP Primarily U.S. common stock and other equity-type Long-term growth of capital.
GROWTH.................. securities issued by smaller companies with favorable
growth prospects.
MFS EMERGING Primarily in common stocks of emerging growth Long-term growth of capital.
GROWTH COMPANIES........ companies that the Portfolio adviser believes are
early in their life cycle but which have the
potential to become major enterprises.
- ---------------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES:
ALLIANCE CONSERVATIVE Diversified mix of publicly-traded, fixed-income and High total return without, in the
INVESTORS............... equity securities; asset mix and security selection adviser's opinion, undue risk to
are primarily based upon factors expected to reduce principal.
risk. The Portfolio is generally expected to hold
approximately 70% of its assets in fixed income
securities and 30% in equity securities.
EQ/PUTNAM BALANCED...... A well-diversified portfolio of stocks and bonds that Balanced investment.
will produce both capital growth and current income.
ALLIANCE BALANCED....... Primarily common stocks, publicly-traded debt High return through a combination of
securities and high quality money market instruments. current income and capital appreciation.
The Portfolio is generally expected to hold 50% of
its assets in equity securities and 50% in fixed
income securities.
ALLIANCE GROWTH Diversified mix of publicly-traded, fixed-income and High total return consistent with the
INVESTORS............... equity securities; asset mix and security selection adviser's determination of reasonable
based upon factors expected to increase possibility risk.
of high long-term return. The Portfolio is generally
expected to hold approximately 70% of its assets
in equity securities and 30% in fixed income
securities.
MERRILL LYNCH WORLD Primarily equity and fixed income securities, High total investment return.
STRATEGY................ including convertible securities, of U. S. and foreign
issuers.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Because you may invest Policy Account values in the Fund options described
above, IL COLI II offers an opportunity for the Cash Surrender Value to
appreciate more rapidly than it would under comparable fixed benefit whole life
insurance. You must, however, accept the risk that if investment performance is
unfavorable, the Cash Surrender Value may not appreciate as rapidly and, indeed,
may decrease in value.
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THE GUARANTEED INTEREST ACCOUNT
You may allocate some or all of your Policy Account to the Guaranteed Interest
Account, which is funded by our general account and pays interest at a declared
rate guaranteed for one year. The principal, after deductions, is also
guaranteed. The general account supports all of our insurance and annuity
guarantees, including the Guaranteed Interest Account, as well as our general
obligations. The general account is subject to regulation and supervision by the
Insurance Department of the State of New York and to the insurance laws and
regulations of all jurisdictions where we are authorized to do business. Because
of applicable exemptive and exclusionary provisions, interests in the general
account have not been registered under the Securities Act of 1933 (1933 Act),
nor is the general account an investment company under the 1940 Act.
Accordingly, neither the general account, the Guaranteed Interest Account nor
any interests therein are subject to regulation under the 1933 Act or the 1940
Act. We have been advised that the staff of the SEC has not made a review of the
disclosures that are included in the prospectus for your information and that
relate to the general account and the Guaranteed Interest Account. These
disclosures, however, may be subject to certain generally applicable provisions
of the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
The amount you have in the Guaranteed Interest Account at any time is the sum of
the amounts allocated or transferred to it, plus the interest credited to it,
minus amounts deducted, transferred and withdrawn from it. In addition, any
policy loan is secured by an amount in your Policy Account equal to the
outstanding loan. This amount remains part of the Policy Account but is assigned
to the Guaranteed Interest Account. We refer to this amount as the loaned amount
in the Guaranteed Interest Account. A Living Benefit payment will also result in
amounts being transferred to the Guaranteed Interest Account. See LIVING BENEFIT
OPTION on page 13.
ADDING INTEREST IN THE UNLOANED GUARANTEED INTEREST ACCOUNT. We pay a declared
interest rate on all amounts that you have in the Guaranteed Interest Account.
At policy issuance, and prior to each policy anniversary, we declare the rates
that will apply to amounts in the unloaned Guaranteed Interest Account for the
following policy year. Different rates may apply to policies currently being
issued and previously issued policies. These annual interest rates will never be
less than the minimum guaranteed interest rate of 4%, before policy deductions.
Different rates are also paid on unloaned and loaned amounts in the Guaranteed
Interest Account. See POLICY LOAN INTEREST on page 15. Amounts securing a Living
Benefit payment are considered unloaned amounts for purposes of crediting
interest. Interest is credited and compounds daily at an effective annual rate
that equals the declared rate for each policy year.
TRANSFERS OUT OF THE GUARANTEED INTEREST ACCOUNT. Transfers out of the
Guaranteed Interest Account to the Separate Account are allowed once a year on
or within 30 days after your policy anniversary. If we receive your transfer
request up to 30 days before your policy anniversary, the transfer will be made
on your policy anniversary. If we receive your request on or within 30 days
after your policy anniversary, the transfer will be made as of the date we
receive your request. You may transfer up to 25% of your unloaned value in the
Guaranteed Interest Account as of the transfer date. Amounts securing a Living
Benefit payment may not be transferred from the Guaranteed Interest Account.
PART 2: DETAILED INFORMATION ABOUT IL COLI II
FLEXIBLE PREMIUMS
You may choose the amount and frequency of premium payments, as long as they are
within the limits described below. We determine the applicable minimum initial
premium based on the age, sex and tobacco user status of the insured person, the
initial Face Amount of the policy and any additional term insurance benefit
selected. In certain situations, however, no distinction is made based on the
sex of the insured person. See COST OF INSURANCE CHARGES on page 17. You may
choose to pay a higher initial premium.
The full minimum initial premium must be given to your agent or broker on or
before the day the policy is delivered to you. No insurance under your policy
will take effect (a) until a policy is delivered and the full minimum initial
premium is paid while the person proposed to be insured is living and (b) unless
the information in the application continues to be true and complete, without
material change, as of the time the initial premium is paid. If you have
submitted the full minimum initial premium with your application, we may,
subject to certain conditions, provide a limited amount of temporary insurance
on the proposed insured. You may review a copy of our Temporary Insurance
Agreement on request.
Premiums must be by check or money order drawn on a U.S. bank in U.S. dollars
and made payable to Equitable. Premiums after the first must be sent directly to
our Administrative Office. The minimum premium is $100 (policies issued in some
states or automatic payment plans may have different minimums.) This minimum may
be increased if we give you written notice.
We may return premium payments if we determine based upon our interpretation of
current tax rules that such premiums would cause your policy to become a
modified endowment contract or to cease to qualify as life insurance under
Federal income tax law. We may also make such changes to the policy as we deem
necessary to continue to qualify the policy as life insurance. See TAX EFFECTS
on page 19 for an explanation of modified endowment contracts, the special tax
consequences of such contracts, and how your policy might become a modified
endowment contract.
PLANNED PERIODIC AND DEATH BENEFIT GUARANTEE PREMIUMS. Although premiums are
flexible, page 3 of your policy (the Policy Information Page) will show a
"planned" periodic premium and a "death benefit guarantee premium" (if the death
benefit guarantee provision is available under your policy). We measure actual
premiums against accumulated death benefit guarantee premiums to determine
whether the death benefit guarantee provision will prevent the policy from going
into default.
The death benefit guarantee premium is actuarially determined at issue based on
the age, sex, tobacco user status and underwriting class of the insured person
and the Face Amount. The death benefit guarantee premium may change if you make
policy changes that
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decrease the Face Amount of the policy or if there is a change in the insured
person's underwriting or tobacco user classification. We reserve the right to
limit the amount of any premium payments which are in excess of the greater of
the planned periodic premium or the death benefit guarantee premium.
The planned periodic premium is an amount you determine (within limits set by
us) when you apply for the policy. The planned premium may be more or less than
the death benefit guarantee premium. Neither the planned premium nor the death
benefit guarantee premium are required premiums. Failure to pay premiums could
cause the policy to terminate. See YOUR POLICY CAN TERMINATE on page 18.
PREMIUM AND MONTHLY CHARGE ALLOCATIONS. On your application you provide us with
initial instructions as to how to allocate your net premiums and monthly charges
among the Funds and the Guaranteed Interest Account. Allocation percentages may
be any whole number from zero to 100, but the sum must equal 100. Allocations to
a Fund take effect on the first business day that follows the 20th calendar day
after the Issue Date of your policy. The Issue Date is shown on the Policy
Information Page, and is the date we actually issue your policy. The date your
allocation instructions take effect is called the Allocation Date. Our business
days are described in HOW WE DETERMINE THE UNIT Value on page 14.
Until the Allocation Date, any net premiums allocated to a Fund will be
allocated to the Money Market Fund, and all monthly deductions allocated to a
Fund will be deducted from the Money Market Fund. On the Allocation Date,
amounts in the Money Market Fund will be allocated to the various Funds in
accordance with your policy application. We may delay the Allocation Date for
the same reasons that we would delay effecting a transfer request. There will be
no charge for the transfer out of the Money Market Fund on the Allocation Date.
You may change the allocation percentages for either your current premium
payment or the current and future premium payments by writing to our
Administrative Office and indicating the changes you wish to make. Your request
must be signed. These changes will go into effect as of the date your request is
received at our Administrative Office, but no earlier than the first business
day following the Allocation Date, and will affect transactions on and after
such date.
DEATH BENEFITS
We pay a benefit to the beneficiary of the policy when the insured person dies.
This benefit will be equal to the death benefit under your policy plus any
additional term insurance benefit included in your policy, less any policy loan,
any lien securing a Living Benefit payment and accrued interest. If the insured
person dies during a grace period, we will also deduct any overdue monthly
charges.
You may choose between two death benefit options:
o OPTION A provides a death benefit equal to the policy's Face Amount. Except
as described below, the Option A benefit is fixed.
o OPTION B provides a death benefit equal to the policy's Face Amount PLUS the
amount in your Policy Account on the day the insured person dies. Under
Option B, the value of the benefit is variable and fluctuates with the amount
in your Policy Account.
Under both options, a higher death benefit may apply. This higher death benefit
is a percentage multiple of the amount in your Policy Account. The percentage is
generally based on provisions of Federal tax law which require a minimum death
benefit in relation to cash value for your policy to qualify as life insurance.
A higher percentage multiple than that required by Federal tax law will be
applied at ages 91 and over. Since cost of insurance charges are assessed on the
difference between the Policy Account value and the death benefit, these charges
will increase if the higher death benefit takes effect.
The higher death benefit will be the amount in your Policy Account on the day
the insured person dies times the percentage for the insured person's age
(nearest birthday) at the beginning of the policy year of the insured person's
death. The percentage declines as the insured person gets older. For ages that
are not shown on the following table, the percentage multiples will decrease by
a ratable portion for each full year.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TABLE OF DEATH BENEFITS AS A PERCENTAGE MULTIPLE OF POLICY ACCOUNT VALUES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSURED 40 or 45 50 55 60 65 70 75 to 100
PERSON'S AGE under 95
250% 215% 185% 150% 130% 120% 115% 105% 100%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For example, if the insured person were 75 years old and your policy had a
Policy Account value of $200,000, the higher death benefit would be 105% of
$200,000 or $210,000.
GUARANTEEING THE DEATH BENEFIT. We will guarantee your death benefit coverage,
regardless of the policy's investment performance, if you have paid a certain
amount of premiums into your policy and you have not withdrawn or borrowed those
amounts. The death benefit guarantee provision is not available if you have
elected any death benefit coverage under the supplemental term insurance rider.
See SUPPLEMENTAL INSURANCE ON THE INSURED PERSON on page 14. The death benefit
guarantee provision is also not available in some states.
The death benefit option you select (A or B) can affect the length of time that
the death benefit guarantee provision will last. If you have selected death
benefit Option A, and you never change it to Option B, then the death benefit
guarantee provision will terminate on the Final Policy Date. See MATURITY
BENEFIT on page 13. If ever your policy, at any time, has an Option B death
benefit, the death benefit guarantee
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provision will terminate immediately. Some states may also limit the length of
time the death benefit guarantee provision will last to 5 years or less. You
should ask your agent for further information.
If your policy's Net Cash Surrender Value is insufficient to pay the monthly
deductions, the death benefit guarantee provision can keep your policy from
terminating if two conditions are satisfied. First, any outstanding policy loan
plus accrued loan interest cannot exceed the policy's Cash Surrender Value.
Second, the amount of your actual premium payments minus any withdrawals (each
accumulated at 4% interest) must equal or exceed a benchmark premium amount. To
determine this benchmark premium amount we accumulate the death benefit
guarantee premium (shown on the Policy Information Page) at 4% interest.
CHANGES IN INSURANCE PROTECTION
DECREASING THE FACE AMOUNT. After the second policy year, you may request a
decrease in your policy's Face Amount. You must send your signed written request
to our Administrative Office. See TAX EFFECTS on page 19 for the tax
consequences of changing the Face Amount. Any change will be subject to our
approval and the following conditions.
You may not reduce the Face Amount below the minimum we require to issue this
policy at the time of the reduction. Any reduction must be at least $10,000. The
reduction will be allocated between the base policy and any supplemental term
insurance rider in proportion to their respective Face Amounts at issue, subject
to maintaining the minimum base policy Face Amount that we require. The death
benefit guarantee premium as well as monthly deductions from your Policy Account
for the cost of insurance will generally decrease, beginning on the date the
decrease in Face Amount takes effect.
CHANGING THE DEATH BENEFIT OPTION. After the second policy year, you may change
the death benefit option by sending a signed written request to our
Administrative Office. See TAX EFFECTS on page 19 for the tax consequences of
changing the death benefit option.
o If you change from OPTION A TO OPTION B, the Face Amount will be decreased by
the amount in your Policy Account on the date of the change. This change will
shorten the length of time the death benefit guarantee provision is
available. See GUARANTEEING THE DEATH BENEFIT on page 12. We may not allow
such a change if it would reduce the Face Amount below the minimum required
to issue this policy at the time of the reduction. We may require evidence of
insurability to make the change.
o If you change from OPTION B TO OPTION A, the Face Amount will be increased by
the amount in the Policy Account on the date of the change.
These increases and decreases in Face Amount are made so that the amount of the
death benefit remains the same on the date of the change. When the death benefit
remains the same, there is no change in the net amount at risk, which is the
amount on which cost of insurance charges for the base policy are based (see
COST OF INSURANCE CHARGES on page 17). If your death benefit is determined by a
percentage multiple of the Policy Account, however, the new Face Amount will be
determined differently.
SUBSTITUTION OF INSURED PERSON. If you provide satisfactory evidence that the
person proposed to be insured is insurable, then, subject to certain
restrictions, you may, after the second policy year, substitute the insured
person under your policy. The cost of insurance charges may change. Substituting
the insured person is a taxable event and may, depending upon individual
circumstances, have other adverse tax consequences, including classification of
the policy as a modified endowment contract or disqualification of the policy as
life insurance for Federal income tax purposes unless funds are distributed out
of the policy. See TAX EFFECTS on page 19. You should consult your tax adviser
prior to substituting the insured person. As a condition to substituting the
insured person we may require you to sign a form acknowledging the potential tax
consequences of making this change. A $100 charge will be deducted from the
Policy Account for each substitution of insured person.
WHEN POLICY CHANGES GO INTO EFFECT. A substitution of the insured person, or
change in Face Amount or death benefit option, will go into effect on the
beginning of the policy month that coincides with or follows the date we approve
the request for the change. In some cases we may not approve a change because
based on our understanding of current rules, the change might disqualify your
policy as life insurance under applicable Federal tax law. In other cases there
may be adverse tax consequences as a result of the change. See TAX EFFECTS on
page 19.
MATURITY BENEFIT
If the insured person is still living on the policy anniversary nearest his or
her 100th birthday (Final Policy Date), we will pay you the amount in the Policy
Account net of any policy loan, any lien securing a Living Benefit payment and
accrued interest. The policy will then terminate. You may choose to have this
benefit paid in installments. See TAX EFFECTS on page 19 and YOUR PAYMENT
OPTIONS on page 23.
LIVING BENEFIT OPTION
Subject to our underwriting guidelines and availability in your state, our
Living Benefit rider will be added to your policy at issue. The Living Benefit
rider enables the policyowner to receive a portion of the policy's death benefit
(excluding any death benefit payable under the supplemental term insurance
rider) if the insured person has a terminal illness. Certain eligibility
requirements apply when you submit a Living Benefit claim (for example,
satisfactory evidence of less than a six month life expectancy). There is no
additional charge for the rider, but we will deduct an administrative charge of
up to $250 from the proceeds of the Living Benefit payment. In addition, if you
tell us that you do not wish to have the Living Benefit rider added at issue,
but you later ask to add it, additional underwriting will be required and there
will be a $100 administrative charge.
When a Living Benefit claim is paid, we establish a lien against the policy. The
amount of the lien is the sum of the Living Benefit payment and any accrued
interest on that payment. Interest will be charged at a rate equal to the
greater of: (i) the yield on a 90-day Treasury bill and (ii) the
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maximum adjustable policy loan interest rate permitted in the state in which
your policy is delivered. See BORROWING FROM YOUR POLICY ACCOUNT -- POLICY LOAN
INTEREST on page 15.
Until a death benefit is paid, or the policy is surrendered, a portion of the
lien is allocated to the policy's Cash Surrender Value. This liened amount will
be transferred to the Guaranteed Interest Account where it will earn interest at
the same rate as unloaned amounts. See THE GUARANTEED INTEREST ACCOUNT on page
11. This liened amount will not be available for loans, transfers or partial
withdrawals. Any death benefit, maturity benefit or Net Cash Surrender Value
payable upon policy surrender will be reduced by the amount of the lien.
The receipt of a Living Benefit payment may be able to qualify for exclusion
from income tax. See TAX EFFECTS on page 19. Consult your tax adviser. Receipt
of a Living Benefit payment may also affect a policyowner's eligibility for
certain government benefits or entitlements. You should contact your Equitable
agent if you wish to make a claim under the rider.
SUPPLEMENTAL INSURANCE ON THE INSURED PERSON
You may purchase at issue death benefit coverage on the insured person through a
supplemental term insurance rider. Choosing coverage under the supplemental term
insurance rider in lieu of coverage under the base policy will reduce total
charges and increase Policy Account values on a current charge basis. The more
supplemental term insurance coverage you elect, the greater will be the amount
of the reduction in charges and increase in Policy Account value on a current
charge basis. However, the supplemental term insurance rider has higher
guaranteed maximum cost of insurance charges than the base policy. On a
guaranteed charge basis, the use of the rider will increase charges and decrease
the Policy Account value. In addition, if you elect any coverage under this
rider, the death benefit guarantee provision will not be available and the
Living Benefit rider will not apply to the supplemental term insurance.
The minimum Face Amount that we will issue under the rider is $10,000. The
minimum total Face Amount (Face Amount under the rider plus base policy Face
Amount) that must be maintained at all times is $100,000, of which at least
$50,000 must be coverage under the base policy. Premiums are allocated between
the base policy and the rider in proportion to their respective Face Amounts at
issue, and a charge equal to 2% will be deducted from premiums allocated to the
rider to cover sales expenses. Premiums allocated to the base policy are subject
to a different sales charge. See PREMIUM SALES CHARGE on page 17. Coverage under
the supplemental term insurance rider is not included when we calculate the
amount of the administrative charge.
If the base policy becomes subject to a higher death benefit in order to
maintain its qualification as life insurance, the amount of coverage provided by
the supplemental term insurance rider will automatically decrease to offset the
increase in the base policy death benefit. Your agent can provide further
information and policy illustrations showing how the supplemental term insurance
rider can affect your policy values under different assumptions.
YOUR POLICY ACCOUNT VALUE
The amount in your Policy Account is the sum of the amounts you have in the
Guaranteed Interest Account and in the Funds. Your Policy Account also reflects
various charges. See DEDUCTIONS AND CHARGES on page 16.
AMOUNTS IN THE SEPARATE ACCOUNT. Amounts allocated, transferred or added to a
Fund are used to purchase units of that Fund. Units are redeemed from a Fund
when amounts are withdrawn, transferred or deducted for charges or capitalized
loan interest. The number of units purchased or redeemed in a Fund is calculated
by dividing the dollar amount of the transaction by the Fund's unit value
calculated after the close of business that day. On any given day, the value you
have in a Fund is the unit value for that Fund times the number of units
credited to you in that Fund.
HOW WE DETERMINE THE UNIT VALUE. We determine unit values for the Funds at the
end of each business day. Generally, a business day is any day the New York
Stock Exchange is open for trading.
A transaction date is the day we perform automatic transactions, such as policy
anniversary reports and monthly charge deductions, or process requested
transactions, such as remittances, disbursements and transfers. If your request
for a policy transaction is not accompanied by complete information or is
directed to the wrong address, the transaction date will be the date we receive
such complete information at our administrative office. If your request for a
policy transaction reaches our administrative office on a day we are closed, or
after the New York Stock Exchange closes, the transaction date will be the next
following business day.
The unit value that applies to a transaction will be the unit value calculated
at the close of business on the transaction date. When an automatic transaction
is scheduled on a non-business day, the unit value applied will be the unit
value calculated for the next business day. The unit value for any business day
is equal to the unit value for the preceding business day multiplied by the net
investment factor for that Fund on that business day.
A net investment factor is determined for each Fund of the Separate Account
every business day as follows: first, we take the net asset value of a share in
the corresponding Trust portfolio at the close of business that day, as reported
by the Trust, and we add the per share amount of any dividends or capital gains
distributions paid by the Trust on that day. We divide this amount by the per
share net asset value on the preceding business day. Finally, we reserve the
right to subtract any daily charge for taxes or amounts set aside as a reserve
for taxes.
TRANSFERS OF POLICY ACCOUNT VALUE. You may request a transfer of amounts among
Funds or to the Guaranteed Interest Account. Special rules apply to transfers
out of the Guaranteed Interest Account. See TRANSFERS OUT OF THE GUARANTEED
INTEREST ACCOUNT on page 11. You may make a transfer by telephone or by
submitting a signed written transfer request to our Administrative Office.
Transfer request forms are available from your Equitable agent or from our
Administrative Office. Special rules apply to telephone transfers. See TELEPHONE
TRANSFERS below.
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Transfers take effect on the date we receive your request, but no earlier than
the first business day following the Allocation Date. When part of a transfer
request cannot be processed, we will not process any part of the request. This
could occur, for example, where the request does not comply with our transfer
limitations, or where the request is for a transfer of an amount greater than
that currently allocated to a Fund. We may delay making a transfer if the New
York Stock Exchange is closed or the SEC has declared that an emergency exists.
In addition, we may delay transfers where permitted under applicable law.
TELEPHONE TRANSFERS. In order to make transfers by telephone, you must first
complete and return an authorization form. Authorization forms can be obtained
from your Equitable agent or our Administrative Office. The completed signed
form MUST be returned to our Administrative Office before requesting a telephone
transfer.
Telephone transfers may be requested on each day we are open to transact
business. You will receive the Funds' unit value as of the close of business on
the day you call. We do not accept telephone transfer requests after 4:00 p.m.
Eastern Time. Only one telephone transfer request is permitted per day and it
may not be revoked at any time. The telephone transfer requests are
automatically recorded and are invalid if incomplete information is given,
portions of the request are inaudible, no authorization form is on file, or the
request does not comply with the transfer limitations described above.
We have established reasonable procedures designed to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting on telephone instructions
and providing written confirmation of instructions communicated by telephone. If
we do not employ reasonable procedures to confirm that instructions communicated
by telephone are genuine, we may be liable for any losses arising out of any act
or any failure to act resulting from our own negligence, lack of good faith, or
willful misconduct. In light of the procedures established, we will not be
liable for following telephone instructions that we reasonably believe to be
genuine.
During times of extreme market activity it may be impossible to contact us to
make a telephone transfer. If this occurs, you should submit a written transfer
request to our Administrative Office. Our rules on telephone transfers are
subject to change and we reserve the right to discontinue telephone transfers in
the future.
CHARGE FOR TRANSFERS. We have reserved the right under your policy to make a
charge of up to $25 for transfers of Policy Account value. Currently, you will
be able to make 12 free transfers in any policy year, but we will charge $25 per
transfer after the twelfth transfer. No charge will ever apply to the transfer
of all of your amounts in the Separate Account to the Guaranteed Interest
Account.
BORROWING FROM YOUR POLICY ACCOUNT
You may borrow up to 90% of your policy's Cash Surrender Value using only your
policy as security for the loan. If you request an additional loan, the
additional amount will be added to the outstanding loan and accrued loan
interest. Any amount that secures a loan remains part of your Policy Account but
is assigned to the Guaranteed Interest Account. This loaned amount earns an
interest rate expected to be different from the interest rate for unloaned
amounts. Amounts securing a Living Benefit payment are not available for policy
loans.
HOW TO REQUEST A LOAN. You may request a loan by sending a signed written
request to our Administrative Office. You should tell us how much of the loan
you want taken from your unloaned amount in the Guaranteed Interest Account and
how much you want taken from the Funds. If you request a loan from a Fund, we
will redeem units sufficient to cover that part of the loan and transfer the
amount to the loaned portion of the Guaranteed Interest Account. The amounts you
have in each Fund or the Account will be determined as of the day your request
for a loan is received at our Administrative Office.
If you do not indicate how you wish to allocate it, the loan will be allocated
based on the proportions that your unloaned amount in the Guaranteed Interest
Account and your values in the Funds bear to the total unloaned value of your
Policy Account.
POLICY LOAN INTEREST. Interest on a policy loan accrues daily at an adjustable
interest rate. We determine the rate at the beginning of each calendar year. The
same rate applies to any outstanding policy loans and any new amounts you borrow
during the year. You will be notified of the current rate when you apply for a
loan. The maximum rate is the greater of 5%, or the "Published Monthly Average"
for the month that ends two months before the interest rate is set. The
"Published Monthly Average" is the Monthly Average Corporates yield shown in
Moody's Corporate Bond Yield Averages published by Moody's Investors Service,
Inc. If this average is no longer published, we will use any successor or the
average established by the insurance supervisory official of the jurisdiction in
which the policy is delivered. We will not charge more than the maximum rate
permitted by applicable law. We may also set a rate lower than the maximum.
Any change in the rate from one year to the next will be at least 1/2%. The
maximum loan interest rate will only change, therefore, if the Published Monthly
Average differs from the previous interest rate by at least 1/2 of 1%. You will
be notified in advance of any increase in the interest rate on any loan you have
outstanding.
When you borrow on your policy, the amount of your loan is set aside in the
Guaranteed Interest Account where it earns a declared rate for loaned amounts.
The interest rate we credit to the loaned portion of the Guaranteed Interest
Account will be at an annual rate up to 2% less than the loan interest rate we
charge. However, we reserve the right to credit a lower rate than this if in the
future tax laws change such that our taxes on policy loans or policy loan
interest are increased.
Under our current rules, the rate we credit on loaned amounts for the first
fifteen policy years is 1% less than the rate we charge for policy loan
interest, and beginning in the sixteenth policy year, the rate difference drops
from 1% to 1/4 of 1%. Because IL COLI II was offered for the first time in 1996,
no reduction in the rate difference in the sixteenth policy year has yet been
attained. These rate differentials are those currently in effect and are not
guaranteed. Interest credited on loaned amounts will never be less than 4%.
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Interest accrues daily on any loaned amount in the Guaranteed Interest Account.
On each policy anniversary and any time you repay a policy loan in full, accrued
interest on the loaned amount is allocated to the Separate Account Funds and to
the unloaned portion of the Guaranteed Interest Account in accordance with your
premium allocation percentages.
WHEN INTEREST IS DUE. Interest is due on each policy anniversary. If you do not
pay the interest when it is due, it will be added to your outstanding loan. This
means an additional loan is made to pay the interest. An amount equal to the
difference between the loan interest due and the loan interest credited on the
loaned portion of the Guaranteed Interest Account will be transferred from the
Funds and the Guaranteed Interest Account to make the loan, and allocated based
on the proportion that your unloaned value in the Guaranteed Interest Account
and your values in the Funds bear to the total unloaned value in your Policy
Account.
REPAYING THE LOAN. You may repay all or part of a policy loan at any time. We
assume that any money you send us is a premium payment unless you specifically
indicate in writing that it is to be applied as a loan repayment. Loan
repayments are not subject to a charge for taxes or a Premium Sales Charge. Any
amount not needed to repay a loan and accrued loan interest will be applied as a
premium payment. We will first allocate loan repayments to our Guaranteed
Interest Account until the amount of any loans originally allocated to that
Account have been repaid. After you have repaid this amount, you may choose how
you want us to allocate repayments. If you do not provide specific instructions,
repayments will be allocated based on the proportion that your unloaned value in
the Guaranteed Interest Account and your values in the Funds bear to the total
unloaned value in your Policy Account.
THE EFFECTS OF A POLICY LOAN. A loan will have a permanent effect on the value
of your Policy Account and, therefore, on the benefits under your policy, even
if the loan is repaid. The loaned amount set aside in the Guaranteed Interest
Account will not be available for investment in the Funds or in the unloaned
portion of the Guaranteed Interest Account. Whether you earn more or less with
the loaned amount set aside depends on the investment experience of the Funds
and the rates declared for the unloaned portion of the Guaranteed Interest
Account. The amount of any policy loan and accrued loan interest will reduce the
proceeds paid from your policy upon the death of the insured person, policy
maturity or policy surrender. In addition, a loan will reduce the amount
available for you to withdraw from your policy. See TAX EFFECTS on page 19 for
the tax consequences of a policy loan. A loan may also affect the length of time
that your insurance remains in force because the amount set aside to secure your
loan cannot be used to cover monthly deductions or a loan may prevent the death
benefit guarantee provision from keeping the policy out of default. See YOUR
POLICY CAN TERMINATE on page 18.
PARTIAL WITHDRAWALS AND SURRENDER
PARTIAL WITHDRAWALS. At any time after the first policy year while the insured
person is living, you may request a partial withdrawal of your Net Cash
Surrender Value by sending a signed written request to our Administrative
Office. When you make a partial withdrawal, an expense charge of $25 or 2% of
the amount requested, whichever is less, will also be deducted from your Policy
Account. Any such withdrawal is subject to our approval and to certain
conditions. Amounts securing a Living Benefit payment are not available for
partial withdrawals. In addition, we reserve the right to decline a request for
a partial withdrawal. Under our current rules, a withdrawal must:
o not cause the death benefit to fall below the minimum Face Amount for which
we would issue the policy at the time, and
o not cause the policy to fail to qualify as life insurance under applicable
tax law.
You may specify how much of the withdrawal you want taken from amounts you have
in each Fund and the unloaned portion of the Guaranteed Interest Account. If you
do not specifically indicate, we will make the withdrawal and deduct the related
expense charge based on the proportions that your unloaned amounts in the
Guaranteed Interest Account and the Funds bear to the total unloaned value of
your Policy Account.
A partial withdrawal reduces the amount you have in your Policy Account and Cash
Surrender Value on a dollar-for-dollar basis. Normally, it also reduces the
total death benefit on a dollar-for-dollar basis. However, if the total death
benefit is based on the Policy Account percentage multiple, the reduction in
death benefit would be greater. The withdrawal and these reductions will be
effective as of the date your request is received at our Administrative Office.
See TAX EFFECTS on page 19 for the tax consequences of a partial withdrawal and
a reduction in benefits.
SURRENDER FOR NET CASH SURRENDER VALUE. The Cash Surrender Value is the amount
in your Policy Account. The Net Cash Surrender Value equals the Cash Surrender
Value minus any loan and accrued loan interest.
You may surrender your policy for its Net Cash Surrender Value at any time while
the insured person is living. See TAX EFFECTS on page 19 for the tax
consequences of a surrender. We will deduct from the Net Cash Surrender Value
any amount securing a Living Benefit payment. We will compute the Net Cash
Surrender Value as of the date we receive your written surrender request and the
policy at our Administrative Office. All insurance coverage under your policy
will end on that date.
DEDUCTIONS AND CHARGES
DEDUCTIONS FROM PREMIUMS. Charges for certain taxes are deducted from all
premiums. In addition, a Premium Sales Charge will be deducted from your
premiums as specified below. The balance of each premium (the net premium) is
placed in your Policy Account.
Charge For Taxes. We deduct a charge designed to approximate certain taxes and
additional charges imposed upon us by states and certain jurisdictions. Such
charges currently range from .75% to 5% (Virgin Islands).
This charge may be increased or decreased to reflect any changes in our taxes.
In addition, if an insured person changes his or her place of residence, you
should notify us to change our records so that the charge will reflect the new
jurisdiction.
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Premium Sales Charge. A percentage of each premium will be deducted to
compensate us in part for sales and promotional expenses in connection with
selling IL COLI II, such as commissions, the cost of preparing sales literature,
other promotional activities and other direct and indirect expenses. We pay
these expenses from our own resources, including the Premium Sales Charge and
any profit we may earn on the charges deducted under the policy, such as the
mortality and expense risk charge. The maximum Premium Sales Charge for premiums
allocated to the base policy is equal to 9% of such premiums paid through the
tenth policy year and 3% of such premiums paid thereafter. Premiums allocated to
the supplemental term insurance rider have a lower sales charge. See
SUPPLEMENTAL INSURANCE ON THE INSURED PERSON on page 14.
Currently, we deduct the 9% Premium Sales Charge from each base policy premium
payment until the cumulative premiums paid during the first 10 policy years
equals seven times the "target premium" and 3% thereafter. The target premium
varies by issue age, sex and tobacco user status of the insured person and the
base policy's Face Amount, and is generally less than or equal to one seven-pay
premium for the base policy. The seven-pay premium is defined by the Internal
Revenue Code and is based on a hypothetical policy issued on the same insured
person and for the same initial death benefit which, under specified conditions
(which include the absence of expense and administrative charges), would be
fully paid for after seven level annual payments. We reserve the right, however,
to deduct the maximum Premium Sales Charge as described in the preceding
paragraph from each base policy premium payment at any time.
DEDUCTIONS FROM YOUR POLICY ACCOUNT. At the beginning of each policy month, the
following charges are deducted from your Policy Account:
Monthly Administrative Charge. The administrative charge is designed to
compensate us for administrative activities in connection with issuing and
maintaining your policy, such as billing, policy transactions and policyowner
communications. The current administrative charge is equal to $16.50 per month
in the first three policy years (guaranteed not to exceed $18.50 per month) and
$4 thereafter (guaranteed not to exceed $6), plus a monthly charge per $1,000 of
base policy Face Amount at issue for the first ten policy years as follows:
ISSUE AGE CURRENT CHARGE GUARANTEED MAXIMUM CHARGE
- --------------- -------------------- -------------------------------
18-39 $.11 $.15
40-49 $.14 $.18
50-59 $.18 $.22
60-80 $.22 $.26
The current monthly charge per $1,000 of base policy Face Amount at issue is
equal to $.02 during the 11th policy year and later (guaranteed not to exceed
$.06).
Cost Of Insurance Charges. The base policy cost of insurance charge is
calculated by multiplying the net amount at risk at the beginning of the policy
month by the monthly base policy cost of insurance rate applicable to the
insured person at that time. The net amount at risk is the difference between
the base policy current death benefit and the amount in your Policy Account. We
may earn a profit from this charge.
Your cost of insurance charge will vary from month to month with changes in the
net amount at risk. For example, if the current death benefit for the month is
increased because the death benefit is based on a percentage multiple of the
Policy Account, then the net amount at risk for the month will increase.
Assuming the percentage multiple is not in effect, increases or decreases to the
Policy Account will result in a corresponding decrease or increase to the net
amount at risk under Option A policies, but no change to the net amount at risk
under Option B policies. Increases or decreases to the Policy Account can result
from making premium payments, investment experience or the deduction of charges.
The cost of any supplemental term insurance rider you purchase will also be
deducted monthly. Your monthly cost of insurance for this rider will equal the
cost of insurance rate for this rider times the amount of coverage (per
thousand) under the rider at the beginning of the policy month.
The monthly cost of insurance rates applicable to your policy will be based on
our current monthly cost of insurance rates. The current monthly cost of
insurance rates may be changed from time to time. However, the current rates
will never be more than the guaranteed maximum rates set forth in your policy,
which are based on the Commissioner's 1980 Standard Ordinary Male and Female
Smoker and Non-Smoker Mortality Tables. The supplemental term insurance rider
has higher guaranteed maximum cost of insurance charges than the base policy.
The current and guaranteed monthly cost of insurance rates are determined based
on the sex, age, underwriting class and tobacco user status of the insured
person. In addition, the current rates also vary depending on the duration of
the policy (i.e., the length of time since a policy has been issued). Lower
current cost of insurance rates generally apply for insured persons who qualify
as non-tobacco users. To qualify, an insured person must meet additional
requirements that relate to tobacco use.
There will be no distinctions based on sex in the cost of insurance rates for IL
COLI II policies sold in Montana. The guaranteed cost of insurance rates for IL
COLI II policies in this state are based on the Commissioner's 1980 Standard
Ordinary SB Smoker and NB Non-Smoker Mortality Table.
Congress and the legislatures of various states have from time to time
considered legislation that would require insurance rates to be the same for
males and females of the same age, rating class and tobacco user status. In
addition, employers and employee organizations should consider, in consultation
with counsel, the impact of Title VII of the Civil Rights Act of 1964 on the
purchase of IL COLI II in connection with an
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employment-related insurance or benefit plan. In a 1983 decision, the United
States Supreme Court held that, under Title VII, optional annuity benefits under
a deferred compensation plan could not vary on the basis of sex.
Mortality And Expense Risk Charge. A monthly charge for assuming MORTALITY AND
EXPENSE RISKS will be made. The annual current rate is .20% of the unloaned
Policy Account value on the date this charge is assessed. The annual guaranteed
maximum rate is .40%. We are committed to fulfilling our obligations under the
policy and providing service to you over the lifetime of your policy. Despite
the uncertainty of future events, we guarantee that monthly administrative and
cost of insurance deductions from your Policy Account will never be greater than
the maximum amounts shown in your policy. In making this guarantee, we assume
the mortality risk that insured persons will live for shorter periods than we
estimated. When this happens, we have to pay a greater amount of death benefit
than we expected to pay in relation to the cost of insurance charges we
received. We also assume the expense risk that the cost of issuing and
administering policies will be greater than we expected. If the amount collected
from this charge exceeds losses from the risks assumed, it will be to our
profit.
Transaction Charges. In addition to the monthly deductions from your Policy
Account described above, we charge fees for certain policy transactions: see
PARTIAL WITHDRAWALS on page 16, SUBSTITUTION OF INSURED PERSON on page 13,
LIVING BENEFIT OPTION on page 13 and TRANSFERS OF POLICY ACCOUNT VALUE on page
14. Also, if, after your policy is issued, you request more than one
illustration in a policy year, we may charge a fee. See ILLUSTRATIONS OF POLICY
BENEFITS on page 30.
How Policy Account Charges Are Allocated. Generally, deductions from your Policy
Account for monthly charges are made from the Funds and the unloaned portion of
our Guaranteed Interest Account in accordance with the deduction allocation
percentages specified in your application unless you instruct us in writing to
do otherwise. See PREMIUM AND MONTHLY CHARGE ALLOCATIONS on page 12. If a
deduction cannot be made in accordance with these percentages, it will be made
based on the proportions that your unloaned amounts in the Guaranteed Interest
Account and your amounts in the Funds bear to the total unloaned value of your
Policy Account.
Changes. Any changes in the cost of insurance rates, Premium Sales Charge,
mortality and expense risk charge or administrative charges will be by class of
insured person and will be based on changes in future expectations about such
factors as investment earnings, mortality, the length of time policies will
remain in effect, expenses and taxes. We reserve the right to make a charge in
the future for taxes or reserves set aside for taxes, which would reduce the
investment experience of the Funds. See TAX EFFECTS on page 19.
CHARGES OF THE TRUSTS. The Funds purchase Class IA shares of the HRT or Class IB
shares of the EQAT, respectively, at net asset value. That price reflects
investment management fees, indirect expenses, such as brokerage commissions,
12b-1 distribution fee charges (for Class IB shares) and certain other operating
expenses. The Trusts do not impose a sales charge. See DEDUCTIONS AND CHARGES in
the Summary on page 2 and THE HRT'S INVESTMENT ADVISER and THE EQAT'S MANAGER
AND INVESTMENT ADVISERS on page 8.
ADDITIONAL INFORMATION ABOUT IL COLI II
YOUR POLICY CAN TERMINATE. Your insurance coverage under IL COLI II continues as
long as the Net Cash Surrender Value of the policy is enough to pay the monthly
deductions. The Net Cash Surrender Value equals the Cash Surrender Value minus
any loan and accrued loan interest.
If the Net Cash Surrender Value at the beginning of any policy month is less
than the deductions for that month, your policy will go into default unless the
operation of the death benefit guarantee provision prevents this. See
GUARANTEEING THE DEATH BENEFIT on page 12. If your policy goes into default, we
will notify you, and any assignees on our records, in writing, that a 61-day
grace period has begun and indicate the payment that is needed to avoid policy
termination at the end of the grace period. The required payment will not be
more than an amount which would increase the Net Cash Surrender Value to cover
total monthly deductions for three months (without regard to any investment
performance in the Policy Account). The required payment and any residual Policy
Account value will be used to cover the overdue deductions. However, if your
Policy Account has unfavorable investment experience, the required payment may
not be sufficient to cover the overdue deductions on the date we receive the
payment. In this case, a new 61-day grace period will begin. While a policy is
in a grace period, you may not transfer Policy Account value or make other
policy changes.
If we do not receive payment within the 61 days, your policy will terminate
without value. We will withdraw any amount left in your Policy Account and apply
this amount to the overdue deductions and any unpaid loan and accrued loan
interest. We will inform you, and any assignee, at last known addresses that
your policy has ended without value. See TAX EFFECTS on page 19 for the
potential tax consequences of the termination of a policy.
YOU MAY RESTORE A POLICY AFTER IT TERMINATES. Subject to certain state
variations, you may restore a policy within six months after it terminates if
you provide evidence that the insured person is still insurable, and you make
the premium payment that we require to restore the policy. The required premium
will not be more than an amount sufficient to cover (i) total monthly deductions
for 3 months, calculated from the effective date of restoration; (ii) the
monthly administrative charges from the beginning of the grace period to the
effective date of restoration; and (iii) the charge for taxes and the Premium
Sales Charge associated with this payment. We will determine the amount of this
required premium as if no interest or investment performance were credited to,
or charged against, your Policy Account. The policy will be restored as of the
beginning of the policy month which coincides with or follows the date we
approve your application. Your restored policy will not have any loan balance
even if there was a loan outstanding under the terminated policy.
From the required payment we will deduct the charge for applicable taxes and the
Premium Sales Charge. On the effective date of restoration, the Policy Account
will be equal to the balance of the required payment. We will start to make
monthly deductions as of the effective date of restoration. On that date, the
monthly administrative charges from the beginning of the grace period to the
effective date of restoration will be deducted from the Policy Account. Your
restored policy will be treated as a continuation of the terminated policy for
purposes of determining
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the level of Premium Sales Charge and monthly administrative charge still due.
See TAX EFFECTS on page 19 for the potential tax consequences of restoring a
terminated policy. Some states may vary the time period and conditions for
policy restoration.
POLICY PERIODS, ANNIVERSARIES, DATES AND AGES. When an application for an IL
COLI II policy is completed and submitted to us, we decide whether or not to
issue the policy. This decision is made based on the information in the
application and our standards for issuing insurance and classifying risks. If we
decide not to issue a policy, any premium paid will be refunded.
The Issue Date, shown on the Policy Information Page, is the date your policy is
actually issued, but if we have advanced the Register Date, the Issue Date will
be the same as the Register Date. Generally, contestability is measured from the
Issue Date, as is the suicide exclusion.
The Register Date, also shown on the Policy Information Page, is used to measure
policy years and policy months. Charges and deductions are first made as of the
Register Date. As to when coverage under the policy begins, see FLEXIBLE
PREMIUMS on page 11.
Generally, we determine the Register Date based upon when we receive your full
minimum initial premium. In most cases:
o If you submit the full minimum initial premium to your Equitable agent at the
time you sign the application, and we issue the policy as it was applied for,
then the Register Date will be the later of (a) the date part I of the policy
application was signed or, (b) the date part II of the policy application was
signed by a medical professional.
o If we do not receive your full minimum initial premium at our Administrative
Office before the Issue Date or, if the policy is not issued as applied for,
the Register Date will be the same as the Issue Date.
An early Register Date may be permitted for employer sponsored cases in order to
accommodate a common Register Date for all employees. An early Register Date may
also be permitted to provide a younger age at issue. We may also permit
policyowners to delay a Register Date (up to three months) in employer sponsored
cases.
The investment start date is the date that your initial net premium begins to
vary with the investment performance of the Funds or accrue interest in the
Guaranteed Interest Account. Generally, the investment start date will be the
same as the Register Date if the full minimum initial premium is received at our
Administrative Office before the Register Date. Otherwise, the investment start
date will be the date the full minimum initial premium is received at our
Administrative Office. Thus, to the extent that your first premium is received
before the Register Date, there will be a period during which the full minimum
initial premium will not be experiencing investment performance. The investment
start date for policies with early Register Dates will be the date the premium
is received at our Administrative Office. Any subsequent premium payment
received after the investment start date will begin to experience investment
performance as of the date such payment is received at our Administrative
Office. Remember, the amount of your initial net premium allocated to the Funds
may be temporarily allocated to the Money Market Fund prior to allocation in
accordance with your instructions. See FLEXIBLE PREMIUMS on page 11.
Age. Generally, when we refer to the age of the insured person, we mean his or
her age on the birthday nearest to the beginning of the particular policy year.
TAX EFFECTS
This discussion is based on our general understanding of the effect of the
current Federal income tax laws as currently interpreted on IL COLI II policies.
The tax effects on corporate taxpayers, other non-natural owners such as trusts,
non-U.S. residents or non-U.S. citizens, may be different. For example,
corporations may be required to include certain life insurance policy amounts
for purposes of determining Federal alternative minimum taxable income. Further,
the tax treatment of individuals receiving benefits under an employer-sponsored
plan or arrangement attributable to life insurance may be determined under the
Federal tax rules governing such plan or arrangement. This discussion is general
in nature, and should not be considered tax advice, for which you should consult
your legal or tax adviser.
POLICY PROCEEDS. An IL COLI II policy will be treated as "life insurance" for
Federal income tax purposes if it meets the definitional requirement of the
Internal Revenue Code (the Code) and as long as the portfolios of the Trust
satisfy the diversification requirements under the Code. We believe that IL COLI
II will meet these requirements, and that:
o the death benefit received by the beneficiary under your IL COLI II policy
will not be subject to Federal income tax; and
o as long as your policy remains in force, increases in the Policy Account
value as a result of interest or investment experience will not be subject to
Federal income tax unless and until there is a distribution from your policy,
such as a loan or a partial withdrawal.
SPECIAL TAX RULES MAY APPLY, HOWEVER, IF YOU TRANSFER YOUR OWNERSHIP OF THE
POLICY. CONSULT YOUR TAX ADVISER BEFORE ANY TRANSFER OF YOUR POLICY.
The Federal income tax consequences of a distribution from your policy will
depend on whether your policy is determined to be a "modified endowment." The
character of any income recognized will be ordinary income as opposed to capital
gain.
A MODIFIED ENDOWMENT IS a life insurance policy which fails to meet a
"seven-pay" test. In general, a policy will fail the seven-pay test if the
cumulative amount of premiums paid under the policy at any time during the first
seven policy years exceeds a calculated premium level. The calculated seven-pay
premium level is based on a hypothetical policy issued on the same insured
person and for the same initial death benefit which, under specified conditions
(which include the absence of expense and administrative charges), would be
fully paid for after seven level annual payments. Your policy will be treated as
a modified endowment unless the cumulative premiums paid under your policy, at
all times during the first seven policy years, are less than or equal to the
cumulative seven-pay premiums which would have been paid under the hypothetical
policy on or before such times.
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Whenever there is a "material change" under a policy, it will generally be
treated as a new contract for purposes of determining whether the policy is a
modified endowment, and subjected to a new seven-pay period and a new seven-pay
limit. The new seven-pay limit would be determined taking into account, under a
downward adjustment formula, the Policy Account value of the policy at the time
of such change. A materially changed policy would be considered a modified
endowment if it failed to satisfy the new seven-pay limit. A material change
would occur if there was a substitution of the insured person, and could also
occur as a result of a change in death benefit option, the selection of
additional benefits and certain other changes.
If the benefits are reduced during the first seven policy years after entering
into the policy (or within seven years after a material change), for example, by
requesting a decrease in Face Amount or in some cases, by making a partial
withdrawal or terminating additional benefits under a rider, the calculated
seven-pay premium level will be redetermined based on the reduced level of
benefits and applied retroactively for purposes of the seven-pay test. If the
premiums previously paid are greater than the recalculated seven-pay premium
level limit, the policy will become a modified endowment. Generally, a life
insurance policy which is received in exchange for a modified endowment will
also be considered a modified endowment.
Changes made to a life insurance policy, for example, a decrease in benefits or
the termination of or restoration of a terminated policy, may have other effects
on your policy, including impacting the maximum amount of premiums that can be
paid under the policy, as well as the maximum amount of Policy Account value
that may be maintained under the policy. In some cases, this may cause us to
take action in order to assure your policy continues to qualify as life
insurance including distribution of amounts that may be includable in income.
See POLICY CHANGES on page 21.
IF YOUR IL COLI II POLICY IS NOT A MODIFIED ENDOWMENT, as long as it remains in
force, a loan under your policy will be treated as indebtedness and no part of
the loan will be subject to current Federal income tax. Interest on the loan
will generally not be tax deductible. After the first 15 policy years, the
proceeds from a partial withdrawal will not be subject to Federal income tax
except to the extent such proceeds exceed your "Basis" in your policy. Your
Basis in your policy generally will equal the premiums you have paid less any
amounts previously recovered through tax-free policy distributions. During the
first fifteen policy years, the proceeds from a partial withdrawal could be
subject to Federal income tax to the extent your Policy Account value exceeds
your Basis in your policy. The portion subject to tax will depend upon the ratio
of your death benefit to the Policy Account value (or in some cases, the
premiums paid) under your policy and the age of the insured person at the time
of the withdrawal. In addition, if at any time your policy is surrendered, the
excess, if any, of your Cash Surrender Value (which includes the amount of
policy loan and accrued loan interest) over your Basis will be subject to
Federal income tax. IN ADDITION, IF A POLICY TERMINATES WHILE THERE IS A POLICY
LOAN, THE CANCELLATION OF SUCH LOAN AND ACCRUED LOAN INTEREST WILL BE TREATED AS
A DISTRIBUTION AND COULD BE SUBJECT TO TAX UNDER THE ABOVE RULES. On the Final
Policy Date, the excess of the amount of any benefit paid, not taking into
account any reduction for any loan and accrued loan interest, over your Basis in
the policy, will be subject to Federal income tax.
IF YOUR POLICY IS A MODIFIED ENDOWMENT, any distribution from your policy will
be taxed on an "income-first" basis. Distributions for this purpose include a
loan (including any increase in the loan amount to pay interest on an existing
loan or an assignment or a pledge to secure a loan) or partial withdrawal. Any
such distributions will be considered taxable income to you to the extent your
Policy Account value exceeds your Basis in the policy. For modified endowments,
your Basis would be increased by the amount of any prior loan under your policy
that was considered taxable income to you. For purposes of determining the
taxable portion of any distribution, all modified endowments issued by the same
insurer or an affiliate to the same policyowner (excluding certain qualified
plans) during any calendar year are to be aggregated. The Secretary of the
Treasury has authority to prescribe additional rules to prevent avoidance of
"income-first" taxation on distributions from modified endowments.
A 10% penalty tax will apply to the taxable portion of a distribution from a
modified endowment. The penalty tax will not, however, apply to distributions
(i) to taxpayers 59 1/2 years of age or older, (ii) in the case of a disability
(as defined in the Code) or (iii) received as part of a series of substantially
equal periodic annuity payments for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary. If your policy is surrendered, the excess, if any, of your Cash
Surrender Value over your Basis will be subject to Federal income tax and,
unless one of the above exceptions applies, the 10% penalty tax. The exceptions
generally do not apply to policies owned by corporations or other entities. If
your policy terminates while there is a policy loan, the cancellation of such
loan and accrued loan interest will be treated as a distribution to the extent
not previously treated as such and could be subject to tax, including the
penalty tax, as described under the above rules. In addition, upon the Final
Policy Date the excess of the amount of any benefit paid, not taking into
account any reduction for any loan and accrued loan interest, over your Basis in
the policy, will be subject to Federal income tax and, unless an exception
applies, a 10% penalty tax.
If your policy becomes a modified endowment, distributions that occur during the
policy year it becomes a modified endowment and any subsequent policy year will
be taxed as described in the two preceding paragraphs. In addition,
distributions from a policy within two years before it becomes a modified
endowment will be subject to tax in this manner. THIS MEANS THAT A DISTRIBUTION
MADE FROM A POLICY THAT IS NOT A MODIFIED ENDOWMENT COULD LATER BECOME TAXABLE
AS A DISTRIBUTION FROM A MODIFIED ENDOWMENT. The Secretary of the Treasury has
been authorized to prescribe rules which would treat similarly other
distributions made in anticipation of a policy becoming a modified endowment.
POLICY TERMINATIONS. A policy which has terminated without value may have the
tax consequences described above even though you may be able to reinstate your
policy. For tax purposes, some reinstatements may be treated as the purchase of
a new insurance contract.
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LIVING BENEFITS. Amounts received under a life insurance contract on the life of
individuals who are terminally ill, as defined by the tax law, are generally
excludable from gross income as amounts paid by reason of the death of the
insured. We believe that the living benefit which may be payable under your
policy meets the law's definition of terminally ill and can qualify for this
exclusion. This exclusion does not apply, however, to amounts paid to someone
other than the insured if the payee has an insurable interest in the insured's
life because the insured is a director, officer or employee of the payee or by
reason of the insured being financially interested in any trade or business
carried on by the payee.
DIVERSIFICATION. Under Section 817(h) of the Code, the Secretary of the Treasury
has the authority to set standards for diversification of the investments
underlying variable life insurance policies. The Treasury Department has issued
final regulations regarding the diversification requirements. Failure by us to
meet these requirements would disqualify your policy as a variable life
insurance policy under Section 7702 of the Code. If this were to occur, you
would be subject to Federal income tax on the income under the policy for the
period of the disqualification and subsequent periods. The Separate Account,
through the Trust, intends to comply with these requirements.
In connection with the issuance of the then temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance of
regulations or rulings prescribing the circumstances in which the ability of a
policyowner to direct his investment to particular funds of a separate account
may cause the policyowner, rather than the insurance company, to be treated as
the owner of the assets in the account. If you were considered the owner of the
assets of the Separate Account, income and gains from the account would be
included in your gross income for Federal income tax purposes. Under current law
we believe that Equitable, and not the owner of the policy, would be considered
the owner of the assets of the Separate Account.
POLICY CHANGES. To receive the tax treatment discussed above, your policy must
initially qualify and continue to qualify as life insurance under Sections 7702
and 817(h) of the Code. We have reserved in the policy the right to decline to
accept all or part of any premium payments, decline to change death benefit
options or the Face Amount, or decline to make partial withdrawals that based
upon our interpretation of current tax rules would cause your policy to fail to
qualify. We may also make changes in the policy or its riders or require
additional premium payments or make distributions from the policy to the extent
we deem necessary to qualify your policy as life insurance for tax purposes. Any
such change will apply uniformly to all policies that are affected. You will be
given written notice of such changes.
TAX CHANGES. The United States Congress has in the past considered, is currently
considering and may in the future consider legislation that, if enacted, could
change the tax treatment of life insurance policies. In addition, the Treasury
Department may amend existing regulations, issue regulations on the
qualification of life insurance and modified endowment contracts, or adopt new
interpretations of existing laws. State tax laws or, if you are not a United
States resident, foreign tax laws, may also affect the tax consequences to you,
the insured person or your beneficiary. These laws may change from time to time
without notice and, as a result, the tax consequences described above may be
altered. There is no way of predicting whether, when or in what form any such
change would be adopted. Any such change could have retroactive effect. We
suggest you consult your legal or tax adviser.
ESTATE AND GENERATION SKIPPING TAXES. If the insured person is the policyowner,
the death benefit under IL COLI II will generally be includable in the
policyowner's estate for purposes of Federal estate tax. If the policyowner is
not the insured person, under certain conditions only the Cash Surrender Value
of the policy would be so includable. Federal estate tax is integrated with
Federal gift tax under a unified rate schedule. In general, estates less than
$600,000 will not incur a Federal estate tax liability. In addition, an
unlimited marital deduction may be available for Federal estate tax purposes.
As a general rule, if a "transfer" is made to a person two or more generations
younger than the policyowner, a generation skipping tax may be payable at rates
similar to the maximum estate tax rate in effect at the time. The generation
skipping tax provisions generally apply to "transfers" which would be subject to
the gift and estate tax rules. Individuals are generally allowed an aggregate
generation skipping tax exemption of $1 million. Because these rules are
complex, you should consult with your tax adviser for specific information,
especially where benefits are passing to younger generations.
The particular situation of each policyowner, insured or beneficiary will
determine how ownership or receipt of policy proceeds will be treated for
purposes of Federal estate and generation skipping taxes as well as state and
local estate, inheritance and other taxes.
PENSION AND PROFIT-SHARING PLANS. If IL COLI II policies are purchased by a fund
which forms part of a pension or profit-sharing plan qualified under Sections
401(a) or 403 of the Code for the benefit of participants covered under the
plan, the Federal income tax treatment of such policies will be somewhat
different from that described above.
If purchased as part of a pension or profit-sharing plan, the current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and is required to be included annually in the plan participant's gross income.
This cost (generally referred to as the "P.S. 58" cost) is reported to the
participant annually. If the plan participant dies while covered by the plan and
the policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account value will not be subject to
Federal income tax. However, the Policy Account value will generally be taxable
to the extent it exceeds the participant's cost basis in the policy. The
participant's cost basis will generally include the costs of insurance
previously reported as income to the participant. Special rules may apply if the
participant had borrowed from his Policy Account or was an owner-employee under
the plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased by
a tax qualified plan. You should consult your legal adviser.
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<PAGE>
OTHER EMPLOYEE BENEFIT PROGRAMS. Complex rules may apply when a policy is held
by an employer or a trust, or acquired by an employee, in connection with the
provision of employee benefits. These policyowners also must consider whether
the policy was applied for by or issued to a person having an insurable interest
under applicable state law, as the lack of insurable interest may, among other
things, affect the qualification of the policy as life insurance for Federal
income tax purposes and the right of the beneficiary to death benefits.
Employers and employer-created trusts may be subject to reporting, disclosure
and fiduciary obligations under the Employee Retirement Income Security Act of
1974 (ERISA). You should consult your legal adviser.
OUR TAXES. Under the life insurance company tax provisions of the Code, variable
life insurance is treated in a manner consistent with fixed life insurance. The
operations of the Separate Account are reported in our Federal income tax return
but we currently pay no income tax on investment income and capital gains
reflected in variable life insurance policy reserves. Therefore, no charge is
currently being made to any Fund for taxes. We reserve the right to make a
charge in the future for taxes incurred, for example, a charge to the Separate
Account for income taxes incurred by us that are allocable to the policy.
We may have to pay state, local or other taxes in addition to applicable taxes
based on premiums. At present, these taxes are not substantial. If they
increase, charges may be made for such taxes when they are attributable to the
Separate Account or allocable to the policy.
WHEN WE WITHHOLD INCOME TAXES. Generally, unless you provide us with a written
election to the contrary before we make the distribution, we are required to
withhold income tax from any portion of the money you receive if the withdrawal
of money from your Policy Account or the surrender or the maturity of your
policy is a taxable transaction. If you do not wish us to withhold tax from the
payment, or if enough is not withheld, you may have to pay later. You may also
have to pay penalties under the tax rules if your withholding and estimated tax
payments are insufficient. In some cases, where generation skipping taxes may
apply, we may also be required to withhold for such taxes unless we are provided
satisfactory written notification that no such taxes are due.
PART 3: ADDITIONAL INFORMATION
YOUR VOTING PRIVILEGES
TRUST VOTING PRIVILEGES. As explained in Part 1, we invest the assets in the
Funds in Class IA or Class IB shares of the corresponding portfolios of the HRT
or the EQAT, respectively. Equitable is the legal owner of the shares of each
Trust and will attend, and has the right to vote at, any meeting of the HRT's or
EQAT's shareholders. Among other things, we may vote on any matters described in
either Trust's prospectus or requiring a vote by shareholders under the 1940
Act.
Even though we own the shares, to the extent required by the 1940 Act, you will
have the opportunity to tell us how to vote the number of shares that can be
attributed to your policy. We will vote those shares at meetings of HRT or EQAT
shareholders according to your instructions. If we do not receive instructions
in time from all policyowners, we will vote shares in a portfolio for which no
instructions have been received in the same proportion as we vote shares for
which we have received instructions in that portfolio. We will vote any HRT or
EQAT shares that we are entitled to vote directly due to amounts we have
accumulated in the Funds in the same proportions that all policyowners vote,
including those who participate in other separate accounts. If the Federal
securities laws or regulations or interpretations of them change so that we are
permitted to vote shares of the HRT or EQAT in our own right or to restrict
policyowner voting, we may do so.
HOW WE DETERMINE YOUR VOTING SHARES. You may participate in voting only on
matters concerning the HRT or EQAT portfolios corresponding to the Funds to
which your Policy Account is allocated. The number of HRT or EQAT shares in each
Fund that are attributable to your policy is determined by dividing the amount
in your Policy Account allocated to that Fund by the net asset value of one
share of the corresponding portfolio as of the record date set by either HRT's
or EQAT's Board for its respective shareholders meeting. The record date for
this purpose must be at least 10 and no more than 90 days before the particular
shareholder meeting. Fractional shares are counted.
If you are entitled to give us voting instructions, we will send you proxy
material and a form for providing voting instructions. In certain cases, we may
disregard instructions relating to changes in a portfolio's adviser or its
investment policies. We will advise you if we do and detail the reasons in the
next semiannual report to policyowners.
SEPARATE ACCOUNT VOTING RIGHTS. Under the 1940 Act, certain actions (such as
some of those described under OUR RIGHT TO CHANGE HOW WE OPERATE, below) may
require policyowner approval. In that case, you will be entitled to one vote for
every $100 of value you have in the Funds. We will cast votes attributable to
amounts we have in the Funds in the same proportions as votes cast by
policyowners.
OUR RIGHT TO CHANGE HOW WE OPERATE
In addition to changing or adding investment companies, we have the right to
modify how we or the Separate Account operate. We intend to comply with
applicable law in making any changes and, if necessary, we will seek policyowner
approval. We have the right to:
o add Funds to, or remove Funds from, the Separate Account, combine two or more
Funds within the Separate Account, or withdraw assets relating to IL COLI II
from one Fund and put them into another;
o register or end the registration of the Separate Account under the 1940 Act;
o operate the Separate Account under the direction of a committee or discharge
such a committee at any time (the committee may be composed entirely of
persons who are "interested persons" of Equitable under the 1940 Act);
o restrict or eliminate any voting rights of policyowners or other people who
have voting rights that affect the Separate Account;
22
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o operate the Separate Account or one or more of the Funds in any other form
the law allows, including a form that allows us to make direct investments.
Our Separate Account may be charged an advisory fee if its investments are
made directly rather than through an investment company. We may make any
legal investments we wish. In choosing these investments, we will rely on our
own or outside counsel for advice. In addition, we may disapprove any change
in investment advisers or in investment policy unless a law or regulation
provides differently.
If any changes are made that result in a material change in the underlying
investments of a Fund, you will be notified as required by law. We may, for
example, cause the Fund to invest in a mutual fund other than, or in addition
to, the HRT or EQAT. If you then wish to transfer the amount you have in that
Fund to another Fund of the Separate Account or to the Guaranteed Interest
Account, you may do so, without charge, by contacting our Administrative Office.
At the same time, you may also change how your net premiums and deductions are
allocated.
OUR REPORTS TO POLICYOWNERS
Shortly after the end of each policy year you will receive a report that
includes information about your policy's current death benefit, Policy Account
value, Cash Surrender Value and policy loan. Notices will be sent to you to
confirm premium payments (except premiums paid through an automated
arrangement), transfers and certain other policy transactions.
LIMITS ON OUR RIGHT TO CHALLENGE THE POLICY
We can challenge the validity of your insurance policy based on material
misstatements in your application and any application for change. However, there
are some limits on how and when we can challenge the policy.
o We cannot challenge the policy after it has been in effect, during the
insured person's lifetime, for two years from the date the policy was issued
or restored after termination. (Some states may require that we measure this
time in some other way.)
o We cannot challenge any policy change that requires evidence of insurability
(such as a substitution of insured person) after the change has been in
effect for two years during the insured person's lifetime.
If the insured person dies within the time that we may challenge the validity of
the policy, we may delay payment until we decide whether to challenge the
policy. If the insured person's age or sex is misstated on any application, the
death benefit and any additional benefits provided will be those which would be
purchased by the most recent deduction for the cost of insurance and the cost of
any additional benefits at the insured person's correct age and sex.
If the insured person commits suicide within two years after the date on which
the policy was issued, the death benefit will be limited to the total of all
premiums that have been paid to the time of death minus any outstanding policy
loan, accrued loan interest and any partial withdrawals of Net Cash Surrender
Value. A new two-year suicide and contestability period will begin on the date
of substitution following a substitution of insured. Some states require that we
measure this time by some other date.
YOUR PAYMENT OPTIONS
Policy benefits or other payments, such as the Net Cash Surrender Value, may be
paid immediately in one sum or you may choose another form of payment for all or
part of the money. Payments under these options are not affected by the
investment experience of any Fund. Instead, interest accrues pursuant to the
options chosen.
You will make a choice of payment option (or any later changes) and your choice
will take effect in the same way as it would if you were changing a beneficiary.
(See YOUR BENEFICIARY below.) If you do not arrange for a specific form of
payment before the insured person dies, the beneficiary will be paid through the
Equitable Access Account(TM). The Equitable Access Account is not available to
corporate or other non-natural beneficiaries. See WHEN WE PAY POLICY PROCEEDS
below. The beneficiary will then have a choice of payment options. However, if
you do make an arrangement with us for how the money will be paid, the
beneficiary cannot change the choice after the insured person dies. Different
payment options may result in different tax consequences.
The beneficiary or any other person who is entitled to receive payment may name
a successor to receive any amount that we would otherwise pay to that person's
estate if that person died. The person who is entitled to receive payment may
change the successor at any time.
We must approve any arrangements that involve more than one payment option, or a
payee who is not a natural person (for example, a corporation), or a payee who
is a fiduciary. Also, the details of all arrangements will be subject to our
rules at the time the arrangements are selected and take effect. This includes
rules on the minimum amount we will pay under an option, minimum amounts for
installment payments, withdrawal or commutation rights (your rights to receive
payments over time, for which we may offer a lump sum payment), the naming of
people who are entitled to receive payment and their successors, and the ways of
proving age and survival.
YOUR BENEFICIARY
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the insurance benefits of the policy. You may change the beneficiary
during the insured person's lifetime by writing to our Administrative Office. If
no beneficiary is living when the insured person dies, we will pay the death
benefit in equal shares to the insured person's surviving children. If there are
no surviving children, we will pay the death benefit to the insured person's
estate.
ASSIGNING YOUR POLICY
You may assign (transfer) your rights in the policy to someone else as
collateral for a loan or for some other reason, if we agree. A copy of the
assignment must be forwarded to our Administrative Office. We are not
responsible for any payment we make or any action taken before we receive notice
of the assignment or for the validity of the assignment. An absolute assignment
is a change of ownership. BECAUSE THERE MAY BE
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TAX CONSEQUENCES, INCLUDING THE LOSS OF INCOME TAX-FREE TREATMENT FOR ANY DEATH
BENEFIT PAYABLE TO THE BENEFICIARY, YOU SHOULD CONSULT YOUR TAX ADVISER PRIOR TO
MAKING AN ASSIGNMENT.
WHEN WE PAY POLICY PROCEEDS
We will pay any death benefits, maturity benefit, Net Cash Surrender Value or
loan proceeds within seven days after we receive the last required form or
request (and other documents that may be required for payment of death benefits)
at our Administrative Office. Death benefits are determined as of the date of
death of the insured person and will not be affected by subsequent changes in
the unit values of the Funds. Death benefits will generally be paid through the
Equitable Access Account, an interest bearing checking account. A beneficiary
will have immediate access to the proceeds by writing a check on the account. We
pay interest from the date of death to the date the Equitable Access Account is
closed. If an Equitable agent helps the beneficiary of a policy to prepare the
documents that are required for payment of the death benefit, we will send the
Equitable Access Account checkbook or check to the agent within seven days after
we receive the required documents. Our agents will take reasonable steps to
arrange for prompt delivery to the beneficiary.
We may, however, delay payment if we contest the policy. We may also delay
payment if we cannot determine the amount of the payment because the New York
Stock Exchange is closed, because trading in securities has been restricted by
the SEC, or because the SEC has declared that an emergency exists. In addition,
if necessary to protect our policyowners, we may delay payment where permitted
under applicable law.
We may defer payment of any Net Cash Surrender Value or loan amount (except a
loan to pay a premium to us) from the Guaranteed Interest Account for up to six
months after we receive your request. We will pay interest of at least 3% a year
from the date we receive your request if we delay more than 30 days in paying
you such amounts from the Guaranteed Interest Account.
DIVIDENDS
No dividends are paid on the policy described in this prospectus.
REGULATION
We are regulated and supervised by the New York State Insurance Department. In
addition, we are subject to the insurance laws and regulations in every
jurisdiction where we sell policies.
The IL COLI II policy (Plan No. 96-300) has been filed with and approved by
insurance officials in 46 jurisdictions. We submit annual reports on our
operations and finances to insurance officials in all the jurisdictions where we
sell policies. The officials are responsible for reviewing our reports to be
sure that we are financially sound.
SPECIAL CIRCUMSTANCES
Equitable may vary the charges and other terms of IL COLI II where special
circumstances result in sales or administrative expenses or mortality risks that
are different than those normally associated with IL COLI II policies. These
variations will be made only in accordance with uniform rules that we establish.
DISTRIBUTION
EQ Financial Consultants, Inc. (EQF) is the principal underwriter of the HRT and
one of the principal underwriters of EQAT, and is also a distributor of our
variable life insurance policies and variable annuity contracts. EQF is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940 and also is the Manager of the EQAT. EQF's principal business
address is 1755 Broadway, New York, NY 10019. EQF is registered with the SEC as
a broker-dealer under the Securities Exchange Act of 1934 (1934 Act) and is a
member of the National Association of Securities Dealers, Inc. In 1995 and 1996,
Equitable Variable paid EQF a fee of $325,380 annually for its services as
distributor of its policies.
We sell our policies through agents who are licensed by state insurance
officials to sell our variable life policies. These agents are also registered
representatives of EQF. The agent who sells you this policy receives sales
commissions from Equitable. We pay commissions from our own resources, including
the Premium Sales Charge deducted from your premium. Generally, the agent will
receive an amount equal to a maximum of 15% of the premiums paid up to one
target premium, 7 1/2% of premiums paid up to the next six target premiums and
3% of the premiums paid in excess of that amount. Use of a term insurance rider
on the insured person in place of an equal amount of coverage under the base
policy reduces commissions. Commissions paid to agents based upon refunded
premiums or policies that are terminated or surrendered in the early policy
years may be recovered. Agents with limited years of service may be paid
differently.
We also sell our policies through independent brokers who are licensed by state
insurance officials to sell our variable life policies. They will also be
registered representatives either of EQF or of another company registered with
the SEC as a broker-dealer under the 1934 Act. The commissions for independent
brokers will be no more than those for agents and the same policy for recovery
of commissions applies. Commissions will be paid through the registered
broker-dealer.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings that would be considered material
with respect to a policyowner's interest in the Separate Account.
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ACCOUNTING AND ACTUARIAL EXPERTS
The financial statements of Separate Account FP and Equitable included in this
prospectus have been audited for the years ended December 31, 1996, 1995 and
1994 by Price Waterhouse LLP, as stated in their reports. The financial
statements of Separate Account FP and Equitable have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants, given
on the authority of such firm as experts in accounting and auditing.
The financial statements of Equitable contained in this prospectus should be
considered only as bearing upon the ability of Equitable to meet its obligations
under the IL COLI II policies. They should not be considered as bearing upon the
investment experience of the funds of the Separate Account. The financial
statements of Separate Account FP include periods when Separate Account FP was
part of Equitable Variable, a wholly-owned subsidiary of Equitable. The assets
of Separate Account FP were assumed by Equitable on January 1, 1997 when
Equitable Variable was merged into Equitable.
Actuarial matters in this prospectus have been examined by Barbara Fraser,
F.S.A., M.A.A.A., who is a Vice President and Actuary of Equitable. Her opinion
on actuarial matters is filed as an exhibit to the Registration Statement we
filed with the SEC.
ADDITIONAL INFORMATION
We have filed a Registration Statement relating to the Separate Account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. If you would like the additional
information, you may obtain it from the SEC's main office in Washington, D.C.
You will have to pay a fee for the material.
25
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MANAGEMENT
Here is a list of our directors and, to the extent they are responsible for
variable life insurance operations, our principal officers and a brief statement
of their business experience for the past five years. Unless otherwise noted,
their address is 1290 Avenue of the Americas, New York, New York 10104.
<TABLE>
<CAPTION>
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NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Claude Bebear Director of Equitable since July 1991. Chairman of the Board of the Holding Company
AXA-UAP (February 1996-present) and a Director of other affiliates of Equitable. Chairman of the
23, Avenue Matignon Executive Board of AXA-UAP ("AXA-UAP") since January 1997. Prior thereto, he was Chairman
75008 Paris, France and Chief Executive Officer of AXA S.A. Chief Executive Officer of the AXA-UAP Group
(formerly known as the AXA Group) since 1974 and Chairman or Director of numerous subsidiaries
and affiliated companies of the AXA-UAP Group.
- -----------------------------------------------------------------------------------------------------------------------------------
Christopher J. Brocksom Director of Equitable since July 1992. Chief Executive Officer, AXA Equity & Law Life
AXA Equity & Law Assurance Society PLC ("AXA Equity & Law") and various directorships and officerships with
Elbury 9 AXA Equity & Law affiliated companies.
Weedon Lane
Buckinghamshire HP 6505
England
- -----------------------------------------------------------------------------------------------------------------------------------
Francoise Colloc'h Director of Equitable since July 1992. Senior Executive Vice President Human Resources and
AXA-UAP Communications of AXA-UAP, and various positions with AXA-UAP affiliated companies. Director
23, Avenue Matignon of the Holding Company.
75008 Paris, France
- -----------------------------------------------------------------------------------------------------------------------------------
Henri de Castries Director of Equitable since September 1993. Vice Chairman of the Board of the Holding
AXA-UAP Company since February 1996. Senior Executive Vice President Financial Services and Life
23, Avenue Matignon Insurance Activities of AXA-UAP since 1996. Also Director or Officer of various subsidiaries
75008 Paris, France and affiliates of the AXA-UAP Group. Director of the Holding Company and of other Equitable
affiliates. Previously held other officerships with the AXA Group.
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph L. Dionne Director of Equitable since May 1982. Chairman (since April 1988) and Chief Executive
The McGraw-Hill Companies Officer (since April 1983) of The McGraw-Hill Companies. Director of the Holding Company.
1221 Avenue of the Americas
New York, NY 10020
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William T. Esrey Director of Equitable since July 1986. Chairman (since April 1990) and Chief Executive
Sprint Corporation Officer (since 1985) of Sprint Corporation. Director of the Holding Company.
P.O. Box 11315
Kansas City, MO 64112
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Jean-Rene Fourtou Director of Equitable since July 1992. Chairman and Chief Executive Officer, Rhone-Poulenc
Rhone-Poulenc S.A. S.A. since 1986. Member of the Supervisory Board of AXA-UAP. Director of the Holding
25, Quai Paul Doumer Company.
92408 Courbevoie Cedex
France
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Norman C. Francis Director of Equitable since March 1989. President, Xavier University of Louisiana.
Xavier University of Louisiana
7325 Palmetto Street
New Orleans, LA 70125
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Donald J. Greene Director of Equitable since July 1991. Partner, LeBoeuf, Lamb, Greene & MacRae since 1965.
LeBouef, Lamb, Greene & MacRae Director of the Holding Company.
125 West 55th Street
New York, NY 10019-4513
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</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
John T. Hartley Director of Equitable since August 1987. Retired Chairman and Chief Executive Officer of
Harris Corporation Harris Corporation (retired since July 1995); previously held other officerships with Harris
1025 NASA Boulevard Corporation. Director of the Holding Company.
Melbourne, FL 32919
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John H.F. Haskell, Jr. Director of Equitable since July 1992. Managing Director of Dillon, Read & Co., Inc. since
Dillon, Read & Co., Inc. 1975 and member of its Board of Directors. Director of the Holding Company.
535 Madison Avenue
New York, NY 10022
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Mary R. (Nina) Henderson Director of Equitable since December 1996. President of CPC Specialty Markets Group of CPC
CPC Specialty Markets Group International, Inc. since 1993. Prior thereto, President of CPC Specialty Products and Best
700 Sylvan Avenue Foods Exports. Director of the Holding Company
Englewood Cliffs, NJ 07632
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W. Edwin Jarmain Director of Equitable since July 1992. President of Jarmain Group Inc. since 1979; also an
Jarmain Group Inc. Officer or Director of several affiliated companies. Chairman and Director of FCA
121 King Street West International Ltd. Director of various AXA affiliated companies. Previously held other
Suite 2525, Box 36 officerships with FCA International. Director of the Holding Company.
Toronto, Ontario M5H 3T9,
Canada
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G. Donald Johnston, Jr. Director of Equitable since January 1986. Retired Chairman and Chief Executive Officer, JWT
184-400 Ocean Road Group, Inc. and J. Walter Thompson Company.
John's Island
Vero Beach, FL 32963
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Winthrop Knowlton Director of Equitable since October 1973. Chairman of the Board of Knowlton Brothers, Inc.
Knowlton Brothers, Inc. since May 1989; also President of Knowlton Associates, Inc. since September 1987; Director
530 Fifth Avenue of the Holding Company.
New York, NY 10036
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Arthur L. Liman Director of Equitable since March 1984. Partner, Paul, Weiss, Rifkind, Wharton & Garrison
Paul, Weiss, Rifkind, since 1966. Director of the Holding Company.
Wharton and Garrison
1285 Avenue of the Americas
New York, NY 10019
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George T. Lowy Director of Equitable since July 1992. Partner, Cravath, Swaine & Moore since 1965.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
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Didier Pineau-Valencienne Director of Equitable since February 1996. Chairman and Chief Executive Officer of
Schneider S.A. Schneider S.A. since 1981 and Chairman or Director of numerous subsidiaries and affiliated
64-70, Avenue Jean-Baptiste Clement companies of Schneider. Director of AXA-UAP and the Holding Company.
92646 Boulogne-Billancourt Cedex
France
- -----------------------------------------------------------------------------------------------------------------------------------
George J. Sella, Jr. Director of Equitable since May 1987. Retired Chairman and Chief Executive Officer of
P.O. Box 397 American Cyanamid Company (until April 1993); previously held other officerships with
Newton, NJ 07860 American Cyanamid. Director of the Holding Company.
- -----------------------------------------------------------------------------------------------------------------------------------
Dave H. Williams Director of Equitable since March 1991. Chairman and Chief Executive Officer of Alliance
Alliance Capital Management Corporation since 1977 and Chairman or Director of numerous subsidiaries and affiliated
1345 Avenue of the Americas companies of Alliance. Director of the Holding Company.
New York, NY 10105
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</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS and DIRECTORS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
William T. McCaffrey Director, Senior Executive Vice President and Chief Operating Officer of Equitable (all since
February 1996). Executive Vice President and Chief Administrative Officer (since February 1994)
of the Holding Company. Director of various Equitable affiliated companies. Previously held
other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph J. Melone Chairman, Chief Executive Officer and President of Equitable. Chief Executive Officer of the
Holding Company since February 1996 and Director and President of the Holding Company since
May 1992. Director of various Equitable and AXA-UAP affiliated companies.
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
A. Frank Beaz Senior Vice President, Equitable. Executive Vice President, EQ Financial Consultants, Inc.
("EQF") (since May 1995). Director, Equitable Realty Assets Corporation since December 1996.
Previously held other officerships with Equitable.
- -----------------------------------------------------------------------------------------------------------------------------------
Leon B. Billis Senior Vice President, Equitable. Previously held other officerships with Equitable.
- -----------------------------------------------------------------------------------------------------------------------------------
Harvey Blitz Senior Vice President and Deputy Chief Financial Officer, Equitable. Senior Vice
President, the Holding Company; Vice President and Director, EQ Advisors Trust (EQAT);
Chairman of Frontier Trust Company and Director of various Equitable affiliated companies.
Previously held other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin R. Byrne Vice President and Treasurer, Equitable and the Holding Company; Treasurer, EquiSource and
Frontier Trust Company. Vice President and Treasurer, Equitable Casualty Insurance Company
and EQAT. Previously held other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Jerry M. de St. Paer Executive Vice President, Equitable. Senior Executive Vice President (since May 1996) and
Chief Financial Officer (since May 1992) of the Holding Company. Executive Vice President
and Chief Operating Officer (since September 1994) of Equitable Investment Corporation.
Director of various Equitable affiliated companies. Previously held various officerships with
Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Gordon G. Dinsmore Senior Vice President, Equitable. Executive Vice President, EQF. Vice President, EQAT.
Director of other Equitable affiliated companies. Previously held other officerships with
Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Alvin H. Fenichel Senior Vice President and Controller, Equitable and the Holding Company. Previously held
other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Paul J. Flora Senior Vice President and Auditor, Equitable. Vice President and Auditor, Holding Company
(since September 1994). Vice President/Auditor, National Westminster Bank (November 1984 to
June 1993).
- -----------------------------------------------------------------------------------------------------------------------------------
Robert E. Garber Executive Vice President and General Counsel, Equitable and the Holding Company. Previously
held other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Donald R. Kaplan Vice President and Chief Compliance Officer, Equitable. Previously held other officerships
with Equitable.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael S. Martin Senior Vice President, Equitable. Chairman and Chief Executive Officer, EQF. Vice President,
EQAT and HRT. Director, Equitable Underwriting and Sales Agency (Bahamas), Ltd. (since May
1996) and Colorado (since January 1995). Previously held other officerships with Equitable
and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Peter D. Noris Executive Vice President and Chief Investment Officer, Equitable. Executive Vice President
(since May 1995) and Chief Investment Officer (since July 1995), Holding Company. Trustee,
HRT, and President and Trustee, EQAT. Director of Alliance and Equitable Real Estate.
Executive Vice President EQF. Prior to May 1995, Vice President/Manager, Insurance Companies
Investment Strategies Group, Salomon Brothers, Inc. Prior to November 1992, with Morgan
Stanley & Co., Inc., as Principal, Fixed Income Insurance Group.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS EXPERIENCE
BUSINESS ADDRESS WITHIN PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Anthony C. Pasquale Senior Vice President, Equitable. Director of Equitable Agri-Business, Inc. Previously held
other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Rich Senior Vice President, Equitable. Prior to October 1994, Vice President of Underwriting,
John Hancock Mutual Life Insurance Co.
- -----------------------------------------------------------------------------------------------------------------------------------
Pauline Sherman Vice President, Secretary and Associate General Counsel, Equitable and the Holding
Company, both since September 1995. Previously held other officerships with Equitable.
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel B. Shlesinger Senior Vice President and Actuary, Equitable. Director, Chairman and Chief Executive
Officer, The Equitable of Colorado, Inc. since 1985. Vice President, HRT and EQAT.
Previously held other officerships with Equitable and its affiliates.
- -----------------------------------------------------------------------------------------------------------------------------------
Jose S. Suquet Executive Vice President and Chief Agency Officer, Equitable, since August 1994. Prior
thereto, with Equitable as Sales/Agency Manager.
- -----------------------------------------------------------------------------------------------------------------------------------
Stanley B. Tulin Senior Executive Vice President and Chief Financial Officer, Equitable since April 1996.
Executive Vice President, Holding Company. Vice President, EQAT. Prior thereto, Chairman,
Insurance Consulting and Actuarial Practice, Coopers & Lybrand.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
PART 4: ILLUSTRATIONS OF POLICY BENEFITS
To help clarify how the key financial elements of the policy work, a series of
tables has been prepared. The tables show how death benefits and Cash Surrender
Values ("policy benefits") under a hypothetical IL COLI II policy could vary
over time if the Funds of our Separate Account had CONSTANT hypothetical gross
annual investment returns of 0%, 6% or 12% over the years covered by each table.
Actual investment results may be more or less than those shown. The tables are
for a 45-year-old preferred risk male non-tobacco user. Planned premium payments
of $10,392 for an initial Face Amount of $200,000 are assumed to be paid at the
beginning of each policy year. The illustration assumes no policy loan has been
taken and that there is no coverage under a supplemental term insurance rider.
The tables illustrate both current and guaranteed charges. The tables assume
0.59% per annum for investment management (the average of the advisory fees
payable with respect to each HRT portfolio except Alliance Small Cap Growth
Portfolio during 1996 based on assets as of December 31, 1996, restated to
reflect certain changes effective May 1, 1997 in the investment advisory
agreement between HRT and its Investment Adviser, and the maximum advisory fee
for the Alliance Small Cap Growth and EQAT portfolios) and 0.04% per annum for
other Trust expenses. The assumption for other Trust expenses equals the
weighted average of the restated other expenses of the HRT portfolios based on
assets as of December 31, 1996, and estimates of the annual direct expenses
expected to be paid by EQAT and the Alliance Small Cap Growth Portfolio during
1997 (including any 12b-1 fees, if applicable). The effect of these adjustments
is that on a 0% gross rate of return the net rate of return would be -0.63%, on
6% it would be 5.33%, and on 12% it would be 11.30%. Remember, however, that
investment management fees and other Trust expenses vary by portfolio. See THE
HRT'S INVESTMENT ADVISER on page 8 and THE EQAT'S MANAGER AND INVESTMENT
ADVISERS on page 8. The tables also assume a charge for taxes of 2% of premiums.
The tables illustrate death benefit Option B.
The second column of each table shows the effect of an amount equal to the
premiums invested to earn interest, after taxes, of 5% compounded annually.
These tables show that if a policy is returned in its very early years for
payment of its Cash Surrender Value, that Cash Surrender Value will be low in
comparison to the amount of the premiums accumulated with interest. Thus, the
cost of owning your policy for a relatively short time will be high.
INDIVIDUAL ILLUSTRATIONS. On request, we will furnish you with a comparable
illustration based on your policy's factors. Upon request after issuance, we
will also provide a comparable illustration reflecting your actual Cash
Surrender Value. If you request illustrations more than once in any policy year,
we may charge for the illustration.
30
<PAGE>
<TABLE>
<CAPTION>
IL COLI II
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
PLANNED PREMIUM $10,392 TOTAL INITIAL FACE AMOUNT $200,000
MALE AGE 45
PREFERRED RISK NON-TOBACCO USER DEATH BENEFIT OPTION B
ASSUMING CURRENT CHARGES
DEATH BENEFIT CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED ---------------------------------------- ------------------------------------------
YEAR PREMIUMS(1) 0% 6% 12% 0% 6% 12%
---- ----------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 10,912 $208,433 $208,960 $209,487 $ 8,433 $ 8,960 $ 9,487
2 22,369 216,714 218,293 219,936 16,714 18,293 19,936
3 34,399 224,861 228,038 231,473 24,861 28,038 31,473
4 47,030 233,027 238,370 244,380 33,027 38,370 44,380
5 60,293 241,056 249,160 258,641 41,056 49,160 58,641
6 74,220 249,000 260,485 274,463 49,000 60,485 74,463
7 88,842 256,846 272,356 292,003 56,846 72,356 92,003
8 104,196 265,146 285,388 312,071 65,146 85,388 112,071
9 120,317 273,286 298,993 334,264 73,286 98,993 134,264
10 137,245 281,279 313,212 358,830 81,279 113,212 158,830
15 235,457 319,615 395,391 528,428 119,615 195,391 328,428
20 (age 65) 360,802 350,239 493,752 806,893 150,239 293,752 606,893
<FN>
(1) Assumes net interest of 5% compounded annually.
</FN>
</TABLE>
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN.
THE DEATH BENEFIT GUARANTEE PREMIUM FOR THIS POLICY IS $3,568.04.
31
<PAGE>
<TABLE>
<CAPTION>
IL COLI II
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
PLANNED PREMIUM $10,392 TOTAL INITIAL FACE AMOUNT $200,000
MALE AGE 45
PREFERRED RISK NON-TOBACCO USER DEATH BENEFIT OPTION B
ASSUMING GUARANTEED CHARGES
DEATH BENEFIT CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
END OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED ---------------------------------------- ------------------------------------------
YEAR PREMIUMS(1) 0% 6% 12% 0% 6% 12%
---- ----------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 10,912 $207,842 $208,349 $208,857 $ 7,842 $ 8,349 $ 8,857
2 22,369 215,550 217,053 218,617 15,550 17,053 18,617
3 34,399 223,120 226,124 229,376 23,120 26,124 29,376
4 47,030 230,701 235,731 241,394 30,701 35,731 41,394
5 60,293 238,134 245,739 254,643 38,134 45,739 54,643
6 74,220 245,416 256,161 269,250 45,416 56,161 69,250
7 88,842 252,537 267,005 285,350 52,537 67,005 85,350
8 104,196 259,482 278,277 303,087 59,482 78,277 103,087
9 120,317 266,241 289,984 322,629 66,241 89,984 122,629
10 137,245 272,800 302,131 344,150 72,800 102,131 144,150
15 235,457 306,573 374,936 495,442 106,573 174,936 295,442
20 (age 65) 360,802 332,659 460,602 740,811 132,659 260,602 540,811
<FN>
(1) Assumes net interest of 5% compounded annually.
</FN>
</TABLE>
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN.
THE DEATH BENEFIT GUARANTEE PREMIUM FOR THIS POLICY IS $3,568.04.
32
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accounts..................................................................................... FSA-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1996...................................................... FSA-3
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994................................ FSA-4
Statements of Changes in Net Assets for the Years Ended December 31, 1996, 1995 and 1994..................... FSA-8
Notes to Financial Statements................................................................................ FSA-12
</TABLE>
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Policyowners of Separate Account FP
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Money Market Fund,
Intermediate Government Securities Fund, Quality Bond Fund, High Yield Fund,
Growth & Income Fund, Equity Index Fund, Common Stock Fund, Global Fund,
International Fund, Aggressive Stock Fund, Conservative Investors Fund, Balanced
Fund and Growth Investors Fund, separate investment funds of The Equitable Life
Assurance Society of the United States ("Equitable Life") Separate Account FP
(formerly Equitable Variable Life Insurance Company Separate Account FP) at
December 31, 1996 and the results of their operations and changes in each of
their net assets for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Equitable Life's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares in The Hudson River Trust at
December 31, 1996 with the transfer agent, provide a resonable basis for the
opinion expressed above. The rates of return information presented in note 7 for
the year ended December 31, 1992, and for each of the periods indicated prior
thereto, were audited by other independent accountants whose report dated
February 16, 1993 expressed an unqualified opinion on the financial statements
containing such information.
Price Waterhouse LLP
New York, New York
February 10, 1997
FSA-2
<PAGE>
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT QUALITY HIGH GROWTH & EQUITY COMMON
MARKET SECURITIES BOND YIELD INCOME INDEX STOCK
FUND FUND FUND FUND FUND FUND FUND
----------- ------------- ------------ ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River
Trust -- at market
value (Notes 2 and 6)
Cost: $ 242,546,651.. $242,570,674
44,817,781.. $44,676,302
127,911,618.. $125,949,796
96,502,438.. $102,167,262
32,957,253.. $38,031,591
73,126,833.. $94,575,057
1,277,628,295.. $1,572,061,192
374,535,031..
39,937,334..
747,842,158..
167,148,611..
388,200,062..
631,813,336..
Receivable for The Hudson
River Trust shares sold.. -- -- -- -- -- -- 967,531
Receivable for policy
related transactions .... 8,940,540 77,313 -- 105,241 122,406 188,428 --
------------ ------------ ------------ ------------ ----------- ----------- --------------
Total Assets................ 251,511,214 44,753,615 125,949,796 102,272,503 38,153,997 94,763,485 1,573,028,723
------------ ------------ ------------ ------------ ----------- ----------- --------------
LIABILITIES
Payable for The Hudson
River Trust shares
purchased ............... 9,060,754 87,411 28,516 149,241 129,487 188,527 --
Payable for policy related
transactions ............ -- -- 173,197 -- -- -- 983,555
Amount retained by
Equitable Life
in Separate Account
FP (Note 4) ............. 577,366 538,792 533,770 733,423 558,057 337,447 1,267,289
------------ ----------- ------------ ------------ ----------- ----------- --------------
Total Liabilities .......... 9,638,120 626,203 735,483 882,664 687,544 525,974 2,250,844
------------ ----------- ------------ ------------ ----------- ----------- --------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS.......... $241,873,094 $44,127,412 $125,214,313 $101,389,839 $37,466,453 $94,237,511 $1,570,777,879
============ =========== ============ ============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS BALANCED INVESTORS
FUND FUND FUND FUND FUND FUND
------------ ------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River
Trust -- at market
value (Notes 2 and 6)
Cost: $ 242,546,651..
44,817,781..
127,911,618..
96,502,438..
32,957,253..
73,126,833..
1,277,628,295..
374,535,031.. $433,153,085
39,937,334.. $41,795,127
747,842,158.. $794,459,393
167,148,611.. $174,848,746
388,200,062.. $430,582,886
631,813,336.. $698,964,029
Receivable for shares of
The Hudson River Trust ... 802,100 -- 3,729,663 114,675 142,333 --
Receivable for policy
related transactions ..... -- 159,777 -- -- -- 41,689
------------ ----------- ------------ ------------ ------------ ------------
Total Assets................. 433,955,185 41,954,904 798,189,056 174,963,421 430,725,219 699,005,718
------------ ----------- ------------ ------------ ------------ ------------
LIABILITIES
Payable for The Hudson
River Trust shares
purchased ................ -- 135,983 -- -- -- 245,089
Payable for policy
related transactions ..... 577,736 -- 3,989,373 97,966 399,398 --
Amount retained by
Equitable Life
in Separate Account
FP (Note 4) .............. 600,145 242,714 600,552 526,975 631,766 521,008
------------ ----------- ------------ ------------ ------------ ------------
Total Liabilities ........... 1,177,881 378,697 4,589,925 624,941 1,031,164 766,097
------------ ----------- ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS........... $432,777,304 $41,576,207 $793,599,131 $174,338,480 $429,694,055 $698,239,621
============ =========== ============ ============ ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------------------ -----------------------------------
1996 1995 1994 1996 1995 1994
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ............ $9,126,793 $9,225,401 $5,368,883 $2,367,498 $2,010,283 $ 5,671,984
Expenses (Note 3):
Mortality and expense risk charges ............... 1,025,149 954,556 826,379 245,038 197,721 527,675
---------- ----------- ----------- ---------- ---------- -----------
NET INVESTMENT INCOME ................................. 8,101,644 8,270,845 4,542,504 2,122,460 1,812,562 5,144,309
---------- ----------- ----------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............. (110,954) (432,347) 95,530 (490,315) (810,768) (10,163,976)
Realized gain distribution from
The Hudson River Trust ........................ -- -- -- -- -- --
---------- ----------- ----------- ---------- --------- -----------
NET REALIZED GAIN (LOSS) .............................. (110,954) (432,347) 95,530 (490,315) (810,768) (10,163,976)
Unrealized appreciation/(depreciation) on investments:
Beginning of period .............................. 89,976 32,760 (14,267) 145,522 (2,736,863) (1,617,237)
End of period .................................... 24,023 89,976 32,760 (141,479) 145,522 (2,736,863)
---------- ----------- ----------- ---------- ---------- -----------
Change in unrealized appreciation/(depreciation)
during the period ................................ (65,953) 57,216 47,027 (287,001) 2,882,385 (1,119,626)
---------- ----------- ----------- ---------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS ...................................... (176,907) (375,131) 142,557 (777,316) 2,071,617 (11,283,602)
---------- ----------- ----------- ---------- --------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $7,924,737 $7,895,714 $4,685,061 $1,345,144 $3,884,179 $(6,139,293)
========== =========== =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
QUALITY BOND FUND
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ............ $8,972,983 $ 7,958,285 $ 8,123,722
Expenses (Note 3):
Mortality and expense risk charges ............... 869,312 767,627 689,178
----------- ----------- -----------
NET INVESTMENT INCOME ................................. 8,103,671 7,190,658 7,434,544
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments .............. (1,130,915) (632,666) (410,697)
Realized gain distribution from
The Hudson River Trust ........................ -- -- --
----------- ----------- -----------
NET REALIZED GAIN (LOSS) ............................... (1,130,915) (632,666) (410,697)
Unrealized appreciation/(depreciation) on investments:
Beginning of period .............................. (2,105,676) (15,521,200) (1,886,621)
End of period .................................... (1,961,822) (2,105,676) (15,521,200)
----------- ----------- -----------
Change in unrealized appreciation/(depreciation)
during the period ................................ 143,854 13,415,524 (13,634,579)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS ...................................... (987,061) 12,782,858 (14,045,276)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $ 7,116,610 $19,973,516 $(6,610,732)
=========== =========== ===========
<FN>
See Notes to Financial Statements.
+ Formerly known as Separate Account FP of Equitable Variable Life Insurance Company.
</FN>
</TABLE>
FSA-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HIGH YIELD FUND GROWTH & INCOME FUND
----------------------------------------- ------------------------------------
1996 1995 1994 1996 1995 1994
------------ ------------ ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .... $ 8,696,039 $ 6,518,568 $ 4,578,946 $ 525,200 $ 380,677 $ 108,492
Expenses (Note 3):
Mortality and expense risk charges ....... 518,429 371,369 305,522 155,175 69,716 19,204
----------- ----------- ----------- ---------- ---------- ---------
NET INVESTMENT INCOME ......................... 8,177,610 6,147,199 4,273,424 370,025 310,961 89,288
----------- ----------- ----------- ---------- ---------- ---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 939,559 (179,454) (328,199) 5,198 2,791 (11,709)
Realized gain distribution from
The Hudson River Trust ................ 6,119,053 -- -- 1,943,415 -- --
----------- ----------- ----------- ---------- ---------- ---------
NET REALIZED GAIN (LOSS) ...................... 7,058,612 (179,454) (328,199) 1,948,613 2,791 (11,709)
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... 3,823,981 (873,103) 4,734,999 2,123,346 (141,585) (904)
End of period ............................ 5,664,824 3,823,981 (873,103) 5,074,338 2,123,346 (141,585)
----------- ----------- ----------- ---------- ---------- ---------
Change in unrealized appreciation/
(depreciation) during the period ......... 1,840,843 4,697,084 (5,608,102) 2,950,992 2,264,931 (140,681)
----------- ----------- ----------- ---------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS .............................. 8,899,455 4,517,630 (5,936,301) 4,899,605 2,267,722 (152,390)
----------- ----------- ----------- ---------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ............................ $17,077,065 $10,664,829 $(1,662,877) $5,269,630 $2,578,683 $ (63,102)
=========== =========== =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND
------------------------------------------
1996 1995 1994*
----------- ------------ ----------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust .... $ 1,751,848 $ 964,775 $596,180
Expenses (Note 3):
Mortality and expense risk charges ....... 605,961 289,199 152,789
----------- ----------- --------
NET INVESTMENT INCOME .......................... 1,145,887 675,576 443,391
----------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 8,013,073 3,060 (6,949)
Realized gain distribution from
The Hudson River Trust ................ 3,889,944 536,890 134,154
----------- ----------- --------
NET REALIZED GAIN (LOSS) ...................... 11,903,017 539,950 127,205
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ...................... 12,451,765 (399,286) --
End of period ............................ 21,448,224 12,451,765 (399,286)
----------- ----------- --------
Change in unrealized appreciation/
(depreciation) during the period ......... 8,996,459 12,851,051 (399,286)
----------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS .............................. 20,899,476 13,391,001 (272,081)
------------ ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ............................. $22,045,363 $14,066,577 $171,310
=========== =========== ========
<FN>
See Notes to Financial Statements.
* Commencement of Operations on October 1, 1994.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK FUND GLOBAL STOCK FUND
------------------------------------------- ---------------------------------------
1996 1995 1994 1996 1995 1994
-------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The
Hudson River Trust..................... $ 11,773,551 $ 14,259,262 $ 11,755,355 $ 7,019,392 $ 5,152,442 $2,768,605
Expenses (Note 3):
Mortality and expense
risk charges......................... 8,267,795 6,050,368 4,741,008 2,314,066 1,743,898 1,211,620
------------ ------------ ----------- ----------- ----------- ----------
NET INVESTMENT INCOME...................... 3,505,756 8,208,894 7,014,347 4,705,326 3,408,544 1,556,985
------------ ------------ ----------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
(Note 2):
Realized gain (loss)
on investments......................... 30,128,838 16,793,683 292,144 4,971,547 3,049,444 3,347,704
Realized gain distribution
from The Hudson
River Trust............................ 157,423,606 63,838,178 43,936,280 18,802,992 9,214,950 4,821,242
------------ ------------ ----------- ----------- ----------- ----------
NET REALIZED GAIN (LOSS)................... 187,552,444 80,631,861 44,228,424 23,774,539 12,264,394 8,168,946
Unrealized appreciation/
(depreciation) on investments:
Beginning of period.................... 181,824,279 (2,048,649) 71,350,568 36,525,596 3,130,280 7,062,877
End of period.......................... 294,432,897 181,824,279 (2,048,649) 58,618,054 36,525,596 3,130,280
------------ ------------ ----------- ----------- ----------- ----------
Change in unrealized
appreciation/(depreciation)
during the period...................... 112,608,618 183,872,928 (73,399,217) 22,092,458 33,395,316 (3,932,597)
------------ ----------- ------------ ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................... 300,161,062 264,504,789 (29,170,793) 45,866,997 45,659,710 4,236,349
------------ ------------ ------------ ----------- ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $303,666,818 $272,713,683 $(22,156,446) $50,572,323 $49,068,254 $5,793,334
============ ============ ============ =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND AGGRESSIVE STOCK FUND
--------------------------- -----------------------------------------
1996 1995* 1996 1995 1994
----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The
Hudson River Trust..................... $ 575,524 $195,500 $ 1,661,263 $ 1,268,689 $ 400,102
Expenses (Note 3):
Mortality and expense
risk charges......................... 164,149 36,471 4,086,388 2,702,978 1,944,639
---------- -------- ------------ ------------ ------------
NET INVESTMENT INCOME...................... 411,375 159,029 (2,425,125) (1,434,289) (1,544,537)
---------- -------- ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
(Note 2):
Realized gain (loss)
on investments......................... (28,490) (790) 30,549,608 11,560,966 (6,075,250)
Realized gain distribution
from The Hudson
River Trust............................ 737,771 51,741 133,080,595 61,903,470 --
---------- -------- ------------ ------------ ------------
NET REALIZED GAIN (LOSS)................... 709,281 50,951 163,630,203 73,464,436 (6,075,250)
Unrealized appreciation
(depreciation) on investments:
Beginning of period.................... 667,906 -- 80,271,118 30,761,318 35,185,988
End of period.......................... 1,857,793 667,906 46,617,235 80,271,118 30,761,318
---------- -------- ------------ ------------ ------------
Change in unrealized
appreciation (depreciation)
during the period...................... 1,189,887 667,906 (33,653,883) 49,509,800 (4,424,670)
---------- -------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS........................... 1,899,168 718,857 129,976,320 122,974,236 (10,499,920)
---------- -------- ------------ ------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS.......................... $2,310,543 $877,886 $127,551,195 $121,539,947 $(12,044,457)
========== ======== ============ ============ ============
<FN>
See Notes to Financial Statements.
* Commencement of Operations on April 3, 1995.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
-----------------------------------------------------------------------------------
CONSERVATIVE INVESTORS FUND BALANCED FUND
--------------------------------------- -----------------------------------------
1996 1995 1994 1996 1995 1994
----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust.... $ 7,737,745 $ 8,169,109 $ 6,205,574 $13,094,730 $12,276,328 $ 10,557,487
Expenses (Note 3):
Mortality and expense risk charges....... 1,046,858 921,294 750,164 2,490,188 2,237,982 2,103,510
----------- ----------- ----------- ----------- ----------- ------------
NET INVESTMENT INCOME........................ 6,690,887 7,247,815 5,455,410 10,604,542 10,038,346 8,453,977
----------- ----------- ----------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments...... (752,434) (378,551) (421,502) (873,535) (2,466,524) 858,164
Realized gain distribution from
The Hudson River Trust................. 4,429,977 1,068,272 -- 34,113,772 10,894,130 --
----------- ----------- ----------- ----------- ----------- ------------
NET REALIZED GAIN (LOSS)..................... 3,677,543 689,721 (421,502) 33,240,237 8,427,606 858,164
Unrealized appreciation/(depreciation)
on investments:
Beginning of period...................... 10,362,120 (8,767,697) 1,915,037 43,097,187 (2,878,875) 37,960,661
End of period............................ 7,700,135 10,362,120 (8,767,697) 42,382,824 43,097,187 (2,878,875)
----------- ----------- ----------- ----------- ----------- ------------
Change in unrealized appreciation/
(depreciation) during the period........... (2,661,985) 19,129,817 (10,682,734) (714,363) 45,976,062 (40,839,536)
----------- ----------- ----------- ----------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................. 1,015,558 19,819,538 (11,104,236) 32,525,874 54,403,668 (39,981,372)
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $ 7,706,445 $27,067,353 $(5,648,826) $43,130,416 $64,442,014 $(31,527,395)
=========== =========== =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
----------------------------------------
GROWTH INVESTORS FUND
----------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust.... $15,504,412 $ 15,855,901 $ 10,663,204
Expenses (Note 3):
Mortality and expense risk charges....... 3,746,683 2,796,354 1,995,747
----------- ------------ ------------
NET INVESTMENT INCOME........................ 11,757,729 13,059,547 8,667,457
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments...... 1,799,247 1,752,185 241,591
Realized gain distribution from
The Hudson River Trust................. 73,474,967 7,421,853 --
----------- ------------ ------------
NET REALIZED GAIN (LOSS)..................... 75,274,214 9,174,038 241,591
Unrealized appreciation/(depreciation)
on investments:
Beginning of period...................... 81,785,873 (770,693) 20,567,604
End of period............................ 67,150,693 81,785,873 (770,693)
----------- ------------ ------------
Change in unrealized appreciation/
(depreciation) during the period........... (14,635,180) 82,556,566 (21,338,297)
----------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................. 60,639,034 91,730,604 (21,096,706)
----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $72,396,763 $104,790,151 $(12,429,249)
=========== ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
MONEY MARKET FUND INTERMEDIATE GOVERNMENT SECURITIES FUND
-------------------------------------------- ------------------------------------------
1996 1995 1994 1996 1995 1994
------------- ------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............... $ 8,101,644 $ 8,270,845 $ 4,542,504 $ 2,122,460 $ 1,812,562 $ 5,144,309
Net realized gain (loss) ............ (110,954) (432,347) 95,530 (490,315) (810,768) (10,163,976)
Change in unrealized appreciation/
(depreciation) on investments ...... (65,953) 57,216 47,027 (287,001) 2,882,385 (1,119,626)
------------ ------------ ------------ ----------- ----------- ------------
Net increase (decrease)in net assets
from operations ................... 7,924,737 7,895,714 4,685,061 1,345,144 3,884,179 (6,139,293)
------------ ------------ ------------ ----------- ----------- ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ............... 101,890,108 96,773,056 82,536,703 10,397,104 11,016,347 18,915,140
Benefits and other policy related
transactions (Note 3) ............. (38,404,209) (39,770,849) (32,432,771) (7,387,385) (6,286,070) (5,813,181)
Net transfers among funds ........... (36,607,946) 4,776,165 (25,466,044) 2,645,675 953,149 (125,116,319)
------------ ------------ ------------ ----------- ----------- ------------
Net increase (decrease)in net assets
from policy related transactions .. 26,877,953 61,778,372 24,637,888 5,655,394 5,683,426 (112,014,360)
------------ ------------ ------------ ----------- ----------- ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) ...... (63,127) (36,640) (24,067) (22,170) (72,636) 15,335
------------ ------------ ------------ ----------- ----------- ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS....... 34,739,563 69,637,446 29,298,882 6,978,368 9,494,969 (118,138,318)
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD . 207,133,531 137,496,085 108,197,203 37,149,044 27,654,075 145,792,393
------------ ------------ ------------ ----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ....... $241,873,094 $207,133,531 $137,496,085 $44,127,412 $37,149,044 $ 27,654,075
============ ============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
QUALITY BOND FUND
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............... $ 8,103,671 $ 7,190,658 $ 7,434,544
Net realized gain (loss) ............ (1,130,915) (632,666) (410,697)
Change in unrealized appreciation/
(depreciation) on investments ...... 143,854 13,415,524 (13,634,579)
------------ ------------ ------------
Net increase (decrease) in net assets
from operations ................... 7,116,610 19,973,516 (6,610,732)
------------ ------------ ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ............... 5,753,712 2,516,135 850,240
Benefits and other policy related
transactions (Note 3) ............. (32,021,058) (3,189,044) (2,891,278)
Net transfers among funds ........... 6,117,471 2,462,969 25,765,197
------------ ------------ ------------
Net increase (decrease) in net assets
from policy related transactions .. (20,149,875) 1,790,060 23,724,159
------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) ...... (39,868) (712,602) 255,654
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS....... (13,073,133) 21,050,974 17,369,081
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD . 138,287,446 117,236,472 99,867,391
------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ....... $125,214,313 $138,287,446 $117,236,472
============ ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HIGH YIELD FUND GROWTH & INCOME FUND
------------------------------------------- -----------------------------------------
1996 1995 1994 1996 1995 1994
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................. $ 8,177,610 $ 6,147,199 $ 4,273,424 $ 370,025 $ 310,961 $ 89,288
Net realized gain (loss) .............. 7,058,612 (179,454) (328,199) 1,948,613 2,791 (11,709)
Change in unrealized appreciation/
(depreciation) on investments ....... 1,840,843 4,697,084 (5,608,102) 2,950,992 2,264,931 (140,681)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease)in net assets
from operations...................... 17,077,065 10,664,829 (1,662,877) 5,269,630 2,578,683 (63,102)
------------ ----------- ----------- ----------- ----------- ----------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ................. 19,454,716 15,333,474 14,287,345 11,382,745 6,464,035 2,953,965
Benefits and other policy
related transactions (Note 3) ....... (16,165,764) (8,211,013) (7,162,537) (2,909,569) (1,385,132) (481,430)
Net transfers among funds ............. 9,301,980 4,789,450 (11,048,174) 5,211,758 5,274,221 3,033,230
------------ ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets
from policy related transactions .... 12,590,932 11,911,911 (3,923,366) 13,684,934 10,353,124 5,505,765
------------ ----------- ----------- ----------- ----------- ----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) .......... (209,120) (100,679) 16,028 (106,424) (221,877) 6,113
------------ ----------- ----------- ----------- ----------- ----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .......... 29,458,877 22,476,061 (5,570,215) 18,848,140 12,709,930 5,448,776
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD ..... 71,930,962 49,454,901 55,025,116 18,618,313 5,908,383 459,607
------------ ----------- ----------- ----------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ........... $101,389,839 $71,930,962 $49,454,901 $37,466,453 $18,618,313 $5,908,383
============ =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX FUND
--------------------------------------------
1996 1995 1994*
------------ ------------ --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................. $ 1,145,887 $ 675,576 $ 443,391
Net realized gain (loss) .............. 11,903,017 539,950 127,205
Change in unrealized appreciation/
(depreciation) on investments ....... 8,996,459 12,851,051 (399,286)
----------- ----------- -----------
Net increase (decrease)
from operations...................... 22,045,363 14,066,577 171,310
----------- ----------- -----------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ................. 33,692,683 10,308,871 690,540
Benefits and other policy related
transactions (Note 3) ............... (56,493,042) (2,111,532) (472,818)
Net transfers among divisions ......... 23,434,912 18,305,589 30,736,505
----------- ----------- -----------
Net increase (decrease) in net assets
policy related transactions ......... 634,553 26,502,928 30,954,227
----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4) .......... (66,020) (71,293) (134)
----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .......... 22,613,896 40,498,212 31,125,403
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, BEGINNING OF PERIOD ..... 71,623,615 31,125,403 --
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS, END OF PERIOD ........... $94,237,511 $71,623,615 $31,125,403
=========== =========== ===========
<FN>
See Notes to Financial Statements.
* Commencement of Operations on October 1, 1994.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
COMMON STOCK FUND GLOBAL STOCK FUND
------------------------------------------------- ---------------------------------------------
1996 1995 1994 1996 1995 1994
--------------- --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
FROM OPERATIONS:
Net investment income ........ $ 3,505,756 $ 8,208,894 $ 7,014,347 $ 4,705,326 $ 3,408,544 $ 1,556,985
Net realized gain (loss) ..... 187,552,444 80,631,861 44,228,424 23,774,539 12,264,394 8,168,946
Change in unrealized
appreciation/(depreciation)
on investments ............. 112,608,618 183,872,928 (73,399,217) 22,092,458 33,395,316 (3,932,597)
-------------- -------------- ------------ ------------ ------------ ------------
Net increase (decrease)in net
assets from operations ..... 303,666,818 272,713,683 (22,156,446) 50,572,323 49,068,254 5,793,334
-------------- -------------- ------------ ------------ ------------ ------------
FROM POLICY RELATED
TRANSACTIONS:
Net premiums (Note 3) ........ 271,193,481 216,068,996 171,525,812 96,457,308 92,666,618 77,766,997
Benefits and other policy
related transactions
(Note 3) ................... (154,302,728) (118,456,643) (93,481,219) (43,292,191) (37,507,499) (23,371,745)
Net transfers among funds ...... 4,064,266 (34,354,864) 19,730,410 (4,363,741) (12,472,104) 47,610,957
-------------- -------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions ................. 120,955,019 63,257,489 97,775,003 48,801,376 42,687,015 102,006,209
-------------- -------------- ------------ ------------ ------------ ------------
NET (INCREASE) DECREASE IN
AMOUNT RETAINED BY
EQUITABLE LIFE IN
SEPARATE ACCOUNT FP
(Note 4) ..................... (429,232) (392,099) 44,948 (93,415) (96,720) (17,737)
-------------- -------------- ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET
ASSETS ATTRIBUTABLE TO
POLICYOWNERS ................. 424,192,605 335,579,073 75,663,505 99,280,284 91,658,549 107,781,806
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
BEGINNING OF PERIOD .......... 1,146,585,274 811,006,201 735,342,696 333,497,020 241,838,471 134,056,665
-------------- -------------- ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
END OF PERIOD ................ $1,570,777,879 $1,146,585,274 $811,006,201 $432,777,304 $333,497,020 $241,838,471
============== ============== ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND AGGRESSIVE STOCK FUND
--------------------------- ----------------------------------------------
1996 1995* 1996 1995 1994
------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
FROM OPERATIONS:
Net investment income ........ $ 411,375 $ 159,029 $ (2,425,125) $ (1,434,289) $ (1,544,537)
Net realized gain (loss) ..... 709,281 50,951 163,630,203 73,464,436 (6,075,250)
Change in unrealized
appreciation/(depreciation)
on investments ............. 1,189,887 667,906 (33,653,883) 49,509,800 (4,424,670)
----------- ----------- ------------ ------------ ------------
Net increase (decrease)in net
assets from operations ..... 2,310,543 877,886 127,551,195 121,539,947 (12,044,457)
----------- ----------- ------------ ------------ ------------
FROM POLICY RELATED
TRANSACTIONS:
Net premiums (Note 3) ........ 12,055,154 2,028,670 167,830,465 121,962,483 101,932,221
Benefits and other policy
related transactions
(Note 3) ................... (2,295,079) (339,723) (85,246,883) (63,165,185) (48,604,650)
Net transfers among funds ...... 17,095,516 9,885,952 28,481,572 19,367,834 4,346,636
----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions ................. 26,855,591 11,574,899 111,065,154 78,165,132 57,674,207
----------- ----------- ------------ ------------ ------------
NET (INCREASE) DECREASE IN
AMOUNT RETAINED BY
EQUITABLE LIFE IN
SEPARATE ACCOUNT FP
(Note 4) ..................... (21,865) (20,847) (205,349) (188,813) 35,791
----------- ----------- ------------ ------------ ------------
INCREASE (DECREASE) IN NET
ASSETS ATTRIBUTABLE TO
POLICYOWNERS ................. 29,144,269 12,431,938 238,411,000 199,516,266 45,665,541
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
BEGINNING OF PERIOD .......... 12,431,938 -- 555,188,131 355,671,865 310,006,324
----------- ----------- ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO
POLICYOWNERS,
END OF PERIOD ................ $41,576,207 $12,431,938 $793,599,131 $555,188,131 $355,671,865
=========== =========== ============ ============ ============
<FN>
See Notes to Financial Statements.
* Commencement of Operations on April 3, 1995.
+ Formerly known as Separate Account FP of Equitable Variable Life Insurance Company.
</FN>
</TABLE>
FSA-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------------------------------------------------
CONSERVATIVE INVESTORS FUND BALANCED FUND
--------------------------------------------- ---------------------------------------------
1996 1995 1994 1996 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........... $ 6,690,887 $ 7,247,815 $ 5,455,410 $ 10,604,542 $ 10,038,346 $ 8,453,977
Net realized gain (loss) ........ 3,677,543 689,721 (421,502) 33,240,237 8,427,606 858,164
Change in unrealized appreciation/
(depreciation) on investments.. (2,661,985) 19,129,817 (10,682,734) (714,363) 45,976,062 (40,839,536)
------------ ------------ ------------ ------------ ------------ ------------
Net increase(decrease)in net
assets from operations ........ 7,706,445 27,067,353 (5,648,826) 43,130,416 64,442,014 (31,527,395)
------------ ------------ ------------ ------------ ------------ ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ........... 38,133,118 41,419,959 48,492,315 60,530,048 63,451,955 70,116,900
Benefits and other policy related
transactions (Note 3) ......... (25,456,269) (22,866,003) (21,612,430) (50,274,632) (48,742,571) (45,655,363)
Net transfers among funds ....... (18,095,700) (3,379,296) (2,076,793) (22,122,080) (18,908,540) (19,954,097)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions .................. 5,418,851 15,174,660 24,803,092 (11,866,664) (4,199,156) 4,507,440
------------ ------------ ------------ ------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT FP (Note 4) . (36,213) (95,412) 22,600 (134,906) (93,214) 47,322
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .... 2,251,381 42,146,601 19,176,866 31,128,846 60,149,644 (26,972,633)
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, BEGINNING OF PERIOD ..... 172,087,099 129,940,498 110,763,632 398,565,209 338,415,565 365,388,198
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, END OF PERIOD ........... $174,338,480 $172,087,099 $129,940,498 $429,694,055 $398,565,209 $338,415,565
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------
GROWTH INVESTORS FUND
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........... $ 11,757,729 $ 13,059,547 $ 8,667,457
Net realized gain (loss) ........ 75,274,214 9,174,038 241,591
Change in unrealized appreciation/
(depreciation) on investments.. (14,635,180) 82,556,566 (21,338,297)
------------ ------------ ------------
Net increase (decrease) in net
assets from operations ........ 72,396,763 104,790,151 (12,429,249)
------------ ------------ ------------
FROM POLICY RELATED TRANSACTIONS:
Net premiums (Note 3) ........... 159,654,177 155,616,059 139,140,391
Benefits and other policy related
transactions (Note 3) ......... (81,943,749) (68,357,709) (54,863,821)
Net transfers among funds ....... (7,652,116) (3,269,896) 20,294,785
------------ ------------ ------------
Net increase (decrease) in net
assets from policy related
transactions .................. 70,058,312 83,988,454 104,571,355
------------ ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT FP (Note 4) . (93,120) (120,493) 15,372
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS .... 142,361,955 188,658,112 92,157,478
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, BEGINNING OF PERIOD ..... 555,877,666 367,219,554 275,062,076
------------ ------------ ------------
NET ASSETS ATTRIBUTABLE TO POLICY
OWNERS, END OF PERIOD ........... $698,239,621 $555,877,666 $367,219,554
============ ============ ============
<FN>
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
On September 19, 1996 the Board of Directors of The Equitable Life
Assurance Society of the United States ( "Equitable Life") approved an
Agreement and Plan of Merger by and between Equitable Life and Equitable
Variable Life Insurance Company (the "Merger Agreement"). The merger was
completed on January 1, 1997. On that date, and in accordance with the
provisions of the Merger Agreement, the separate existence of Equitable
Variable Life Insurance Company ("Equitable Variable Life") was ceased and
Equitable Life survived the merger. From January 1, 1997, Equitable Life is
liable in place of Equitable Variable Life for the liabilities and
obligations of Equitable Variable Life, including liabilities under
policies and contracts issued by Equitable Variable Life, and all of
Equitable Variable Life's assets became assets of Equitable Life.
Equitable Variable Life, a wholly-owned subsidiary of Equitable Life,
established Separate Account FP (the Account) as a unit investment trust
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940. The Account consists of thirteen investment funds: the
Money Market Fund, the Intermediate Government Securities Fund, the Quality
Bond Fund, the High Yield Fund, the Growth & Income Fund, the Equity Index
Fund, the Common Stock Fund, the Global Fund, the International Fund, the
Aggressive Stock Fund, the Conservative Investors Fund, the Balanced Fund,
and the Growth Investors Fund. The assets in each Fund are invested in
Class IA shares of a designated portfolio (Portfolio) of a mutual fund, The
Hudson River Trust (the Trust). Each Portfolio has separate investment
objectives.
The Account supports the operations of Incentive Life, flexible premium
variable life insurance policies, Incentive Life 2000, flexible premium
variable life insurance policies, Champion 2000, modified premium variable
whole life insurance policies, Survivorship 2000, flexible premium joint
survivorship variable life insurance policies, Incentive Life Plus,(SM)
flexible premium variable life insurance policies, IL Protector,(SM)
flexible premium variable life insurance policies, IL COLI, flexible premium
variable life insurance policies, IL COLI II, flexible premium variable life
insurance policies, and SP-Flex, variable life insurance policies with
additional premium option, collectively, the Policies, and the Incentive
Life 2000, Champion 2000 and Survivorship 2000 policies are referred to as
the Series 2000 Policies. Incentive Life Plus policies offered with a
prospectus dated on or after September 15, 1995, are referred to as
Incentive Life Plus Second Series. Incentive Life Plus policies issued with
a prior prospectus are referred to as Incentive Life Plus Original Series.
All Policies are issued by Equitable Life. The assets of the Account are the
property of Equitable Life. However, the portion of the Account's assets
attributable to the Policies will not be chargeable with liabilities arising
out of any other business Equitable Life may conduct.
Policyowners may allocate amounts in their individual accounts to the Funds
of the Account and/or (except for SP-Flex policies) to the guaranteed
interest rate account of Equitable Life's General Account. Net transfers to
(from) the guaranteed interest rate account of the General Account and other
Separate Accounts of ($7,511,567), $6,569,672 and $35,120,632 for the years
ended 1996, 1995 and 1993, respectively, are included in Net Transfers Among
Funds. The net assets of any Fund of the Account may not be less than the
aggregate of the policyowners' accounts allocated to that Fund. Additional
assets are set aside in Equitable Life's General Account to provide for (1)
the unearned portion of the monthly charges for mortality costs, and (2)
other policy benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded as income at the end of each quarter on the
ex-dividend date. Capital gains are distributed by the Trust at the end of
each year.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
The operations of the Account are included in the consolidated Federal
income tax return of Equitable Life. Under the provisions of the Policies,
Equitable Life has the right to charge the Account for Federal income tax
attributable to the Account. No charge is currently being made against the
Account for such tax since, under current tax law, Equitable Life pays no
tax on investment income and capital gains reflected in variable life
insurance policy reserves. However, Equitable Life retains the right to
charge for any Federal income tax incurred which is attributable to the
Account if the law is changed. Charges for state and local taxes, if any,
attributable to the Account also may be made.
3. Asset Charges
Under the Policies, Equitable Life assumes mortality and expense risks and,
to cover these risks, deducts charges from the assets of the Account
currently at annual rates of 0.60% of the net assets attributable to
Incentive Life, Incentive Life 2000, Incentive Life Plus Second Series and
Champion 2000 policyowners, 0.90% of net assets attributable to Survivorship
2000 policyowners, 0.80% for IL Protector policyowners, and 0.85% for
SP-Flex policyowners, Incentive Life Plus Original Series, IL COLI, and IL
COLI II deduct this charge from the Policy Account. Under SP-Flex, Equitable
Life also deducts charges from the assets of the Account for mortality and
administrative costs of 0.60% and 0.35%, respectively, of net assets
attributable to SP-Flex policies.
Under Incentive Life, Incentive Life Plus, Series 2000, IL Protector and IL
COLI II policies, mortality and administrative charges are assessed in a
different manner than SP-Flex policies.
Before amounts are allocated to the Account for Incentive Life, Incentive
Life Plus, IL COLI, IL COLI II and the Series 2000 Policies, Equitable Life
deducts a charge for taxes and either an initial policy fee (Incentive Life)
or a premium sales charge (Incentive Life Plus, IL COLI II and Series 2000
Policies) from premiums. Under SP-Flex, the entire initial premium is
allocated to the Account. Before any additional premiums under SP-Flex are
allocated to the Account, however, an administrative charge is deducted.
The amounts attributable to Incentive Life, Incentive Life Plus, IL
Protector, IL COLI, IL COLI II and the Series 2000 policyowners' accounts
are assessed monthly by Equitable Life for mortality and administrative
charges. These charges are withdrawn from the Account along with amounts for
additional benefits. Under the Policies, amounts for certain policy-related
transactions (such as policy loans and surrenders) are transferred out of
the Separate Account.
4. Amounts Retained by Equitable Life in Separate Account FP
The amount retained by Equitable Life in the Account arises principally from
(1) contributions from Equitable Life, and (2) that portion, determined
ratably, of the Account's investment results applicable to those assets in
the Account in excess of the net assets for the Policies. Amounts retained
by Equitable Life are not subject to charges for mortality and expense risks
or mortality and administrative costs.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the surplus contributions (withdrawals) by
Equitable Life by investment fund:
Years Ended December 31,
-------------------------------------
INVESTMENT FUND 1996 1995 1994
--------------- ---- ---- ----
Money Market -- $ (250,000) --
Intermediate Government Securities -- (165,000) --
Quality Bond $ (125,000) (4,800,000) --
High Yield -- (100,000) --
Growth & Income (75,000) (685,000) --
Equity Index -- -- $ 200,000
Common Stock (185,000) $ (630,000) --
Global -- (130,000) --
International -- 200,000 --
Aggressive Stock (125,000) (350,000) --
Conservative Investors (80,000) -- --
Balanced (90,000) -- --
Growth Investors (175,000) -- --
Short-Term World Income -- -- (5,165,329)
----------- ----------- -----------
$ (855,000) $(6,910,000) $(4,965,329)
=========== =========== ===========
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. Distribution and Servicing Agreements
Equitable Life has entered into a Distribution and Servicing Agreement with
EQ Financial Consultants Inc., whereby registered representatives of EQ
Financial Consultants Inc., authorized as variable life insurance agents
under applicable state insurance laws, sell the Policies. The registered
representatives are compensated on a commission basis by Equitable Life.
6. Share Substitution
On February 22, 1994, Equitable Variable Life, the Account and the Trust
substituted shares of the Trust's Intermediate Government Securities
Portfolio for shares of the Trust's Short-Term World Income Portfolio. The
amount transferred to Intermediate Government Securities Portfolio was
$2,192,109. The statements of operations and statements of changes in net
assets for the Intermediate Government Securities Portfolio is combined
with the Short-Term World Income Portfolio for periods prior to the merger
on February 22, 1994. The Short-Term World Income Fund is not available for
future investment.
7. Investment Returns
The Separate Account rates of return attributable to Incentive Life,
Incentive Life 2000, Incentive Life Plus Second Series and Champion 2000
policyowners are different than those attributable to Survivorship 2000,
Incentive Life Plus Original Series, IL Protector, IL COLI, IL COLI II and
to SP-Flex policyowners because asset charges are deducted at different
rates under each policy (see Note 3).
The tables on the following pages show the gross and net investment returns
with respect to the Funds for the periods shown. The net return for each
Fund is based upon net assets for a policy whose policy commences with the
beginning date of such period and is not based on the average net assets in
the Fund during such period. Gross return is equal to the total return
earned by the underlying Trust investment.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996
RATES OF RETURN:
INCENTIVE LIFE,
- ---------------
INCENTIVE LIFE 2000,
- --------------------
INCENTIVE LIFE PLUS SECOND SERIES
- ---------------------------------
AND CHAMPION 2000*
- ------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
MONEY MARKET FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.33% 5.74% 4.02% 3.00% 3.56% 6.18% 8.24% 9.18% 7.32% 6.63%
Net return................ 4.70% 5.11% 3.39% 2.35% 2.94% 5.55% 7.59% 8.53% 6.68% 5.99%
<CAPTION>
APRIL 1(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
INTERMEDIATE GOVERNMENT -----------------------------------------------------------
SECURITIES FUND 1996 1995 1994 1993 1992 1991
- --------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross return.............. 3.78% 13.33% (4.37)% 10.58% 5.60% 12.26%
Net return................ 3.15% 12.65% (4.95)% 9.88% 4.96% 11.60%
YEARS ENDED OCTOBER 1(A) TO
DECEMBER 31, DECEMBER 31,
------------------------------------------------
QUALITY BOND FUND 1996 1995 1994 1993
- ----------------- ---- ---- ---- ----
Gross return.............. 5.36% 17.02% (5.10)% (0.51)%
Net return................ 4.73% 16.32% (5.67)% (0.66)%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
HIGH YIELD FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.89% 19.92% (2.79)% 23.15% 12.31% 24.46% (1.12)% 5.13% 9.73% 4.68%
Net return................ 22.14% 19.20% (3.37)% 22.41% 11.64% 23.72% (1.71)% 4.50% 9.08% 4.05%
YEARS ENDED OCTOBER 1(A) TO
DECEMBER 31, DECEMBER 31,
-------------------------------------------
GROWTH & INCOME FUND 1996 1995 1994 1993
- -------------------- ---- ---- ---- ----
Gross return.............. 20.09% 24.07% (0.58)% (0.25)%
Net return................ 19.36% 23.33% (1.17)% (0.41)%
<CAPTION>
YEARS ENDED SEPTEMBER 30(A)
DECEMBER 31, TO DECEMBER 31,
---------------------------------------------------
EQUITY INDEX FUND 1996 1995 1994
- ----------------- ---- ---- ----
<S> <C> <C> <C>
Gross return.............. 22.39% 36.48% 1.08%
Net return................ 21.65% 35.66% 0.58%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
COMMON STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 24.28% 32.45% (2.14)% 24.84% 3.22% 37.88% (8.12)% 25.59% 22.43% 7.49%
Net return................ 23.53% 31.66% (2.73)% 24.08% 2.60% 37.06% (8.67)% 24.84% 21.70% 6.84%
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------------------------------------------
GLOBAL FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 14.60% 18.81% 5.23% 32.09% (0.50)% 30.55% (6.07)% 26.93% 10.88% (13.27)%
Net return................ 13.91% 18.11% 4.60% 31.33% (1.10)% 29.77% (6.63)% 26.17% 10.22% (13.45)%
YEARS ENDED APRIL 3(A) TO
DECEMBER DECEMBER 31,
31,
----------------------------
INTERNATIONAL FUND 1996 1995
- ------------------ ---- ----
Gross return.............. 9.82% 11.29%
Net return................ 9.15% 10.79%
<FN>
- ----------
* Sales of Incentive Life 2000 and Champion 2000 commenced on March 2, 1992. Sales of Incentive Life Plus Second Series commenced
on September 15, 1995.
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
AGGRESSIVE STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.20% 31.63% (3.81)% 16.77% (3.16)% 86.86% 8.17% 43.50% 1.17% 7.31%
Net return................ 21.46% 30.85% (4.39)% 16.05% (3.74)% 85.75% 7.51% 42.64% 0.53% 6.66%
<CAPTION>
ASSET ALLOCATION SERIES
OCTOBER 2(A)
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
CONSERVATIVE --------------------------------------------------------------------------------
INVESTORS FUND 1996 1995 1994 1993 1992 1991 1990 1989
- -------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.21% 20.40% (4.10)% 10.76% 5.72% 19.87% 6.37% 3.09%
Net return................ 4.57% 19.68% (4.67)% 10.15% 5.09% 19.16% 5.73% 2.94%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
BALANCED FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 11.68% 19.75% (8.02)% 12.28% (2.84)% 41.26% 0.24 % 25.83% 13.27% (0.85)%
Net return................ 11.00% 19.03% (8.57)% 11.64% (3.42)% 40.42% (0.36)% 25.08% 12.59% (1.45)%
<CAPTION>
GROWTH INVESTORS FUND 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 12.61% 26.37% (3.15)% 15.26% 4.90% 48.89% 10.66% 3.98%
Net return................ 11.93% 25.62% (3.73)% 14.58% 4.27% 48.01% 10.00% 3.82%
</TABLE>
<TABLE>
<CAPTION>
RATES OF RETURN:
SURVIVORSHIP 2000
- -----------------
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------
MONEY MARKET FUND 1996 1995 1994 1993 1992
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 5.33% 5.74% 4.02% 3.00% 1.11%
Net return................ 4.38% 4.80% 3.08% 2.04% 0.77%
<CAPTION>
INTERMEDIATE GOVERNMENT
SECURITIES FUND 1996 1995 1994 1993 1992
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 3.78% 13.33% (4.37)% 10.58% 0.90%
Net return................ 2.84% 12.31% (5.23)% 9.55% 0.56%
<CAPTION>
OCTOBER 1(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------
QUALITY BOND FUND 1996 1995 1994 1993
- ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross return.............. 5.36% 17.02% (5.10)% (0.51)%
Net return................ 4.41% 15.97% (5.95)% (0.73)%
<CAPTION>
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------
HIGH YIELD FUND 1996 1995 1994 1993 1992
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 22.89% 19.92% (2.79)% 23.15% 1.84%
Net return................ 21.77% 18.84% (3.66)% 22.04% 1.50%
<CAPTION>
OCTOBER 1(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------
GROWTH & INCOME FUND 1996 1995 1994 1993
- -------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross return.............. 20.09% 24.07% (0.58)% (0.25)%
Net return................ 19.00% 22.96% (1.47)% (0.48)%
<FN>
- ----------
* Sales of Incentive Life 2000 and Champion 2000 commenced on March 2, 1992. Sales of Incentive Life Plus Second Series commenced
on September 15, 1995.
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
YEARS ENDED MARCH 1(A) TO
DECEMBER 31, DECEMBER 31,
---------------------------------------------
EQUITY INDEX FUND 1996 1995 1994
- ----------------- ---- ---- ----
Gross return.............. 22.39% 36.48% 1.08%
Net return................ 21.28% 35.26% 0.33%
<TABLE>
<CAPTION>
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------
COMMON STOCK FUND 1996 1995 1994 1993 1992
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 24.28% 32.45% (2.14)% 24.84% 5.28%
Net return................ 23.15% 31.26% (3.02)% 23.70% 4.93%
GLOBAL FUND
- -----------
Gross return.............. 14.60% 18.81% 5.23% 32.09% 4.87%
Net return................ 13.56% 17.75% 4.29% 30.93% 4.52%
AGGRESSIVE STOCK FUND
- ---------------------
Gross return.............. 22.20% 31.63% (3.81)% 16.77% 11.49%
Net return................ 21.09% 30.46% (4.68)% 15.70% 11.11%
</TABLE>
YEARS ENDED APRIL 3(A) TO
DECEMBER 31, DECEMBER 31,
----------------------------------
INTERNATIONAL FUND 1996 1995
- ------------------ ---- ----
Gross return.............. 9.82% 11.29%
Net return................ 8.82% 10.55%
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES
AUGUST 17(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
CONSERVATIVE INVESTORS -----------------------------------------------------------------
FUND 1996 1995 1994 1993 1992
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross return.............. 5.21% 20.40% (4.10)% 10.76% 1.38%
Net return................ 4.26% 19.32% (4.96)% 9.81% 1.04%
BALANCED FUND 1996 1995 1994 1993 1992
- ------------- ---- ---- ---- ---- ----
Gross return.............. 11.68% 19.75% (8.02)% 12.28% 5.37%
Net return................ 10.67% 18.68% (8.84)% 11.30% 5.02%
GROWTH INVESTORS FUND 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Gross return.............. 12.61% 26.37% (3.15)% 15.26% 6.89%
Net return................ 11.59% 25.24% (4.02)% 14.24% 6.53%
<FN>
- ----------------
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
RATES OF RETURN:
INCENTIVE LIFE PLUS ORIGINAL SERIES*(B)
- ---------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1995
---- ----
Money Market Fund.............. 5.33% 5.69%
Intermediate Government
Securities Fund................ 3.78% 13.31%
Quality Bond Fund.............. 5.36% 17.13%
High Yield Fund................ 22.89% 19.95%
Growth & Income Fund........... 20.09% 24.38%
Equity Index Fund.............. 22.38% 36.53%
Common Stock Fund.............. 24.28% 33.07%
Global Fund.................... 14.60% 19.38%
YEAR ENDED DECEMBER 31, APRIL 30 TO DECEMBER 31, (A)
----------------------------------------------------
1996 1995
---- ----
International Fund............. 9.81% 11.29%
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995
---- ----
Aggressive Stock Fund.......... 22.20% 33.00%
ASSET ALLOCATION SERIES
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
---- ----
Conservative Investors Fund.... 5.21% 20.59%
Balanced Fund.................. 11.68% 20.32%
Growth Investors Fund.......... 12.61% 26.92%
- ---------------------------
*Sales of Incentive Life Plus Original Series commenced on January 6, 1995.
(a) Date as of which net premiums under the policies were first allocated to
the Fund. The returns for the periods indicated are not annual rates of
return.
(b) There are no Separate Account asset charges for this policy and therefore
the gross and net rates of return are the same. The rate of return for the
year ended December 31, 1995 indicated is not an annual rate of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
RATES OF RETURN:
IL PROTECTOR*(b)
- ----------------
AUGUST 5 TO DECEMBER 31,(A)
----------------------------
1996
----
Money Market Fund..................... 2.98%
Intermediate Government
Securities Fund....................... 4.49%
Quality Bond Fund..................... 7.86%
High Yield Fund....................... 13.90%
Growth & Income Fund.................. 15.63%
Equity Index Fund..................... 16.25%
Common Stock Fund..................... 17.44%
Global Fund........................... 6.78%
Inernational Fund..................... 2.11%
Aggressive Stock Fund................. 6.22%
ASSET ALLOCATION SERIES
AUGUST 5 TO DECEMBER 31,(A)
----------------------------
1996
----
Conservative Investors Fund........... 7.94%
Balanced Fund......................... 8.67%
Growth Investors Fund................. 9.38%
- ----------
*Sales of Incentive Life Protector commenced on August 5, 1996.
(a) Date as of which net premiums under the policies were first allocated to the
Fund. The returns for the periods indicated are not
annual rates of return.
(b) There are no Separate Account asset changes for this policy and therefore
the gross and net rates of return are the same.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
RATES OF RETURN:
SP-FLEX
- -------
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
MONEY MARKET FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 5.33% 5.74% 4.02% 3.00% 3.56% 6.17% 8.24% 9.18% 7.32% 2.15%
Net return................ 3.44% 3.86% 2.17% 1.13% 1.71% 4.29% 6.30% 7.24% 5.41% 1.62%
</TABLE>
APRIL 1(A)
TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
INTERMEDIATE GOVERNMENT --------------------------------------------------
SECURITIES FUND 1996 1995 1994 1993 1992 1991
- --------------- ---- ---- ---- ---- ---- ----
Gross return.............. 3.78% 13.33% (4.37)% 10.58% 5.60% 12.10%
Net return................ 1.91% 11.31% (6.08)% 8.57% 3.71% 10.59%
SEPTEMBER 1(A)
YEARS ENDED TO
DECEMBER 31, DECEMBER 31,
----------------------------------------------
QUALITY BOND FUND 1996 1995 1994
- ----------------- ---- ---- ----
Gross return.............. 5.36% 17.02% (2.20)%
Net return................ 3.47% 14.94% (2.35)%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
HIGH YIELD FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.89% 19.92% (2.79)% 23.15% 12.31% 24.46% (1.12)% 5.13% 9.73% 1.95%
Net return................ 20.68% 17.79% (4.52)% 20.96% 10.30% 22.25% (2.89)% 3.26% 7.78% 1.39%
</TABLE>
SEPTEMBER 1(A)
YEARS ENDED TO
DECEMBER 31, DECEMBER 31,
----------------------------------------------
GROWTH & INCOME FUND 1996 1995 1994
- -------------------- ---- ---- ----
Gross return.............. 20.09% 24.07% (3.40)%
Net return................ 17.93% 21.87% (3.55)%
EQUITY INDEX FUND 1996 1995 1994
- ----------------- ---- ---- ----
Gross return.............. 22.39% 36.48% (2.54)%
Net return................ 20.19% 34.06% (2.69)%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
COMMON STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 24.28% 32.45% (2.14)% 24.84% 3.23% 37.87% (8.12)% 25.59% 22.43% (22.57)%
Net return................ 22.04% 30.10% (3.88)% 22.60% 1.38% 35.43% (9.76)% 23.36% 20.26% (23.00)%
GLOBAL FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Gross return.............. 14.60% 18.81% 5.23% 32.09% (0.50)% 30.55% (6.07)% 26.93% 10.88% (11.40)%
Net return................ 12.54% 16.70% 3.36% 29.77% (2.28)% 28.23% (7.75)% 24.67% 8.90% (11.86)%
</TABLE>
YEARS ENDED APRIL 3(A) TO
DECEMBER 31, DECEMBER 31,
------------------------------
INTERNATIONAL FUND 1996 1995
- ------------------ ---- ----
Gross return.............. 9.82% 11.29%
Net return................ 7.84% 9.82%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
AGGRESSIVE STOCK FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.............. 22.20% 31.63% (3.81)% 16.77% (3.16)% 86.86% 8.17% 43.50% 1.17 % (24.28)%
Net return................ 20.00% 29.30% (5.53)% 14.67% (4.89)% 83.54% 6.23% 40.95% (0.66)% (24.68)%
<FN>
- ----------
(a) Date as of which net premiums under the policies were first allocated to the Fund. The gross return and the net return for the
periods indicated are not annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account FP.
</FN>
</TABLE>
FSA-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
YEARS ENDED SEPTEMBER 1(A) TO
ASSET ALLOCATION SERIES DECEMBER 31, DECEMBER 31,
CONSERVATIVE INVESTORS ------------------------------------------------------
FUND 1996 1995 1994
- ---- ---- ---- ----
Gross return.......... 5.21% 20.40% (1.83)%
Net return............ 3.32% 18.26% (1.98)%
<TABLE>
<CAPTION>
AUGUST 31(A) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------------------------------------------------
BALANCED FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross return.......... 11.68% 19.75% (8.02)% 12.28% (2.83)% 41.27% 0.24 % 25.83% 13.27% (20.26)%
Net return............ 9.67% 17.62% (9.66)% 10.31% (4.57)% 38.75% (1.56)% 23.59% 11.25% (20.71)%
</TABLE>
YEARS ENDED SEPTEMBER 1(A) TO
DECEMBER 31, DECEMBER 31,
GROWTH INVESTORS ------------------------------------------------------
FUND 1996 1995 1994
- ---- ---- ---- ----
Gross return........... 12.61% 26.37% (3.16)%
Net return............. 10.58% 24.12% (3.31)%
- ----------
(a) Date as of which net premiums under the policies were first allocated to the
Fund. The gross return and the net return for the periods indicated are not
annual rates of return.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
FSA-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995 and for
postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business is
conducted principally by Equitable Life and its wholly owned life
insurance subsidiary, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which will continue to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), Equitable Real Estate Investment
Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate. AXA-UAP ("AXA"),
a French holding company for an international group of insurance and
related financial services companies, is the Holding Company's largest
shareholder, owning approximately 60.8% at December 31, 1996 (63.6%
assuming conversion of Series E Convertible Preferred Stock held by AXA
and 54.4% if all securities convertible into, and options on, common
stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") lines of business. The Company established a
pre-tax provision for the estimated future losses of the GIC line of
business and a premium deficiency reserve for the Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect of
accounting change by $19.2 million, net of Federal income taxes of $10.3
million for 1996. The financial statements for 1995 and 1994 have been
retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million, and $(2.6)
million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in investment
gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were
computed using the forecasted cash flows of the respective properties
discounted at a rate equal to the Company's cost of funds. The adoption
of the statement resulted in the release of valuation allowances of
$152.4 million and recognition of impairment losses of $144.0 million on
real estate held and used. Real estate which management has committed to
disposing of by sale or abandonment is classified as real estate to be
disposed of. Valuation allowances on real estate to be disposed of
continue to be computed using the lower of estimated fair value or
depreciated cost, net of disposition costs. Implementation of the SFAS
No. 121 impairment requirements relative to other assets to be disposed
of resulted in a charge for the cumulative effect of an accounting
change of $23.1 million, net of a Federal income tax benefit of $12.4
million, due to the writedown to fair value of building improvements
relating to facilities being vacated beginning in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans within
the scope of this statement are measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company provides for
impairment of loans through an allowance for possible losses. The
adoption of this statement did not have a material effect on the level
of these allowances or on the Company's consolidated statements of
earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Companies which elect to
continue to apply APB Opinion No. 25 must provide pro forma net income
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock option plans sponsored by the
Holding Company, DLJ and Alliance in accordance with the provisions of
APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset to
unrealized gains (losses) in consolidated shareholder's equity as of the
balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
include a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as claim
incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a reasonable
basis and are adequate, there can be no assurance reserves will be
sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding $175.0 million of reserve strengthening in
1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes were charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities were
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost of
$3,915.7 million and $3,748.9 million, respectively, had estimated fair
values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(258.0) million, $1,077.2 million and $(742.2)
million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an investment
gain of $20.6 million as a result of the issuance of Alliance Units in
this transaction. At December 31, 1996, the Company's ownership of
Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The Company continues to hold its
1% general partnership interest in Alliance. The Company recognized an
investment gain of $52.4 million as a result of these transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from significant deterioration in creditworthiness.
The amortized cost of the security sold was $4.2 million. The aggregate
amortized cost of the securities transferred was $81.3 million with
gross unrealized investment losses of $.1 million transferred to equity.
At December 1, 1995, $1,750.7 million of securities classified as held
to maturity were transferred to the available for sale portfolio. As a
result, unrealized gains of $88.5 million on fixed maturities were
recognized, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
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
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. Subsequently,
the GIC Segment remitted $1,155.4 million in cash to continuing
operations in partial repayment of borrowings by the GIC Segment. No
gains or losses were recognized on these transactions. Amounts due to
continuing operations at December 31, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction of
debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,406.4 million and $1,629.7 million at December 31, 1996
and 1995, respectively, as collateral for certain long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life no longer is required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's and EREIM's benefits are based on a
cash balance formula or years of service and final average earnings, if
greater, under certain grandfathering rules in the plans. Alliance's
benefits are based on years of credited service, average final base
salary and primary social security benefits. The Company's funding
policy is to make the minimum contribution required by the Employee
Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1996, 1995 and 1994, the Company made
estimated postretirement benefits payments of $18.9 million, $31.1
million and $29.8 million, respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on interest-sensitive
individual annuities contracts. The outstanding notional amounts at
December 31, 1996 of contracts purchased and sold were $5,050.0 million
and $500.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $22.5 million and is being amortized ratably over
the contract periods ranging from 3 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's involvement
in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains
or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair values
for single premium deferred annuities ("SPDA") are estimated using
projected cash flows discounted at current offering rates. The estimated
fair values for supplementary contracts not involving life contingencies
("SCNILC") and annuities certain are derived using discounted cash flows
based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 million. Management believes
the Company will not incur any material losses as a result of these
commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
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. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date, no
such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the policies, and that statements in the policies
and elsewhere concerning premium increases constituted fraudulent
concealment, misrepresentations in violation of New York Insurance Law
Section 4226 and deceptive practices under New York General Business Law
Section 349. The complaint seeks a declaratory judgment, injunctive
relief restricting the methods by which Equitable Life increases
premiums on the policies in the future, a refund of premiums, and
punitive damages. Plaintiffs also have indicated that they will seek
damages in an unspecified amount. Equitable Life moved to dismiss the
complaint in its entirety on the grounds that it fails to state a claim
and that uncontroverted documentary evidence establishes a complete
defense to the claims. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These actions are asserted on behalf of proposed
classes of Pennsylvania issued or renewed policyholders and Texas issued
or renewed policyholders, insured under the policies. The Pennsylvania
and Texas actions seek compensatory and punitive damages and injunctive
relief restricting the methods by which Equitable Life increases
premiums in the future based on the common law and statutes of those
states. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigations, 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 results of operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, EOC, in New York state court, entitled Sidney
C. Cole et al. v. The Equitable Life Assurance Society of the United
States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley and Dillon litigations should
not have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigations, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated v.
The Equitable Life Assurance Society of the United States, and Equitable
Variable Life Insurance Company, was filed in Massachusetts state court
making claims similar to those in the Franze action and alleging
violations of the Massachusetts securities laws. The plaintiff purports
to represent all persons in Massachusetts who purchased variable life
insurance contracts from Equitable Life and EVLICO from January 9, 1993
to the present. The Massachusetts action seeks rescission of the
contracts or compensatory damages, attorneys' fees, expenses and
injunctive relief. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action,
the Company's management believes that the ultimate resolution of the
litigations discussed in this paragraph should not have a material
adverse effect on the financial position of the Company. Due to the
early stages of such litigation, the Company's management cannot make an
estimate of loss, if any, or predict whether or not any such litigation
will have a material adverse effect on the Company's results of
operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on the Company's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which seeks certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, seeks an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The
principal allegations of the Complaint are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of
the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") and certain other defendants
for unspecified compensatory and punitive damages in the United States
District Court for the Southern District of New York. The suit was
brought on behalf of the purchasers of 126,457 units consisting of
$126,457,000 aggregate principal amount of 13 1/2% senior notes due 2001
and 126,457 warrants to purchase shares of common stock of Rickel issued
by Rickel in October 1994. The complaint alleges violations of Federal
securities laws and common law fraud against DLJSC, as the underwriter
of the units and as an owner of 7.3% of the common stock of Rickel, Eos
Partners, L.P., and General Electric Capital Corporation, each as owners
of 44.2% of the common stock of Rickel, and members of the Board of
Directors of Rickel, including a DLJSC Managing Director. The complaint
seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in
connection with the offering of the units, alleging that the defendants
knew of financial losses and a decline in value of Rickel in the months
prior to the offering and did not disclose such information. The
complaint also alleges that Rickel failed to pay its semi-annual
interest payment due on the units on December 15, 1995 and that Rickel
filed a voluntary petition for reorganization pursuant to Chapter 11 of
the United States Bankruptcy Code on January 10, 1996. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe the
outcome of this litigation will have a material adverse effect on its
financial condition. Due to the early stage of this litigation, based on
the information currently available to it, DLJ's management cannot make
an estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe that
the ultimate outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of such
litigation, based upon the information currently available to it, DLJ's
management cannot make an estimate of loss, if any, or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million, $110.6
million, $100.3 million, $72.3 million, $59.3 million and $427.3 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1997 and the succeeding four years are $9.8 million, $6.0
million, $4.5 million, $2.4 million, $.8 million and $.1 million
thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1996, 1995 and 1994, statutory net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect the Company's accounting change adopted in the fourth quarter
of 1996 for long-duration participating life contracts in accordance
with the provisions prescribed by SFAS No. 120. Net earnings for the
three months ended December 31, 1996 includes a charge of $339.3 million
related to writeoffs of DAC on DI contracts of $94.3 million, reserve
strengthening on DI business of $113.7 million, pension par of $47.5
million and the discontinued GIC Segment of $83.8 million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess of
the proceeds over the book value in DLJ at the date of sale of $340.2
million has been reflected as a capital contribution. In 1995, DLJ
completed the initial public offering ("IPO") of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27 per share. Concurrent with the IPO, the
Company contributed equity securities to DLJ having a market value of
$21.2 million. Upon completion of the IPO, the Company's ownership
percentage was reduced to 36.1%. The Company's ownership interest will
be further reduced upon the issuance of common stock after the vesting
of forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in APB Opinion No. 25. Had compensation expense of the Company's stock
option incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, the Company's pro forma net earnings for 1996
and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
APPENDIX A
COMMUNICATING PERFORMANCE DATA
In reports or other communications to policyowners or in advertising material,
we may describe general economic and market conditions affecting the Separate
Account and the Trusts and may compare the performance or ranking of the
Separate Account Funds and the Trusts' portfolios with (1) that of other
insurance company separate accounts or mutual funds included in the rankings
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or similar
investment services that monitor the performance of insurance company separate
accounts or mutual funds, (2) other appropriate indices of investment securities
and averages for peer universes of funds, or (3) data developed by us derived
from such indices or averages. Advertisements or other communications furnished
to present or prospective policyowners may also include evaluations of a
Separate Account Fund or Trust portfolio by financial publications that are
nationally recognized such as Barron's, Morningstar's Variable Annuities / Life,
Business Week, Forbes, Fortune, Institutional Investor, Money, Kiplinger's
Personal Finance, Financial Planning, Investment Adviser, Investment Management
Weekly, Money Management Letter, Investment Dealers Digest, National
Underwriter, Pension & Investments, USA Today, Investor's Daily, The New York
Times, The Wall Street Journal, the Los Angeles Times and the Chicago Tribune.
Performance data for peer universes of funds with similar investment objectives
are compiled by Lipper Analytical Services, Inc. (Lipper) in its Lipper Variable
Insurance Products Performance Analysis Service (Lipper Survey) and Morningstar,
Inc. in the Morningstar Variable Annuity / Life Report (Morningstar Report).
The Lipper Survey records performance data as reported to it by over 800 funds
underlying variable annuity and life insurance products. The Lipper Survey
divides these actively managed funds into 25 categories by portfolio objectives.
The Lipper Survey contains two different universes, which differ in terms of the
types of fees reflected in performance data. The "Separate Account" universe
reports performance data net of investment management fees, direct operating
expenses and asset-based charges applicable under variable insurance and annuity
contracts. The "Mutual Fund" universe reports performance net only of investment
management fees and direct operating expenses, and therefore reflects
asset-based charges that relate only to the underlying mutual fund.
The Morningstar Report consists of over 700 variable life and annuity funds, all
of which report their data net of investment management fees, direct operating
expenses and separate account level charges.
LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following chart presents historical return trends
for various types of securities. The information presented, while not directly
related to the performance of the Funds of the Separate Account or the Trusts'
portfolios, may help to provide a perspective on the potential returns of
different asset classes over different periods of time. By combining this
information with your knowledge of your own financial needs, you may be able to
better determine how you wish to allocate your IL COLI II premiums.
Historically, the investment performance of common stocks over the long term has
generally been superior to that of long or short-term debt securities, although
common stocks have been subject to more dramatic changes in value over short
periods of time. The Common Stock Fund of the Separate Account may, therefore,
be a desirable selection for policyowners who are willing to accept such risks.
Policyowners who have a need to limit short-term risk, may find it preferable to
allocate a smaller percentage of their net premiums to those funds that invest
primarily in common stock. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The chart on page A-2 illustrates the average annual compound rates of return
over selected time periods between December 31, 1926 and December 31, 1996 for
common stocks, long-term government bonds, long-term corporate bonds,
intermediate-term government bonds and Treasury Bills. The Consumer Price Index
is shown as a measure of inflation for comparison purposes. The average annual
returns assume the reinvestment of dividends, capital gains and interest.
The information presented is an historical record of unmanaged groups of
securities and is neither an estimate nor a guarantee of future results. In
addition, investment management fees and expenses and charges associated with a
variable life insurance policy, are not reflected.
The rates of return illustrated do not represent returns of the Separate Account
or the Trusts and do not constitute a representation that the performance of the
Separate Account Funds or the Trusts' portfolios will correspond to rates of
return such as those illustrated in the chart. For a comparative illustration of
performance results of the portfolios of The Hudson River Trust, plus
performance of other Alliance funds with investment policies and objectives
similar to those of the Alliance Small Cap Growth portfolio, see page B-1 of the
HRT prospectus. For a comparative illustration of performance results of certain
public mutual funds which are similar to EQAT portfolios and are managed by
EQAT's Advisers, see page A-1 of the EQAT prospectus.
A-1
<PAGE>
AVERAGE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
FOR THE
FOLLOWING LONG-TERM LONG-TERM INTERMEDIATE- U.S. CONSUMER
PERIODS ENDING COMMON GOVERNMENT CORPORATE TERM GOV'T TREASURY PRICE
12/31/96: STOCKS BONDS BONDS BONDS BILLS INDEX
- -------- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1 year.................. 23.07% -0.93% 1.40% 2.10% 5.21% 3.58%
3 years................. 19.66 6.36 6.72 4.19 4.90 2.93
5 years................. 15.20 8.98 8.52 6.17 4.22 2.89
10 years................. 15.28 9.39 9.48 7.77 5.46 3.70
20 years................. 14.55 9.54 9.71 9.14 7.28 5.15
30 years................. 11.85 7.75 8.24 8.27 6.73 5.39
40 years................. 11.18 6.51 6.99 7.08 5.80 4.47
50 years................. 12.59 5.33 5.76 5.89 4.89 4.08
60 years................. 11.19 5.06 5.38 5.32 4.10 4.13
Since 1926............... 10.71 5.08 5.64 5.21 3.74 3.12
Inflation Adjusted
Since 1926............... 7.36 1.90 2.44 2.02 0.60
- ----------------------------
</TABLE>
*Source: Ibbotson, Roger G. and Rex A. Sinquefield, STOCKS, BONDS, BILLS, AND
INFLATION (SBBI), 1982, updated in STOCKS, BONDS, BILLS, AND INFLATION 1997
YEARBOOK,(TM)Ibbotson Associates, Inc., Chicago. All rights reserved.
Common Stocks (S&P 500)-- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
Long-term Government Bonds -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
Long-term Corporate Bonds -- For the period 1969 - 1996, represented by the
Salomon Brothers Long-Term, High-Grade Corporate Bond Index; for the period
1946 - 1968, the Salomon Brothers' Index was backdated using Salomon Brothers'
monthly yield data and a methodology similar to that used by Salomon for 1969 -
1996; for the period 1926 - 1945, the Standard and Poor's monthly High-Grade
Corporate Composite yield data were used, assuming a 4 percent coupon and a
twenty-year maturity.
Intermediate-term Government Bonds -- Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five-year
maturity.
U.S. Treasury Bills-- Measured by rolling over each month a one-bill portfolio
containing, at the beginning of each month, the bill having the shortest
maturity not less than one month.
Inflation -- Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
A-2
<PAGE>
Part II
REPRESENTATION REGARDING REASONABLENESS OF
AGGREGATE POLICY FEES AND CHARGES
Equitable represents that the fees and charges deducted under the Policies
described in this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses to be incurred, and the risks
assumed by Equitable under the Policies, Equitable bases its representation on
its assessment of all of the facts and circumstances, including such relevant
factors as: the nature and extent of such services, expenses and risks, the need
for Equitable to earn a profit, the degree to which the Policies include
innovative features, and regulatory standards for the grant of exemptive relief
under the Investment Company Act of 1940 used prior to October 1996, including
the range of industry practice.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Reconciliation and Tie, previously filed with this Registration Statement
File No. 333-17625 on December 11, 1996.
The Prospectus Supplement dated May 1, 1997, (for inforce business) consisting
of 90 pages.
The Prospectus dated May 1, 1997, consisting of 103 pages.
Representation regarding reasonableness of aggregate policy fees and charges.
Undertaking to file reports, previously filed with this Registration Statement
File No. 333-17625 on December 11, 1996.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933,
previously filed with this Registration Statement File No. 333-17625 on December
11, 1996.
The signatures.
Written Consents of the following persons:
Mary P. Breen, Vice President and Associate General Counsel of Equitable
(See exhibit 2(a))
Barbara Fraser, F.S.A., M.A.A.A., Vice President of Equitable (See exhibit 2(b))
Independent Public Accountants (See exhibit 6)
The following exhibits: Exhibits required by Article IX, paragraph A of
Form N-8B-2:
<TABLE>
<CAPTION>
<S> <C> <C>
1-A(1)(a)(i) Certified resolutions re Authority to Market Variable Life Insurance and
Establish Separate Accounts, previously filed with Registration Statement
File No. 333-17625 on December 11, 1996.
1-A(2) Inapplicable.
1-A(3)(a) See Exhibit 1-A(8).
1-A(3)(b) Broker-Dealer and General Agent Sales Agreement, previously filed with
Registration Statement File No. 333-17625 on December 11, 1996.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1-A(3)(c) See Exhibit 1-A(8)(i).
1-A(4) Inapplicable.
1-A(5)(a)(i) Flexible Premium Variable Life
Insurance Policy (96-300) (IL COLI II)
(Equitable Variable), previously filed
with Registration Statement File
No. 333-17625 on December 11, 1996.
1-A(5)(a)(ii) Flexible Premium Variable Life
Insurance Policy (96-300) (IL COLI II)
(Equitable), previously filed with
Registration Statement File No.
333-17625 on December 11, 1996.
1-A(5)(b) Name change endorsement (S.97-1), previously filed with Registration
Statement File No. 333-17625 on December 11, 1996.
+ 1-A(5)(c) Supplemental Term Insurance Rider on the Insured (R96-100)
(Equitable Variable), previously filed with Registration Statement File
No. 333-17625 on December 11, 1996.
+ 1-A(5)(d) Supplemental Term Insurance Rider on the Insured (R96-100) (Equitable),
previously filed with Registration Statement File No. 333-17625 on
December 11, 1996.
+ 1-A(5)(e) Substitution of Insured Rider (R94-212) (Equitable Variable), previously filed
with Registration Statement File No. 333-17625 on December 11, 1996.
+ 1-A(5)(f) Substitution of Insured Rider (R94-212) (Equitable), previously filed with
Registration Statement File No. 333-17625 on December 11, 1996.
+ 1-A(5)(g) Accelerated Death Benefit Rider (R94-102) (Equitable Variable), previously
filed with Registration Statement File No. 333-17625 on December 11, 1996.
+ 1-A(5)(h) Accelerated Death Benefit Rider (R94-102) (Equitable), previously filed with
Registration Statement File No. 333-17625 on December 11, 1996.
1-A(6)(a) Declaration and Charter of Equitable, as amended January 1, 1997.
1-A(6)(b) By-Laws of Equitable, as amended November 21, 1996.
1-A(7) Inapplicable.
1-A(8) Distribution and Servicing Agreement among EQ Financial Consultants, Inc.
(formerly known as Equico Securities, Inc.), Equitable and Equitable
Variable dated as of May 1, 1994, previously filed with Registration
Statement File No. 333-17625 on December 11, 1996.
1-A(8)(i) Schedule of Commissions, previously filed with Registration Statement File
No. 333-17625 on December 11, 1996.
1-A(9)(a) Agreement and Plan of Merger of Equitable Variable with and into
Equitable dated September 19, 1996, previously filed with Registration
Statement File No. 333-17625 on December 11, 1996.
1-A(9)(b) Form of Participation Agreement among EQ Advisors Trust, Equitable,
Equitable Distributors, Inc. and EQ Financial Consultants, Inc.,
incorporated by reference to the Registration Statement of EQ Advisors
Trust on Form N-1A (File Nos. 333-17217 and 811-07953).
<FN>
+ State variations not included
</FN>
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1-A(10)(i) Application EV4-200Y (Equitable Variable), previously filed with
Registration Statement File No. 333-17625 on December 11, 1996.
1-A(10)(ii) Application EV4-200Y (Equitable), previously filed with this Registration
Statement File No. 333-17625 on December 11, 1996.
Other Exhibits:
2(a)(i) Opinion and Consent of Mary P. Breen, Vice President and
Associate General Counsel of Equitable (policy form 96-300),
previously filed with Registration Statement File
No. 333-17625 on December 11, 1996.
2(a)(ii) Opinion and Consent of Mary P. Breen, Vice President and Associate General
Counsel of Equitable (policy form 96-300).
2(b)(i) Opinion and Consent of Barbara Fraser, F.S.A., M.A.A.A.,
Vice President of Equitable, previously filed with Registration Statement File
No. 333-17625 on December 11, 1996.
2(b)(ii) Consent of Barbara Fraser, F.S.A., M.A.A.A., Vice President,
with respect to Exhibit 2(b)(i), previously filed with Registration Statement
File No. 333-17625 on December 11, 1996.
2(b)(iii) Opinion and Consent of Barbara Fraser, F.S.A., M.A.A.A.,
Vice President of Equitable, previously filed with Registration Statement File
No. 333-17625 on December 11, 1996.
2(b)(iv) Opinion and Consent of Barbara Fraser, F.S.A., M.A.A.A., Vice President of
Equitable.
3 Inapplicable.
4 Inapplicable.
5 Financial Data Schedule (See Exhibit 27 below).
6 Consent of Independent Public Accountant.
7(a) Powers-of-Attorney, previously filed with this Registration
Statement No. 333-17625 on December 11, 1996.
7(b) Power-of-Attorney for Mary R. (Nina) Henderson.
8 Description of Equitable's Issuance, Transfer and Redemption Procedures for
Flexible Premium Policies pursuant to Rule 6e-3(T)(b)(12)(iii) under the
Investment Company Act of 1940, previously filed with Registration Statement
File No. 333-17625 on December 11, 1996.
27 Financial Data Schedule.
</TABLE>
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all the requirements for effectiveness of this amendment
to the registration statement pursuant to paragraph (b) of Rule 485 under the
Securities Act of 1933 and it has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
and State of New York on the 30th day of April, 1997.
SEPARATE ACCOUNT FP OF THE EQUITABLE
LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: THE EQUITABLE LIFE
ASSURANCE SOCIETY OF
THE UNITED STATES,
DEPOSITOR
By: /s/ Samuel B. Shlesinger
------------------------
(Samuel B. Shlesinger)
Senior Vice President
Attest: /s/Linda Galasso
-----------------
(Linda Galasso)
Assistant Secretary
April 30, 1997
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all the requirements for effectiveness of this amendment
to the registration statement pursuant to paragraph (b) of Rule 485 under the
Securities Act of 1933 and it has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York on the 30th day of April, 1997.
THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE
UNITED STATES
By: /s/ Samuel B. Shlesinger
------------------------
(Samuel B. Shlesinger)
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following
persons in the capacities and on the date indicated:
PRINCIPAL EXECUTIVE OFFICERS:
* Joseph J. Melone Chairman of the Board and Chief Executive
Officer
* James M. Benson President
* William T. McCaffrey Senior Executive Vice President and Chief
Operating Officer
* Jerry M. de St. Paer Executive Vice President
PRINCIPAL FINANCIAL OFFICER:
* Stanley B. Tulin. Senior Executive Vice President and Chief
Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/Alvin H. Fenichel
- --------------------
Alvin H. Fenichel Senior Vice President and Controller
April 30, 1997
*DIRECTORS:
Claude Bebear Jean-Rene Foutou Winthrop Knowlton
James M. Benson Norman C. Francis Arthur L. Liman
Christopher J. Brocksom Donald J. Greene George T. Lowy
Francoise Colloc'h John T. Hartley William T. McCaffrey
Henri de Castries John H.F. Haskell, Jr. Joseph J. Melone
Joseph L. Dionne Mary R. (Nina) Henderson Didier Pineau-Valencienne
William T. Esrey. W. Edwin Jarmain George J. Sella, Jr.
G.Donald Johnston, Jr. Dave H. Williams
*By: /s/ Samuel B. Shlesinger
------------------------
(Samuel B. Shlesinger)
Attorney-in-Fact
April 30, 1997
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TAG VALUE
- ----------- ---------
<S> <C> <C>
1-A(6)(a) Declaration and Charter of Equitable, as amended January 1, 1997. EX-99.1A6a CHARTER
1-A(6)(b) By-Laws of Equitable, as amended November 21, 1996. EX-99.1A6b BYLAWS
2(a)(ii) Opinion and Consent of Mary P. Breen, Vice President and Associate General
Counsel of Equitable (policy form 96-300). EX-99.2aii OPINION
2(b)(iv) Opinion and Consent of Barbara Fraser, F.S.A., M.A.A.A., Vice President of
Equitable. EX-99.2biv OPINION
6 Consent of Independent Public Accountant. EX-99.6 CONSENT
7(b) Power-of-Attorney for Mary R. (Nina) Henderson. EX-99.7b POW ATTY
27 Financial Data Schedule of Separate Account FP. EX-99.27
</TABLE>
II-6
RESTATED CHARTER
OF
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
ARTICLE I
The name of the corporation shall continue to be The Equitable Life
Assurance Society of the United States.
ARTICLE II
The principal office of the corporation shall be located in the City of
New York, County of New York, State of New York.
ARTICLE III
(a) The business to be transacted by the corporation shall be the kinds
of insurance business specified in Paragraphs 1, 2 and 3 of Subsection (a) of
Section 1113 of the Insurance Law of the State of New York, as follows:
(1) "Life insurance": every insurance upon the lives of human
beings, and every insurance appertaining thereto, including the
granting of endowment benefits, additional benefits in the event of
death by accident, additional benefits to safeguard the contract from
lapse, accelerated payments of part or all of the death benefit or a
special surrender value upon diagnosis (A) of terminal illness defined
as a life expectancy of twelve months or less, or (B) of a medical
condition requiring extraordinary medical care or treatment regardless
of life expectancy, or provide a special surrender value, upon total
and permanent disability of the insured, and optional modes of
settlement of proceeds. "Life insurance" also includes additional
benefits to safeguard the contract against lapse in the event of
unemployment of the insured. Amounts paid the insurer for life
insurance and proceeds applied under optional modes of settlement or
under dividend options may be allocated by the insurer
<PAGE>
to one or more separate accounts pursuant to section four thousand two
hundred forty of the Insurance Law of the State of New York;
(2) "Annuities": all agreements to make periodical payments for a
period certain or where the making or continuance of all or some of a
series of such payments, or the amount of any such payment, depends
upon the continuance of human life, except payments made under the
authority of paragraph (1) above. Amounts paid the insurer to provide
annuities and proceeds applied under optional modes of settlement or
under dividend options may be allocated by the insurer to one or more
separate accounts pursuant to section four thousand two hundred forty
of the Insurance Law of the State of New York;
(3) "Accident and health insurance": (i) insurance against death
or personal injury by accident or by any specified kind or kinds of
accident and insurance against sickness, ailment or bodily injury,
including insurance providing disability benefits pursuant to article
nine of the workers' compensation law, except as specified in item (ii)
hereof; and (ii) non-cancellable disability insurance, meaning
insurance against disability resulting from sickness, ailment or bodily
injury (but excluding insurance solely against accidental injury) under
any contract which does not give the insurer the option to cancel or
otherwise terminate the contract at or after one year from its
effective date or renewal date;
and any amendments to such paragraphs or provisions in substitution therefor
which may be hereafter adopted; such other kind or kinds of business now or
hereafter authorized by the laws of the State of New York to stock life
insurance companies; and such other kind or kinds of business to the extent
necessarily or properly incidental to the kind or kinds of insurance business
which the corporation is authorized to do.
(b) The corporation shall also have all other rights, powers, and
privileges now or hereafter authorized or granted by the Insurance Law of the
State of New York or any other law or laws of the State of New York to stock
life insurance companies having power to do the kind or kinds of business
hereinabove referred to and any and all other rights, powers, and privileges of
a corporation now or hereafter granted by the laws of the State of New York and
not prohibited to such stock life insurance companies.
- 2 -
<PAGE>
ARTICLE IV
The business of the corporation shall be managed under the direction of
the Board of Directors.
ARTICLE V
(a) The Board of Directors shall consist of not less than 13 (except
for vacancies temporarily unfilled) nor more than 36 Directors, as may be
determined from time to time by a vote of a majority of the entire Board of
Directors. No decrease in the number of Directors shall shorten the term of any
incumbent Director.
(b) The Board of Directors shall have the power to adopt from time to
time such By-Laws, rules and regulations for the governance of the officers,
employees and agents and for the management of the business and affairs of the
corporation, not inconsistent with this Charter and the laws of the State of New
York, as may be expedient, and to amend or repeal such by-laws, rules and
regulations, except as provided in the By-Laws.
(c) Any or all of the Directors may be removed at any time, either for
or without cause, by vote of the shareholders.
(d) No Director shall be personally liable to the corporation or any of
its shareholders for damages for any breach of duty as a Director; provided,
however, that the foregoing provision shall not eliminate or limit (i) the
liability of a Director if a judgment or other final adjudication adverse to him
or her establishes that his or her acts or omissions were in bad faith or
involved intentional misconduct or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally entitled,
or were acts or omissions which (a) he or she knew or reasonably should have
known violated the Insurance Law of the State of New York or (b) violated a
specific standard of care imposed on Directors directly, and not by reference,
by a provision of the Insurance Law of the State of New York (or any regulations
promulgated thereunder) or (c) constituted a knowing violation of any other law;
or (ii) the liability of a Director for any act or omission prior to September
21, 1989.
- 3 -
<PAGE>
ARTICLE VI
(a) The Directors of the corporation shall be elected at each annual
meeting of shareholders of the corporation in the manner prescribed by law. The
annual meeting of shareholders shall be held at such place, within or without
the State of New York, and at such time as may be fixed by or under the By-Laws.
At each annual meeting of shareholders, directors shall be elected to hold
office for a term expiring at the next annual meeting of shareholders.
(b) Newly created directorships resulting from an increase in the
number of Directors and vacancies occurring in the Board of Directors shall be
filled by vote of the shareholders.
(c) Each Director shall be at least twenty-one years of age, and at all
times a majority of the Directors shall be citizens and residents of the United
States, and not less than three of the Directors shall be residents of the State
of New York.
(d) The Board of Directors shall elect such officers as are provided
for in the By-Laws at the first meeting of the Board of Directors following each
annual meeting of the shareholders. In the event of the failure to elect
officers at such meeting, officers may be elected at any regular or special
meeting of the Board of Directors. A vacancy in any office may be filled by the
Board of Directors at any regular or special meeting.
ARTICLE VII
The duration of the corporate existence of the corporation shall be
perpetual.
ARTICLE VIII
The amount of the capital of the corporation shall be $2,500,000, and
shall consist of 2,000,000 Common Shares, par value $1.25 per share.
44859-1.DOC
- 4 -
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF
THE UNITED STATES
BY-LAWS
-------
As Amended November 21, 1996
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF
THE UNITED STATES
BY-LAWS
-------
Table of Contents
ARTICLE I SHAREHOLDERS................................................ 1
Section 1.1 Annual Meetings............................................ 1
Section 1.2 Notice of Meetings; Waiver................................. 1
Section 1.3 Organization; Procedure.................................... 2
Section 1.4 Action Without a Meeting................................... 2
ARTICLE II BOARD OF DIRECTORS.......................................... 2
Section 2.1 Regular Meetings........................................... 2
Section 2.2 Special Meetings........................................... 2
Section 2.3 Independent Directors; Quorum.............................. 2
Section 2.4 Notice of Meetings......................................... 3
Section 2.5 Newly Created Directorships;
Vacancies................................................ 3
Section 2.6 Presiding Officer.......................................... 3
Section 2.7 Telephone Participation in
Meetings; Action by Consent
Without Meeting.......................................... 3
ARTICLE III COMMITTEES.................................................. 4
Section 3.1 Committees................................................. 4
Section 3.2 Authority of Committees.................................... 5
Section 3.3 Quorum and Manner of Acting................................ 5
Section 3.4 Removal of Members......................................... 6
Section 3.5 Vacancies.................................................. 6
Section 3.6 Subcommittees.............................................. 6
Section 3.7 Alternate Members of Committees............................ 6
Section 3.8 Attendance of Other Directors.............................. 6
<PAGE>
ARTICLE IV OFFICERS.................................................... 6
Section 4.1 Chairman of the Board...................................... 6
Section 4.2 Vice-Chairman of the Board................................. 7
Section 4.3 President.................................................. 7
Section 4.4 Chief Executive Officer.................................... 7
Section 4.5 Secretary.................................................. 7
Section 4.6 Other Officers............................................. 8
ARTICLE V CAPITAL STOCK............................................... 8
Section 5.1 Transfers of Stock;
Registered Shareholders.................................. 8
Section 5.2 Transfer Agent and Registrar............................... 9
ARTICLE VI EXECUTION OF INSTRUMENTS..................................... 9
Section 6.1 Execution of Instruments................................... 9
Section 6.2 Facsimile Signatures of
Former Officers.......................................... 10
Section 6.3 Meaning of Term "Instruments".............................. 10
ARTICLE VII GENERAL..................................................... 10
Section 7.1 Reports of Committees...................................... 10
Section 7.2 Independent Certified
Public Accountants....................................... 10
Section 7.3 Directors' Fees............................................ 10
Section 7.4 Indemnification of Directors,
Officers and Employees................................... 10
Section 7.5 Waiver of Notice........................................... 11
Section 7.6 Company.................................................... 11
ARTICLE VIII AMENDMENT OF BY-LAWS....................................... 11
Section 8.1 Amendment of By-Laws....................................... 11
Section 8.2 Notice of Amendment........................................ 12
<PAGE>
BY-LAWS
OF
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
ARTICLE I
---------
SHAREHOLDERS
------------
Section 1.1. Annual Meetings. The annual meeting of the shareholders of
the Company for the election of Directors and for the transaction of such other
business as properly may come before such meeting shall be held at the principal
office of the Company on the third Wednesday in the month of May at 3:00 P.M.,
local time, or at such other place, within or without the State of New York, or
on such other earlier or later date in April or May or at such other hour as may
be fixed from time to time by resolution of the Board of Directors and set forth
in the notice or waiver of notice of the meeting. [Business Corporation Law
Secs. 602(a), (b)]*
Section 1.2. Notice of Meetings; Waiver. The Secretary or any Assistant
Secretary shall cause written notice of the place, date and hour of each meeting
of the shareholders, and, in the case of a special meeting, the purpose or
purposes for which such meeting is called and by or at whose direction such
notice is being issued, to be given, personally or by first class mail, not
fewer than ten nor more than fifty days before the date of the meeting to each
shareholder of record entitled to vote at such meeting.
No notice of any meeting of shareholders need be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting or who attends the meeting, in person or by
proxy, without protesting prior to its conclusion the lack of notice of such
meeting. [Business Corporation Law Secs. 605, 606]
- --------
* Citations are to the Business Corporation Law and Insurance Law of the State
of New York, as in effect on [date of adoption], and are inserted for reference
only, and do not constitute a part of the By-Laws.
<PAGE>
Section 1.3. Organization; Procedure. At every meeting of shareholders
the presiding officer shall be the Chairman of the Board or, in the event of his
or her absence or disability, the President or, in his or her absence, any
officer of the Company designated by the shareholders. The order of business and
all other matters of procedure at every meeting of shareholders may be
determined by such presiding officer. The Secretary, or in the event of his or
her absence or disability, an Assistant Secretary or, in his or her absence, an
appointee of the presiding officer, shall act as Secretary of the meeting.
Section 1.4. Action Without a Meeting. Any action required or permitted
to be taken by shareholders may be taken without a meeting on written consent
signed by the holders of all the outstanding shares entitled to vote on such
action. [Business Corporation Law Sec. 615]
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.1. Regular Meetings. Regular meetings of the Board of
Directors shall be held at the principal office of the Company on the third
Thursday of each month, except January and August, unless a change in place or
date is ordered by the Board of Directors. The first regular meeting of the
Board of Directors following the annual meeting of the shareholders of the
Company is designated as the Annual Meeting. [Business Corporation Law Sec. 710]
Section 2.2. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the President,
or two directors. [Business Corporation Law Sec. 710]
Section 2.3. Independent Directors; Quorum. Not less than one-third of
the Board of Directors shall be persons who are not officers or employees of the
Company or of any entity controlling, controlled by, or under common control
with the Company and who are not beneficial owners of a controlling interest in
the voting stock of the Company or of any such entity.
A majority of the entire Board of Directors, including at least one
Director who is not an officer or employee of the Company or of any entity
controlling, controlled by, or under common control with the Company and who is
not a beneficial owner of a controlling interest in the voting stock of the
Company
<PAGE>
or of any such entity, shall constitute a quorum for the transaction of business
at any regular or special meeting of the Board of Directors, except as otherwise
prescribed by these By-Laws. Except as otherwise prescribed by law, the Charter
of the Company, or these By-Laws, the vote of a majority of the Directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the Board of Directors. A majority of the Directors present, whether
or not a quorum is present, may adjourn any meeting from time to time and from
place to place. As used in these By-Laws "entire Board of Directors" means the
total number of directors which the Company would have if there were no
vacancies. [Business Corporation Law Secs. 707, 708; Insurance Law Sec. 1202]
Section 2.4. Notice of Meetings. Notice of a regular meeting of the
Board of Directors need not be given. Notice of a change in the time or place of
a regular meeting of the Board of Directors shall be given to each Director at
least five days in advance thereof in writing and by telephone or telecopy.
Notice of each special meeting of the Board of Directors shall be given to each
Director at least 24 hours prior to the special meeting, personally or by
telephone or telegram or telecopy, and shall state in general terms the purpose
or purposes of the meeting. Any such notice for a regular or special meeting not
specifically required by this Section 2.4 to be given by telephone or telecopy
shall be deemed given to a director when sent by mail, telegram, cablegram or
radiogram addressed to such director at his or her address furnished to the
Secretary. Notice of an adjourned regular or special meeting of the Board of
Directors shall be given if and as determined by a majority of the directors
present at the time of the adjournment, whether or not a quorum is present.
[Business Corporation Law Sec. 711]
Section 2.5. Newly Created Directorships; Vacancies. Any newly created
directorships resulting from an increase in the number of Directors and
vacancies occurring in the Board of Directors for any reasons (including
vacancies resulting from the removal of a Director without cause) shall be
filled by the shareholders of the Company. [Business Corporation Law Sec. 705;
Insurance Law Sec. 4211]
Section 2.6. Presiding Officer. In the absence or inability to act of
the Chairman of the Board at any regular or special meeting of the Board of
Directors, any Vice-Chairman of the Board, or the President, as designated by
the chief executive officer, shall preside at such meeting. In the absence or
inability to act of all of such officers, the Board of Directors shall select
from among their number present a presiding officer.
Section 2.7. Telephone Participation in Meetings; Action by
Consent Without Meeting. Any Director may participate in a meeting of the Board
<PAGE>
or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and such participation shall
constitute presence in person at such meeting; provided that one meeting of the
Board each year shall be held without the use of such conference telephone or
similar communication equipment. When time is of the essence, but not in lieu of
a regularly scheduled meeting of the Board of Directors, any action required or
permitted to be taken by the Board or any committee thereof may be taken without
a meeting if all members of the Board or such committee, as the case may be,
consent in writing to the adoption of a resolution authorizing the action and
such written consents and resolution are filed with the minutes of the Board or
such committee, as the case may be. [Business Corporation Law Sec. 708]
ARTICLE III
-----------
COMMITTEES
----------
Section 3.1. Committees. (a) The Board of Directors, by resolution
adopted by a majority of the entire Board of Directors, may establish from among
its members an Executive Committee of the Board composed of three or more
Directors. Not less than one-third of the members of such committee shall be
persons who are not officers or employees of the Company or of any entity
controlling, controlled by, or under common control with the Company and who are
not beneficial owners of a controlling interest in the voting stock of the
Company or of any such entity.
(b) The Board of Directors, by resolution adopted by a majority of the
entire Board of Directors, shall establish from among its members one or more
committees with authority to discharge the responsibilities enumerated in this
subsection (b). Each such committee shall be composed of three or more Directors
and shall be comprised solely of Directors who are not officers or employees of
the Company or of any entity controlling, controlled by, or under common control
with the Company and who are not beneficial owners of a controlling interest in
the voting stock of the Company or of any such entity. Such committee or
committees shall have responsibility for:
(i) Recommending to the Board of Directors candidates for nomination
for election by the shareholders to the Board of Directors;
<PAGE>
(ii) Evaluating the performance of officers deemed by any such
committee to be principal officers of the Company and recommending their
selection and compensation;
(iii) Recommending the selection of independent certified public
accountants;
(iv) Reviewing the scope and results of the independent audit and of
any internal audit; and
(v) Reviewing the Company's financial condition.
(c) The Board of Directors, by resolution adopted from time to time by
a majority of the entire Board of Directors, may establish from among its
members one or more additional committees of the Board, each composed of five or
more Directors. Not less than one-third of the members of each such committee
shall be persons who are not officers or employees of the Company or of any
entity controlling, controlled by, or under common control with the Company and
who are not beneficial owners of a controlling interest in the voting stock of
the Company or of any such entity. [Business Corporation Law Sec. 712; Insurance
Law Sec. 1202]
Section 3.2. Authority of Committees. Each committee shall have all the
authority of the Board of Directors, to the extent permitted by law and provided
in the resolution creating such committee, provided, however, that no committee
shall have authority as to the following matters:
(a) the submission to shareholders of any action as to which
shareholder approval is required by law;
(b) the filling of vacancies in the Board of Directors or in any
committee thereof;
(c) the fixing of compensation of the Directors for serving on the
Board of Directors or any committee thereof;
(d) the amendment or repeal of the By-Laws, or the adoption of new
By-Laws; or
(e) the amendment or repeal of any resolution of the Board of Directors
unless such resolution of the Board of Directors by its terms provides that
it may be so amended or repealed.
<PAGE>
Section 3.3. Quorum and Manner of Acting. A majority of the total
membership that a committee would have if there were no vacancies (including at
least one Director who is not an officer or employee of the Company or of any
entity controlling, controlled by, or under common control with the Company and
who is not a beneficial owner of a controlling interest in the voting stock of
the Company or of any such entity) shall constitute a quorum for the transaction
of business. The vote of a majority of the members present at the time of the
vote, if a quorum is present at such time, shall be the act of such committee.
Except as otherwise prescribed by these By-Laws or by the Board of Directors,
each committee may elect a chairman from among its members, fix the times and
dates of its meetings, and adopt other rules of procedure.
Section 3.4. Removal of Members. Any member (and any alternate member)
of a committee may be removed by vote of a majority of the entire Board of
Directors.
Section 3.5. Vacancies. Any vacancy occurring in any committee for any
reason may be filled by vote of a majority of the entire Board of Directors.
Section 3.6. Subcommittees. Any committee may appoint one or more
subcommittees from its members. Any such subcommittee may be charged with the
duty of considering and reporting to the appointing committee on any matter
within the responsibility of the committee appointing such subcommittee but
cannot act in place of the appointing committee.
Section 3.7. Alternate Members of Committees. The Board of Directors
may designate, by resolution adopted by a majority of the entire Board of
Directors, one or more directors as alternate members of any committee who may
replace any absent member or members at a meeting of such committee. [Business
Corporation Law Sec. 712]
Section 3.8. Attendance of Other Directors. Except as otherwise
prescribed by the Board of Directors, members of the Board of Directors may
attend any meeting of any committee.
ARTICLE IV
----------
OFFICERS
--------
Section 4.1. Chairman of the Board. The Board of Directors may at a
regular or special meeting elect from among their number a Chairman of the
<PAGE>
Board who shall hold office, at the pleasure of the Board of Directors, until
the next Annual Meeting.
The Chairman of the Board shall preside at all meetings of the Board of
Directors and also shall exercise such powers and perform such duties as may be
delegated or assigned to or required of him or her by these By-Laws or by or
pursuant to authorization of the Board of Directors.
Section 4.2. Vice-Chairman of the Board. The Board of Directors may at
a regular or special meeting elect from among their number one or more
Vice-Chairmen of the Board who shall hold office, at the pleasure of the Board
of Directors, until the next Annual Meeting.
The Vice-Chairmen of the Board shall exercise such powers and perform
such duties as may be delegated or assigned to or required of them by these
By-Laws or by or pursuant to authorization of the Board of Directors or by the
Chairman of the Board.
Section 4.3. President. The Board of Directors shall at a regular or
special meeting elect from among their number a President who shall hold office,
at the pleasure of the Board of Directors, until the next Annual Meeting and
until the election of his or her successor.
The President shall exercise such powers and perform such duties as may
be delegated or assigned to or required of him or her by these By-Laws or by or
pursuant to authorization of the Board of Directors or (if the President is not
the chief executive officer) by the chief executive officer. The President and
Secretary may not be the same person.
Section 4.4. Chief Executive Officer. The Chairman of the Board or the
President shall be the chief executive officer of the Company as the Board of
Directors from time to time shall determine, and the Board of Directors from
time to time may determine who shall act as chief executive officer in the
absence or inability to act of the then incumbent.
Subject to the control of the Board of Directors, and to the extent not
otherwise prescribed by these By-Laws, the chief executive officer shall have
plenary power over all departments, officers, employees, and agents of the
Company, and shall be responsible for the general management and direction of
all the business and affairs of the Company.
<PAGE>
Section 4.5. Secretary. The Board of Directors shall at a regular or
special meeting elect a Secretary who shall hold office, at the pleasure of the
Board of Directors, until the next Annual Meeting and until the election of his
or her successor.
The Secretary shall issue notices of the meetings of the shareholders
and the Board of Directors and its committees, shall keep the minutes of the
meetings of the shareholders and the Board of Directors and its committees and
shall have custody of the Company's corporate seal and records. The Secretary
shall exercise such powers and perform such other duties as relate to the office
of the Secretary, and also such powers and duties as may be delegated or
assigned to or required of him or her by or pursuant to authorization of the
Board of Directors or by the Chairman of the Board or (if the Chairman of the
Board is not the chief executive officer) the chief executive officer.
Section 4.6. Other Officers. The Board of Directors may elect such
other officers as may be deemed necessary for the conduct of the business of the
Company. Each such officer elected by the Board of Directors shall exercise such
powers and perform such duties as may be delegated or assigned to or required of
him or her by the Board of Directors or the chief executive officer, and shall
hold office until the next Annual Meeting, but at any time may be suspended by
the chief executive officer or by the Board of Directors, or removed by the
Board of Directors. [Business Corporation Law Secs. 715, 716]
ARTICLE V
---------
CAPITAL STOCK
-------------
Section 5.1. Transfers of Stock; Registered Shareholders. (a) Shares of
stock of the Company shall be transferable only upon the books of the Company
kept for such purpose upon surrender to the Company or its transfer agent or
agents of a certificate (unless such shares shall be uncertificated shares)
representing shares, duly endorsed or accompanied by appropriate evidence of
succession, assignment or authority to transfer. Within a reasonable time after
the transfer of uncertificated shares, the Company shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates.
(b) Except as otherwise prescribed by law, the Board of Directors may
make such rules, regulations and conditions as it may deem expedient concerning
the subscription for, issue, transfer and registration of, shares of stock.
<PAGE>
Except as otherwise prescribed by law, the Company, prior to due presentment for
registration of transfer, may treat the registered owner of shares as the person
exclusively entitled to vote, to receive notifications, and otherwise to
exercise all the rights and powers of an owner. [Business Corporation Law Sec.
508(d), (f); Insurance Law Sec. 4203]
Section 5.2 Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents and one or more registrars, and may require
all certificates representing shares to bear the signature of any such transfer
agents or registrars. The same person may act as transfer agent and registrar
for the Company.
ARTICLE VI
----------
EXECUTION OF INSTRUMENTS
------------------------
Section 6.1. Execution of Instruments. (a) Any one of the following,
namely, the Chairman of the Board, any Vice-Chairman of the Board, the
President, any Vice-President (including a Deputy or Assistant Vice-President or
any other Vice-President designated by a number or a word or words added before
or after the title Vice-President to indicate his or her rank or
responsibilities), the Secretary, or the Treasurer, or any officer, employee or
agent designated by or pursuant to authorization of the Board of Directors or
any committee created under these By-Laws, shall have power in the ordinary
course of business to enter into contracts or execute instruments on behalf of
the Company (other than checks, drafts and other orders drawn on funds of the
Company deposited in its name in banks) and to affix the corporate seal. If any
such instrument is to be executed on behalf of the Company by more than one
person, any two or more of the foregoing or any one or more of the foregoing
with an Assistant Secretary or an Assistant Treasurer shall have power to
execute such instrument and affix the corporate seal.
(b) The signature of any officer may be in facsimile on any such
instrument if it shall also bear the actual signature, or personally inscribed
initials, of an officer, employee or agent empowered by or pursuant to the first
sentence of this Section to execute such instrument, provided that the Board of
Directors or a committee thereof may authorize the issuance of insurance
contracts and annuity contracts on behalf of the Company bearing the facsimile
signature of an officer without the actual signature or personally inscribed
initials of any person.
<PAGE>
(c) All checks, drafts and other orders drawn on funds of the Company
deposited in its name in banks shall be signed only pursuant to authorization of
and in accordance with rules prescribed from time to time by the Board of
Directors or a committee thereof, which rules may permit the use of facsimile
signatures.
Section 6.2. Facsimile Signatures of Former Officers. If any officer
whose facsimile signature has been placed upon any instrument shall have ceased
to be such officer before such instrument is issued, it may be issued with the
same effect as if he or she had been such officer at the time of its issue.
Section 6.3. Meaning of Term "Instruments". As used in this Article VI,
the term "instruments" includes, but is not limited to, contracts and
agreements, checks, drafts and other orders for the payment of money, transfers
of bonds, stocks, notes and other securities, and powers of attorney, deeds,
leases, releases of mortgages, satisfactions and all other instruments entitled
to be recorded in any jurisdiction.
ARTICLE VII
-----------
GENERAL
-------
Section 7.1. Reports of Committees. Reports of any committee charged
with responsibility for supervising or making investments shall be submitted at
the next meeting of the Board of Directors. Reports of other committees of the
Board of Directors shall be submitted at a regular meeting of the Board of
Directors as soon as practicable, unless otherwise directed by the Board of
Directors.
Section 7.2 Independent Certified Public Accountants. The books and
accounts of the Company shall be audited throughout each year by such
independent certified public accountants as shall be selected by the Board of
Directors.
Section 7.3. Directors' Fees. The Directors shall be paid such fees for
their services in any capacity as may have been authorized by the Board of
Directors. No Director who is a salaried officer of the Company shall receive
any fees for serving as a Director of the Company. [Business Corporation Law
Sec. 713(e)]
<PAGE>
Section 7.4. Indemnification of Directors, Officers and Employees. (a)
To the extent permitted by the law of the State of New York and subject to all
applicable requirements thereof:
(i) any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he or she,
or his or her testator or intestate, is or was a director, officer or
employee of the Company shall be indemnified by the Company;
(ii) any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he or she,
or his or her testator or intestate serves or served any other organization
in any capacity at the request of the Company may be indemnified by the
Company; and
(iii) the related expenses of any such person in any of said categories
may be advanced by the Company.
(b) To the extent permitted by the law of the State of New York, the
Company may provide for further indemnification or advancement of expenses by
resolution of shareholders of the Company or the Board of Directors, by
amendment of these By-Laws, or by agreement. [Business Corporation Law Secs.
721-726; Insurance Law Sec. 1216]
Section 7.5. Waiver of Notice. Notice of any meeting of the Board of
Directors or any committee thereof shall not be required to be given to any
Director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior to or at its
commencement, the lack of notice to him. [Business Corporation Law Sec. 711(c)]
Section 7.6. Company. The term "Company" in these By-Laws means The
Equitable Life Assurance Society of the United States.
ARTICLE VIII
------------
AMENDMENT OF BY-LAWS
--------------------
Section 8.1. Amendment of By-Laws. Subject to Section 1210 of the
Insurance Law of the State of New York, all By-Laws of the Corporation,
<PAGE>
whether adopted by the Board of Directors or the shareholders, shall be subject
to amendment, alteration or repeal, and new By-Laws may be made, either
(a) by the shareholders at any annual or special meeting of
shareholders the notice of which shall have specified or summarized the
proposed amendment, alteration, repeal or new By-Laws, or
(b) by resolution adopted by the Board of Directors at any regular or
special meeting, the notice or waiver of notice of which, unless none is
required hereunder, shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Laws,
provided, however, that the shareholders may at any time provide in the By-Laws
that any specified provision or provisions of the By-Laws may be amended,
altered or repealed only in the manner specified in the foregoing clause (a), in
which event such provision or provisions shall be subject to amendment,
alteration or repeal only in such manner. [Business Corporation Law Sec. 601(a);
Insurance Law Sec. 1210]
Section 8.2. Notice of Amendment. If any By-Law regulating an impending
election of directors is adopted, amended or repealed by the Board of Directors,
there shall be set forth in the notice of the next meeting of shareholders for
the election of directors the By-Law so adopted, amended or repealed, together
with a concise statement of the changes made. [Business Corporation Law Sec. 601
(b).]
MARY P. BREEN
Vice President
and Associate General Counsel
(212) 314-3815
Fax: (212) 707-1882
[EQUITABLE -- MEMBER OF THE GLOBAL AXA GROUP LOGO]
LAW DEPARTMENT
April 30, 1997
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas
New York, NY 10104
Dear Sirs:
This opinion is furnished in connection with the filing of a Registration
Statement on Form S-6, File No. 333-17625 ("Registration Statement") of Separate
Account FP ("Separate Account FP") of The Equitable Life Assurance Society of
the United States ("Equitable"). The Registration Statement covers an indefinite
number of units of interest in Separate Account FP ("Units") under IL Coli II
(policy form No. 96-300) an individual flexible premium variable life insurance
policy issued by Equitable ("Policy"). Net premiums received under the Policies
are allocated by Equitable to Separate Account FP to the extent directed by
owners of the Policies. Net premiums under other variable life insurance
policies issued by Equitable may also be allocated to Separate Account FP.
The Policies are designed to provide life insurance protection and are to
be offered in the manner described in the Prospectus and prospectus supplement
included in the Registration Statement. The Policies will be sold only in
jurisdictions authorizing such sales.
I have examined all such corporate records of Equitable and such other
documents and laws as I consider appropriate as a basis for the opinion
hereinafter expressed. On the basis of such examination, it is my opinion that:
1. Equitable is a corporation duly organized and validly existing under
the laws of the State of New York.
2. Separate Account FP was duly established and is maintained by Equitable
pursuant to the laws of the State of New York, under which income, gains and
losses, whether or not realized, from assets allocated to Separate Account FP,
are, in accordance with the Policies, credited to or charged against Separate
Account FP without regard to other income, gains or losses of Equitable.
3. Assets allocated to Separate Account FP will be owned by Equitable;
Equitable is not a trustee with respect thereto. The Policies provide that the
portion of the assets of Separate Account FP equal to the reserves and other
Policy liabilities with respect to Separate Account FP will not be chargeable
with liabilities arising out of any other business Equitable may conduct.
Equitable reserves the right to transfer assets of Separate Account FP in excess
of such reserves and other Policy liabilities to the general account of
Equitable.
4. When issued and sold as described above, the Policies (including any
Units duly credited thereunder) will be duly authorized and will constitute
validly issued and binding obligations of Equitable in accordance with their
terms.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Mary P. Breen
--------------------------
Mary P. Breen
51510-1
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10104
April 30, 1997
The Equitable Life Assurance
Society of the United States
1290 Avenue of the Americas
New York, New York 10104
This opinion is furnished in connection with the Registration Statement on
Form S-6, File No. 333-17625 ("Registration Statement") of Separate Account FP
("Separate Account FP") of The Equitable Life Assurance Society of the United
States ("Equitable") covering an indefinite number of units of interest in
Separate Account FP under IL COLI II(SM) (policy form no. 96-300), flexible
premium variable life insurance policies ("Policies"). Net premiums received
under the Policies may be allocated to Separate Account FP as described in the
Prospectus included in the Registration Statement .
I participated in the preparation of the Policies and I am familiar with
their provisions. I am also familiar with the description contained in the
prospectus. In my opinion:
1. The Illustrations of Cash Surrender Values Based on Historical
Investment Results in the Summary to the Prospectus and the
Illustrations of Policy Benefits in Part 4 of the Prospectus (the
"Illustrations") are consistent with the provisions of the Policies.
The assumptions upon which these Illustrations are based, including
the current cost of insurance and expense charges, are stated in the
Prospectus and are reasonable. The Policies have not been designed so
as to make the relationship between premiums and benefits, as shown in
the Illustrations, appear disproportionately more favorable to
prospective purchasers of Policies for non-tobacco user preferred risk
males age 40 than to prospective purchasers of Policies for males at
other ages or in other underwriting classes or for females. The
particular Illustrations shown were not selected for the purpose of
making the relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Accounting and Actuarial Experts" in the Prospectus.
Very truly yours,
/s/ Barbara Fraser
-----------------------------------
Barbara Fraser,
F.S.A., M.A.A.A.
Vice President
The Equitable Life Assurance
Society of the United States
51503
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to the Registration Statement No. 333-17625 on
Form S-6 (the "Registration Statement") of our report dated February 10, 1997
relating to the financial statements of The Equitable Life Assurance Society of
the United States Separate Account FP for the year ended December 31, 1996, and
our report dated February 10, 1997 relating to the consolidated financial
statements of The Equitable Life Assurance Society of the United States for the
year ended December 31, 1996, which reports appear in such Prospectus. We also
consent to the reference to us under the heading "Accounting and Actuarial
Experts" in the Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 29, 1997
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Gordon G. Dinsmore, Samuel B. Shlesinger, Maureen K. Wolfson, Pauline
Sherman, Donald R. Kaplan, Naomi J. Weinstein, Mildred Oliver and each of them
(with full power to each of them to act alone), his or her true and lawful
attorney-in fact and agent , with full power of substitution to each, for him or
her and on his or her behalf and in his or her name, place and stead, to execute
and file any of the documents referred to below relating to registrations under
the Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940 with respect to any insurance or annuity
contracts or other agreements providing for allocation of amounts to Separate
Accounts of the Company, and related units or interests in Separate Accounts:
registration statements on any form or forms under the Securities Act of 1933
and the Investment Company Act of 1940 and annual reports on any form or forms
under the Securities Exchange Act of 1934, and any and all amendments and
supplements thereto, with all exhibits and all instruments necessary or
appropriate in connection therewith, each of said attorney-in-fact and agents
and his, her or their substitutes being empowered to act with or without the
others or other, and to have full power and authority to do or cause to be done
in the name and on behalf of the undersigned each and every act and thing
requisite and necessary or appropriate with respect thereto to be done in and
about the premises in order to effectuate the same as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or any of them, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 6th day of January, 1997
/s/ Mary R. (Nina) Henderson
---------------------------------
Mary R. (Nina) Henderson
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 02
<NAME> Common Stock Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,277,628,295
<INVESTMENTS-AT-VALUE> 1,572,061,192
<RECEIVABLES> 967,531
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,573,028,723
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,250,844
<TOTAL-LIABILITIES> 2,250,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,570,777,879
<DIVIDEND-INCOME> 11,773,551
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<EXPENSES-NET> 8,267,795
<NET-INVESTMENT-INCOME> 3,505,756
<REALIZED-GAINS-CURRENT> 187,552,444
<APPREC-INCREASE-CURRENT> 112,608,618
<NET-CHANGE-FROM-OPS> 303,666,818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,505,756
<DISTRIBUTIONS-OF-GAINS> 300,161,062
<DISTRIBUTIONS-OTHER> 120,955,019
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 424,192,605
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
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<PER-SHARE-DIVIDEND> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 03
<NAME> Money Market Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 242,546,651
<INVESTMENTS-AT-VALUE> 242,570,674
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,940,540
<TOTAL-ASSETS> 251,511,214
<PAYABLE-FOR-SECURITIES> 9,060,754
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 577,366
<TOTAL-LIABILITIES> 9,638,120
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 241,873,094
<DIVIDEND-INCOME> 9,126,793
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,025,149
<NET-INVESTMENT-INCOME> 8,101,644
<REALIZED-GAINS-CURRENT> (110,954)
<APPREC-INCREASE-CURRENT> (65,953)
<NET-CHANGE-FROM-OPS> 7,924,737
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,101,644
<DISTRIBUTIONS-OF-GAINS> (176,907)
<DISTRIBUTIONS-OTHER> 26,877,953
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<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 34,739,563
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 04
<NAME> Aggressive Stock Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 747,842,158
<INVESTMENTS-AT-VALUE> 794,459,393
<RECEIVABLES> 3,729,663
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 798,189,056
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,589,925
<TOTAL-LIABILITIES> 4,589,925
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 793,599,131
<DIVIDEND-INCOME> 1,661,263
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 4,086,388
<NET-INVESTMENT-INCOME> (2,425,125)
<REALIZED-GAINS-CURRENT> 163,630,203
<APPREC-INCREASE-CURRENT> (33,653,883)
<NET-CHANGE-FROM-OPS> 127,551,195
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,425,125)
<DISTRIBUTIONS-OF-GAINS> 129,976,320
<DISTRIBUTIONS-OTHER> 111,065,154
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 238,411,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 05
<NAME> Balanced Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 388,200,062
<INVESTMENTS-AT-VALUE> 430,582,886
<RECEIVABLES> 142,333
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 430,725,219
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,031,164
<TOTAL-LIABILITIES> 1,031,164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 429,694,055
<DIVIDEND-INCOME> 13,094,730
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,490,188
<NET-INVESTMENT-INCOME> 10,604,542
<REALIZED-GAINS-CURRENT> 33,240,237
<APPREC-INCREASE-CURRENT> (714,363)
<NET-CHANGE-FROM-OPS> 43,130,416
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,604,542
<DISTRIBUTIONS-OF-GAINS> 32,525,874
<DISTRIBUTIONS-OTHER> (11,866,664)
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<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 31,128,846
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 06
<NAME> High Yield Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 96,502,438
<INVESTMENTS-AT-VALUE> 102,167,262
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 105,241
<TOTAL-ASSETS> 102,272,503
<PAYABLE-FOR-SECURITIES> 149,241
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 733,423
<TOTAL-LIABILITIES> 882,664
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 101,389,839
<DIVIDEND-INCOME> 8,696,039
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 518,429
<NET-INVESTMENT-INCOME> 8,177,610
<REALIZED-GAINS-CURRENT> 7,058,612
<APPREC-INCREASE-CURRENT> 1,840,843
<NET-CHANGE-FROM-OPS> 17,077,065
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,177,610
<DISTRIBUTIONS-OF-GAINS> 8,899,455
<DISTRIBUTIONS-OTHER> 12,590,932
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,458,877
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 07
<NAME> Global Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 374,535,031
<INVESTMENTS-AT-VALUE> 433,153,085
<RECEIVABLES> 802,100
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 433,955,185
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,177,881
<TOTAL-LIABILITIES> 1,177,881
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 432,777,304
<DIVIDEND-INCOME> 7,019,392
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,314,066
<NET-INVESTMENT-INCOME> 4,705,326
<REALIZED-GAINS-CURRENT> 23,774,539
<APPREC-INCREASE-CURRENT> 22,092,458
<NET-CHANGE-FROM-OPS> 50,572,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,705,326
<DISTRIBUTIONS-OF-GAINS> 45,866,997
<DISTRIBUTIONS-OTHER> 48,801,376
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 99,280,284
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 08
<NAME> Conservative Investors Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 167,148,611
<INVESTMENTS-AT-VALUE> 174,848,746
<RECEIVABLES> 114,675
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 174,963,421
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 624,941
<TOTAL-LIABILITIES> 624,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 174,338,480
<DIVIDEND-INCOME> 7,737,745
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,046,858
<NET-INVESTMENT-INCOME> 6,690,887
<REALIZED-GAINS-CURRENT> 3,677,543
<APPREC-INCREASE-CURRENT> (2,661,985)
<NET-CHANGE-FROM-OPS> 7,706,445
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,690,887
<DISTRIBUTIONS-OF-GAINS> 1,015,558
<DISTRIBUTIONS-OTHER> (5,418,851)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,251,381
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
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<RETURNS-OF-CAPITAL> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 09
<NAME> Growth Investors Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 631,813,336
<INVESTMENTS-AT-VALUE> 698,964,029
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 41,689
<TOTAL-ASSETS> 699,005,718
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 521,008
<TOTAL-LIABILITIES> 766,097
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 698,239,621
<DIVIDEND-INCOME> 15,504,412
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,746,683
<NET-INVESTMENT-INCOME> 11,757,729
<REALIZED-GAINS-CURRENT> 75,274,214
<APPREC-INCREASE-CURRENT> (14,635,180)
<NET-CHANGE-FROM-OPS> 72,396,763
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,757,729
<DISTRIBUTIONS-OF-GAINS> 60,639,034
<DISTRIBUTIONS-OTHER> 70,058,312
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 142,361,955
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 12
<NAME> Intermed Gov Securities Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 44,817,781
<INVESTMENTS-AT-VALUE> 44,676,302
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 77,313
<TOTAL-ASSETS> 44,753,615
<PAYABLE-FOR-SECURITIES> 87,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 538,792
<TOTAL-LIABILITIES> 626,203
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 44,127,412
<DIVIDEND-INCOME> 2,367,498
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 245,038
<NET-INVESTMENT-INCOME> 2,122,460
<REALIZED-GAINS-CURRENT> (490,315)
<APPREC-INCREASE-CURRENT> (287,001)
<NET-CHANGE-FROM-OPS> 1,345,144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,122,460
<DISTRIBUTIONS-OF-GAINS> (777,316)
<DISTRIBUTIONS-OTHER> 5,655,394
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,978,368
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 13
<NAME> Growth & Income Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 32,957,253
<INVESTMENTS-AT-VALUE> 38,031,591
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 122,406
<TOTAL-ASSETS> 38,153,997
<PAYABLE-FOR-SECURITIES> 129,487
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 558,057
<TOTAL-LIABILITIES> 687,544
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 37,466,453
<DIVIDEND-INCOME> 525,200
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 155,175
<NET-INVESTMENT-INCOME> 370,025
<REALIZED-GAINS-CURRENT> 1,948,613
<APPREC-INCREASE-CURRENT> 2,950,992
<NET-CHANGE-FROM-OPS> 5,269,630
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 370,025
<DISTRIBUTIONS-OF-GAINS> 4,899,605
<DISTRIBUTIONS-OTHER> 13,684,934
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,848,140
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 14
<NAME> Quality Bond Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 127,911,618
<INVESTMENTS-AT-VALUE> 125,949,796
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 125,949,796
<PAYABLE-FOR-SECURITIES> 28,516
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 706,967
<TOTAL-LIABILITIES> 735,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 125,214,313
<DIVIDEND-INCOME> 8,972,983
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 869,312
<NET-INVESTMENT-INCOME> 8,103,671
<REALIZED-GAINS-CURRENT> (1,130,915)
<APPREC-INCREASE-CURRENT> 143,854
<NET-CHANGE-FROM-OPS> 7,116,610
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,103,671
<DISTRIBUTIONS-OF-GAINS> (987,061)
<DISTRIBUTIONS-OTHER> (20,149,875)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (13,073,133)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 15
<NAME> Equity Index
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 73,126,833
<INVESTMENTS-AT-VALUE> 94,575,057
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 188,428
<TOTAL-ASSETS> 94,763,485
<PAYABLE-FOR-SECURITIES> 188,527
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 337,447
<TOTAL-LIABILITIES> 525,974
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 94,237,511
<DIVIDEND-INCOME> 1,751,848
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 605,961
<NET-INVESTMENT-INCOME> 1,145,887
<REALIZED-GAINS-CURRENT> 11,903,017
<APPREC-INCREASE-CURRENT> 8,996,459
<NET-CHANGE-FROM-OPS> 22,045,363
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,145,887
<DISTRIBUTIONS-OF-GAINS> 20,899,476
<DISTRIBUTIONS-OTHER> 634,553
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 22,613,896
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000771726
<NAME> Sep Acct FP ELAS
<SERIES>
<NUMBER> 16
<NAME> International Fund Fund
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 39,937,334
<INVESTMENTS-AT-VALUE> 41,795,127
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 159,777
<TOTAL-ASSETS> 41,954,904
<PAYABLE-FOR-SECURITIES> 135,983
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 242,714
<TOTAL-LIABILITIES> 378,697
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 41,576,207
<DIVIDEND-INCOME> 575,524
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 164,149
<NET-INVESTMENT-INCOME> 411,375
<REALIZED-GAINS-CURRENT> 709,281
<APPREC-INCREASE-CURRENT> 1,189,887
<NET-CHANGE-FROM-OPS> 2,310,543
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 411,375
<DISTRIBUTIONS-OF-GAINS> 1,899,168
<DISTRIBUTIONS-OTHER> 26,855,591
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,144,269
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
