Registration No. 333-17663
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 5 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 Edward D. Miller, 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:
BETH N. LOWSON, ESQ. with a copy to:
The Equitable Life Assurance Thomas C. Lauerman, Esq.
Society of the United States Freedman, Levy, Kroll & Simonds
1290 Avenue of the Americas 1050 Connecticut Avenue, N.W., Suite 825
New York, New York 10104 Washington, D.C. 20036
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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):
__X__ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on ( date ) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on ( date ) pursuant to paragraph (a) of Rule 485
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NOTE
This Post Effective Amendment No. 5 ("PEA") to the Form S-6 Registration
Statement No. 333-17663 ("Registration Statement") of The Equitable Life
Assurance Society of the United States ("Equitable Life") and its Separate
Account FP is being filed solely for the purpose of including in this
Registration Statement, Incentive Life Prospectuses (the core version and the
First Union version) to be used in the wholesale distribution channels. These
versions contain three additional Portfolios. The PEA does not amend or delete
the Incentive Life Prospectus or any Incentive Life Plus Prospectus dated May 1,
1999, any supplement thereto, or any other part of the Registration
Statement.
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[CORE VERSION]
Incentive Life(SM)
A flexible premium variable life
insurance policy
Please read this prospectus and keep it for future reference. It contains
important information that you should know before purchasing, or taking any
other action under a policy. Also, at the end of this prospectus you will find
attached the prospectuses for The Hudson River Trust and EQ Advisors Trust,
which contain important information about their Portfolios.
PROSPECTUS DATED AUGUST 1, 1999
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This prospectus describes many aspects of an Incentive Life policy, but is not
itself a policy. The policy is the actual contract that determines your benefits
and obligations under Incentive Life. To make this prospectus easier to read, we
sometimes use different words than the policy. Equitable Life or your registered
representative can provide any further explanation about your policy.
WHAT IS INCENTIVE LIFE?
Incentive Life is issued by Equitable Life. It provides life insurance coverage,
plus the opportunity for you to earn a return in our guaranteed interest option
and/or one or more of the following variable investment options:
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VARIABLE INVESTMENT OPTIONS:
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o Alliance Money Market o JPM Core Bond
o Alliance High Yield o Lazard Large Cap Value
o Alliance Common Stock o Lazard Small Cap Value
o Alliance Aggressive Stock o MFS Growth with Income
o Alliance Small Cap Growth o MFS Research
o EQ/Alliance Premier Growth o MFS Emerging Growth
o BT Equity 500 Index Companies
o BT Small Company Index o Morgan Stanley Emerging
o BT International Equity Index Markets Equity
o Capital Guardian U.S. Equity* o EQ/Putnam Growth & Income
o Capital Guardian Research* Value
o Capital Guardian o EQ/Putnam Investors Growth
International* o EQ/Putnam International
Equity
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* Available August 30, 1999
Amounts that you allocate under your policy to any of the variable investment
options are invested in a corresponding "Portfolio" that is part of one of the
following two mutual funds: The Hudson River Trust or the EQ Advisors Trust.
Your investment results in a variable investment option will depend on those of
the related Portfolio. Any gains will generally be tax-deferred and the life
insurance benefits we pay if the policy's insured person dies will generally be
income tax-free.
OTHER CHOICES YOU HAVE. You have considerable flexibility to tailor the policy
to your needs. For example, subject to our rules, you can (1) choose when and
how much you contribute (as "premiums") to your policy, (2) pay certain premium
amounts to guarantee that your insurance coverage will continue for a number of
years, regardless of investment performance, (3) borrow or withdraw amounts you
have accumulated, (4) change the amount of insurance coverage, (5) choose
between two life insurance benefit options, (6) elect to receive an insurance
benefit if the insured person becomes terminally ill, and (7) add or delete
certain optional benefits that we offer by "riders" to your policy.
Your registered representative 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 Incentive Life or another policy may
not be to your advantage.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE POLICIES ARE NOT
INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO
INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
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2 Contents of this prospectus
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Contents of this prospectus
INCENTIVE LIFE
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What is Incentive Life? Cover
Who is Equitable Life? 4
How to reach us 5
Charges and expenses you will pay 6
Risks you should consider 9
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1
POLICY FEATURES AND BENEFITS 10
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How you can pay for and contribute to your policy 10
The minimum amount of premiums you must pay 10
You can guarantee that your policy will not terminate
before a certain date 11
You can elect a "paid up" death benefit guarantee 12
Investment options within your policy 13
About your life insurance benefit 15
You can increase or decrease your insurance coverage 16
Other benefits you can add by rider 17
Your options for receiving policy proceeds 18
Your right to cancel within a certain number of days 18
Variations among Incentive Life policies 19
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2
DETERMINING YOUR POLICY'S VALUE 20
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Your account value 20
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3
TRANSFERRING YOUR MONEY AMONG OUR
INVESTMENT OPTIONS 21
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Transfers you can make 21
Telephone transfers 21
Our dollar cost averaging service 21
Our asset rebalancing service 22
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"We", "our" and "us" refers to Equitable Life. A "registered representative"
When we use the word "state," we also mean any other local jurisdiction is
authorized to sell you this policy on Equitable Life's behalf.
When we address the reader of this prospectus with words such as "you" and
"your," we mean the person or persons having the right or responsibility that
the prospectus is discussing at that point. This usually is the policy's owner.
If a policy has more than one owner, all owners must join in the exercise of any
rights an owners has under th epolicy, and the word "owner" therefore refers to
all owners.
When we use the word "state" we also mean any other local jurisdiction whose
laws or regulations affect a policy.
We do not offer Incentive Life in all states. This prospectus does not offer
Incentive Life anywhere such offers are not lawful. Equitable Life does not
authorize any information or representation about the offering other than that
contained or incorporated in this prospectus, in any current supplements
thereto, or in any related slaes material authorized by Equitable Life.
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Contents of this prospectus 3
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4
ACCESSING YOUR MONEY 23
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Borrowing from your policy 23
Making withdrawals from your policy 24
Surrendering your policy for its net cash
surrender value 25
Your option to receive a living benefit 25
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5
TAX INFORMATION 26
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Basic tax treatment for you and your beneficiary 26
Tax treatment of distributions to you 26
Tax treatment of living benefit proceeds 28
Effect of policy on interest deductions taken by
business entities 28
Requirement that we diversify investments 28
Estate, gift, and generation-skipping taxes 29
Pension and profit-sharing plans 29
Other employee benefit programs 29
ERISA 29
Our taxes 29
When we withhold taxes from distributions 30
Possibility of future tax changes 30
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6
MORE INFORMATION ABOUT PROCEDURES
THAT APPLY TO YOUR POLICY 31
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Ways to make premium and loan payments 31
Requirements for surrender requests 31
Ways we pay policy proceeds 31
Assigning your policy 31
Dates and prices at which policy events occur 31
Policy issuance 33
Gender-neutral policies 34
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7
MORE INFORMATION ABOUT OTHER MATTERS 35
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Your voting privileges 35
About our Separate Account FP 35
About our general account 36
You can change your policy's insured person 36
Transfers of your account value 36
Telephone requests 37
Deducting policy charges 37
Customer loyalty credit 38
Suicide and certain misstatements 38
When we pay policy proceeds 38
Changes we can make 39
Reports we will send you 39
Legal proceedings 40
Illustrations of policy benefits 40
SEC registration statement 40
How we market the policies 40
Insurance regulation that applies to Equitable Life 40
Year 2000 progress 41
Directors and principal officers 42
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8
FINANCIAL STATEMENTS OF SEPARATE
ACCOUNT FP AND EQUITABLE LIFE 48
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Separate Account FP financial statements FSA-1
Equitable Life financial statements F-1
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APPENDICES
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I -- Investment performance record A-1
II -- Our data on market performance B-1
III -- An index of key words and phrases C-1
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THE HUDSON RIVER TRUST PROSPECTUS
(follows after page C-1 of this prospectus, but is not a
part of this prospectus)
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EQ ADVISORS TRUST PROSPECTUS (follows after The Hudson River Trust Prospectus,
but is not a part of that prospectus or this prospectus.)
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Who is Equitable Life? 4
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Who is Equitable Life?
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We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing
business since 1859. Equitable Life is a wholly owned subsidiary of The
Equitable Companies Incorporated ("Equitable Companies"), whose majority
shareholder is AXA, a French holding company for an international group of
insurance and related financial services companies. As a majority shareholder,
and under its other arrangements with Equitable Life and Equitable Life's
parent, AXA exercises significant influence over the operations and capital
structure of Equitable Life and its parent. No company other than Equitable
Life, however, has any legal responsibility to pay amounts that Equitable Life
owes under the policies. During 1999, Equitable Companies plans to change its
name to AXA Financial, Inc.
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For more than 100 years we
have been among the largest insurance companies in the United States. We are
licensed to sell life insurance and annuities in all fifty states, the District
of Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is
located at 1290 Avenue of the Americas, New York, N.Y. 10104.
<PAGE>
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Who is Equitable Life? 5
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HOW TO REACH US
To obtain (1) any forms you need for communicating with us, (2) unit values and
other values under your policy, and (3) any other information or materials that
we provide in connection with your policy or the Portfolios, you can contact us
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BY MAIL:
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at the Post Office Box for our Administrative Office:
Equitable Life Client Services
Radio City Station
P.O. Box 808
New York, New York 10101-0808
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BY EXPRESS DELIVERY:
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at the Street Address for our Administrative Office:
Equitable Life Client Services
135 W. 50th St., 10th Floor
New York, New York 10020
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BY TOLL-FREE PHONE:
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1-888-228-6690
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BY E-MAIL:
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[email protected]
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BY FAX:
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1-212-641-7075
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BY INTERNET:
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Our web site (www.equitable.com) can also provide you information.
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We require that the following types of communications be on specific forms we
provide for that purpose:
(1) request for automatic transfer service;
(2) authorization for telephone transfers by a person who is not also the
insured person; and
(3) request for asset rebalancing service.
We also have specific forms that we recommend you use for the following:
(a) policy surrenders;
(b) address changes;
(c) beneficiary changes;
(d) transfers between investment options; and
(e) changes in allocation percentages for premiums and deductions.
Except for properly authorized telephone transactions, any notice or request
that does not use our standard form must be in writing dated and signed by you
and should also specify your name, the insured person's name (if different),
your policy number, and adequate details about the notice you wish to give or
other action you wish us to take. For information about transaction requests
you can make by phone, see "Telephone transfers" on page 21 and "Telephone
requests" on page 37 of this prospectus. We may require you to return your
policy to us before we make certain policy changes that you may request.
The proper person to sign forms, notices and requests would normally be the
owner or any other person that our procedures permit to exercise the right or
privilege in question. If there are joint owners both must sign. Any
irrevocable beneficiary or assignee that we have on our records also must sign
certain types of requests.
You should send all requests, and notices to our Administrative Office at the
addresses specified above. We will also accept requests and notices by fax at
the above number, if we believe them to be genuine. We reserve the right,
however, to require an original signature before acting on any faxed item. You
must send premium payments after the first one to our Administrative Office at
the above addresses; except that you should send any premiums for which we have
billed you to the address on the billing notice.
<PAGE>
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6 Charges and expenses you will pay
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Charges and expenses you
will pay
TABLE OF POLICY CHARGES
This table shows the charges that we deduct under the terms of your policy. For
more information about some of these charges, see "Deducting policy charges"
beginning on page 37 below.
<TABLE>
<S> <C> <C>
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CHARGES WE DEDUCT FROM Premium charge (a) 6% of each premium payment you make up to a certain
AMOUNTS YOU CONTRIBUTE amount(1) and (b) 3% of each premium payment thereafter
TO YOUR POLICY: (which we may increase up to 6%)(2)
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CHARGES WE DEDUCT FROM Administrative charge(3) (i) For adults (age 18 and older), $20 in each of your
YOUR POLICY'S VALUE EACH policy's first 12 months; or, for children, $10 in each of
MONTH: your policy's first 24 months and (ii) for everyone, $7 in
each subsequent month (which we may increase up to $10)
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Cost of insurance charges(3) and Amount varies depending on the specifics of your policy(4)
Optional rider charges
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Charge if you have elected our $.02 for each $1000 of your policy's face amount at the
optional enhanced death time the charge is deducted (5)
benefit guarantee
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CHARGES WE DEDUCT FROM Mortality and expense .60% (effective annual rate) of the value you have in our
YOUR POLICY'S VARIABLE risk charge variable investment options (we may increase this rate up
INVESTMENT PERFORMANCE to .90%)(6)
EACH DAY:
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CHARGES WE DEDUCT FROM Surrender (turning in) of your A surrender charge that will not exceed the amount set forth in
YOUR ACCOUNT VALUE AT policy during its first 15 years your policy.(7) (We will also deduct the remaining amount of
TIME OF THE TRANSACTION: surrender charge associated with any face amount increase, as
discussed immediately below.)
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Surrender of your policy during An amount of surrender charge that we will compute on
15 years after you have essentially the same basis as if each such face amount
requested an increase in your increase had been a separate, newly-issued Incentive Life
policy face amount policy's face amount policy.(8)
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Requested decrease in your A pro-rata portion of the full surrender charge that would
policy's face amount apply to a surrender at the time of the decrease
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</TABLE>
<PAGE>
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Charges and expenses you will pay 7
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1 Up to an amount equal to ten "target premiums." The "target premium" is
actuarially determined for each policy, based on that policy's
characteristics.
2 The Illustrations of Policy Benefits that your registered representative
will provide will show the impact of the actual current and guaranteed
maximum rates of these and any other charges, based on various assumptions.
We may increase this charge higher than 6%, however, as a result of changes
in the tax laws which increase our expenses.
3 Not applicable after the insured person reaches age 100.
4 See "Monthly cost of insurance charge" on page 37 below and "Other benefits
you can add by rider" on page 17 below.
5 The "face amount" is the basic amount of insurance coverage under your
policy.
6 This charge does not apply to amounts in our guaranteed interest option.
7 Beginning in your policy's ninth year, this amount declines at a constant
rate each month until no surrender charge applies to surrender made after
the policy's 15th year. The initial amount of surrender charge depends on
each policy's specific characteristics. For any policy, the lowest initial
surrender charge per $1,000 of initial face amount would be $2.91, and the
highest initial surrender charge per $1,000 of initial face amount would be
$12.99.
8 This additional surrender charge, however, applies only to the amount (if
any) by which the increase causes the face amount to exceed its highest
previous amount. For these purposes, we disregard any face amount changes
that we make automatically as a result of any change in your death benefit
option.
<PAGE>
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8 Charges and expenses you will pay
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YOU ALSO BEAR YOUR PROPORTIONATE SHARE OF ALL FEES AND EXPENSES PAID BY A
"PORTFOLIO" THAT CORRESPONDS TO ANY VARIABLE INVESTMENT OPTION YOU ARE USING:
This table shows the fees and expenses paid by each Portfolio for the year
ended December 31, 1998. These fees and expenses are reflected in the
Portfolio's net asset value each day. Therefore, they reduce the investment
return of the Portfolio and of the related variable investment option. Actual
fees and expenses are likely to fluctuate from year to year. All figures are
expressed as an annual percentage of each Portfolio's daily average net assets.
<TABLE>
<CAPTION>
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PORTFOLIOS THAT ARE PART OF THE HUDSON RIVER TRUST 1998 FEES AND EXPENSES
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TOTAL
MANAGEMENT 12B-1 OTHER ANNUAL
FEE FEE EXPENSES EXPENSES
<S> <C> <C> <C> <C>
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Alliance Money Market 0.35% 0.25% 0.02% 0.62%
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Alliance High Yield 0.60% 0.25% 0.03% 0.88%
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Alliance Common Stock 0.36% 0.25% 0.03% 0.64%
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Alliance Aggressive Stock 0.54% 0.25% 0.03% 0.82%
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Alliance Small Cap Growth 0.90% 0.25% 0.05% 1.20%
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</TABLE>
<TABLE>
<CAPTION>
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PORTFOLIOS THAT ARE PART OF THE EQ ADVISORS TRUST 1998 FEES AND EXPENSES*
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TOTAL FEE WAIVERS NET TOTAL
MANAGEMENT OTHER ANNUAL AND/OR EXPENSE ANNUAL
FEE 12B-1 FEE EXPENSES EXPENSES REIMBURSEMENTS EXPENSES
<S> <C> <C> <C> <C> <C> <C>
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EQ/Alliance Premier Growth 0.90% 0.25% 0.74% 1.89% 0.74% 1.15%
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BT Equity 500 Index 0.25% 0.25% 0.33% 0.83% 0.28% 0.55%
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BT Small Company Index 0.25% 0.25% 1.31% 1.81% 1.06% 0.75%
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BT International Equity Index 0.35% 0.25% 0.89% 1.49% 0.49% 1.00%
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Capital Guardian U.S. Equity** 0.65% 0.25% 0.74% 1.64% 0.69% 0.95%
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Capital Guardian Research** 0.65% 0.25% 0.74% 1.64% 0.69% 0.95%
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Capital Guardian International** 0.75% 0.25% 1.03% 2.03% 0.83% 1.20%
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JPM Core Bond 0.45% 0.25% 0.33% 1.03% 0.23% 0.80%
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Lazard Large Cap Value 0.55% 0.25% 0.40% 1.20% 0.25% 0.95%
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Lazard Small Cap Value 0.80% 0.25% 0.49% 1.54% 0.34% 1.02%
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MFS Growth with Income 0.55% 0.25% 0.59% 1.39% 0.54% 0.85%
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MFS Research 0.55% 0.25% 0.25% 1.05% 0.20% 0.85%
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MFS Emerging Growth Companies 0.55% 0.25% 0.24% 1.04% 0.19% 0.85%
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Morgan Stanley Emerging Markets Equity 1.15% 0.25% 1.23% 2.63% 0.88% 1.75%
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EQ/Putnam Growth & Income Value 0.55% 0.25% 0.24% 1.04% 0.19% 0.85%
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EQ/Putnam Investors Growth 0.55% 0.25% 0.29% 1.09% 0.14% 0.95%
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EQ/Putnam International Equity 0.70% 0.25% 0.51% 1.46% 0.26% 1.20%
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</TABLE>
* Other Expenses and Total Annual Expenses are based upon the actual
expenses incurred by each Portfolio for the year ended December 31, 1998,
except for MFS Growth with Income which commenced operations on December
31, 1998 and EQ/Alliance Premier Growth, Capital Guardian Research,
Capital Guardian U.S. Equity and Capital Guardian International which
commenced operations on May 1, 1999. The expenses for those Portfolios
are based on annualized estimates for 1999. The EQ Advisors Trust's
manager, EQ Financial Consultants, Inc., has entered into an Expense
Limitation Agreement with respect to each Portfolio under which it has
agreed to waive or reduce its fees and to assume other expenses of each
of the Portfolios, if necessary, in an amount that limits each
Portfolio's Total Annual Expenses (exclusive of interest, taxes,
brokerage commissions, capitalized expenditures, extraordinary expenses
and 12b-1 fees) to not more than the amounts specified above as Net Total
Annual Expenses. See the EQ Advisors Trust prospectus for more
information.
** Available beginning August 30, 1999.
<PAGE>
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Risks you should consider 9
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HOW WE ALLOCATE CHARGES AMONG YOUR
INVESTMENT OPTIONS
In your application for a policy, you tell us from which investment options you
want us to take the policy's monthly deductions as they fall due. You can
change these instructions at any time. If we cannot deduct the charge as your
most current instructions direct, we will allocate the deduction among your
investment options proportionately to your value in each.
CHANGES IN CHARGES
We reserve the right in the future to (1) make a charge for certain taxes or
reserves set aside for taxes (see "Our taxes" on page 29 below), (2) make a
charge for the operating expenses of our variable investment options
(including, without limitation, SEC registration fees and related legal counsel
fees and auditing fees), (3) make a charge of up to $25 for each transfer among
investment options that you make or (4) make a charge for our asset rebalancing
service.
Any changes that we make in our current charges or charge rates will be by
class of insured person and will be based on changes in future expectations
about such factors as investment earnings, mortality experience, the length of
time policies will remain in effect, premium payments, expenses and taxes. Any
changes in charges may apply to then outstanding policies, as well as to new
policies, but we will not raise any charges above any maximums discussed in
this prospectus and shown in your policy.
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Risks you should consider
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Some of the principal risks of investing in a policy are as follows:
o If the investment options you choose perform poorly, you could lose some or
all of the premiums you pay.
o If the investment options you choose do not make enough money to pay for the
policy charges, you could have to pay more premiums to keep your policy from
terminating.
o We can increase certain charges without your consent, within limits stated
in your policy.
o You may have to pay a surrender charge if you wish to discontinue some or
all of your insurance coverage under a policy.
Your policy permits other transactions that also have risks. These and other
risks and benefits of investing in a policy are discussed in detail throughout
this prospectus.
<PAGE>
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Policy features and benefits 10
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1
Policy features and benefits
HOW YOU CAN PAY FOR AND CONTRIBUTE TO
YOUR POLICY
PREMIUM PAYMENTS. We call the amounts you contribute to your policy "premiums"
or "premium payments." The amount we require as your first premium varies
depending on the specifics of your policy and the insured person. Each
subsequent premium payment must be at least $100, although we can increase this
minimum if we give you advance notice. (Policies issued in some states or on an
automatic premium payment plan may have different minimums.) Otherwise, with a
few exceptions mentioned below, you can make premium payments at any time and
in any amount.
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You can generally pay premiums at such times and in such amounts as you like,
so long as you don't exceed certain limits determined by the federal income tax
laws applicable to life insurance.
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LIMITS ON PREMIUM PAYMENTS. The federal tax law definition of "life insurance"
limits your ability to pay certain high levels of premiums (relative to the
amount of your policy's insurance coverage). Also, if your premium payments
exceed certain other amounts specified under the Internal Revenue Code, your
policy will become a "modified endowment contract," which may subject you to
additional taxes and penalties on any distributions from your policy. See "Tax
information" beginning on page 26 below. We may return to you any premium
payments that would exceed those limits.
You can ask your registered representative to provide you with an illustration
of policy benefits that shows you the amount of premium you can pay, based on
various assumptions, without exceeding these tax law limits. The tax law limits
can change as a result of certain changes you make to your policy. For example,
a reduction in the face amount of your policy may reduce the amount of premiums
that you can pay.
If at any time when your policy's account value is high enough that the
alternative death benefit discussed on page 16 below would apply, we reserve
the right to limit the amount of any premiums that you pay, unless the insured
person provides us with adequate evidence that he/she continues to meet our
requirements for issuing insurance.
PLANNED PERIODIC PREMIUMS. Page 3 of your policy will specify a "planned
periodic premium." This is the amount that you request us to bill you. However,
payment of these or any other specific amounts of premiums is not mandatory.
Rather, you need to pay only the amount of premiums (if any) that is necessary
to keep your policy from lapsing and terminating as discussed below.
THE MINIMUM AMOUNT OF PREMIUMS YOU
MUST PAY
POLICY "LAPSE" AND TERMINATION. Your policy will lapse (also referred to in
your policy as "default") if it does not have enough "net cash surrender value"
to pay your policy's monthly charges when due unless
o you have paid sufficient premiums to maintain one of our available
guarantees against termination and your policy is still within the period of
that guarantee (see "You can guarantee that your policy will not terminate
before a certain date" below) or
o you have elected the "paid up" death benefit guarantee and it remains in
effect (see "You can elect a "paid up" death benefit guarantee" at page 12
below).
("Net cash surrender value" is explained under "Surrendering your policy for
its net cash surrender value" on page 25 below.)
We will mail a notice to you at your last known address if your policy lapses.
You will have a 61 day grace period to pay at least an amount prescribed in
your policy which would be enough to keep your policy in force for
approximately three months (without regard to investment performance). You may
not make any transfers or request any other policy changes during a grace
period. If we do not receive your payment by the end of the grace period, your
policy (and all riders to the policy) will terminate without
<PAGE>
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Policy features and benefits 11
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value and all coverage under your policy will cease. We will mail an additional
notice to you if your policy terminates.
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Your policy will terminate if you don't either (i) pay enough premiums to pay
the charges we deduct or (ii) maintain in effect one or more of our other
guarantees that can keep your policy from terminating. However, we will first
send you a notice and give you a chance to cure any shortfall.
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You may owe taxes if your policy terminates while you have a loan outstanding,
even though you receive no additional money from your policy at that time. See
"Tax information," beginning on page 26 below.
RESTORING A TERMINATED POLICY. To have your policy "restored" (put back in
force), you must apply within six months after the date of termination. In some
states, you may have a longer period of time. You must also present evidence of
insurability satisfactory to us and pay at least the amount of premium that we
require. Your policy contains additional information about the minimum amount
of this premium and about the values and terms of the policy after it is
restored.
YOU CAN GUARANTEE THAT YOUR POLICY WILL
NOT TERMINATE BEFORE A CERTAIN DATE
You can guarantee that your policy will not terminate for a number of years by
paying at least certain amounts of premiums. We call these amounts "guarantee
premiums" and they will be set forth on page 3 of your policy. In most states
you have three options for how long the guarantee will last. One of these
options is discussed below under "Enhanced death benefit guarantee." The other
two guarantee options are as follows:
(1) a guarantee for the first 5 years of your policy (the policy calls this
the "no-lapse guarantee")
or
(2) a guarantee until the insured reaches age 70, but in no case less than 10
years (the policy calls this the "death benefit guarantee").
These guarantees may be unavailable or limited to shorter periods in some
states.
We make no extra charge for either of the two above-listed guarantees against
policy termination. However, in order for either of those guarantees to be
available, you must have satisfied the "guarantee premium test" (discussed
below) and you must not have any outstanding policy loans. In this connection,
maintaining the "age 70/10 year" guarantee against policy termination (where
available) will require you to pay more premiums than maintaining only the 5
year guarantee.
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In most states, if you pay at least certain prescribed amounts of premiums,
and have no policy loans, your policy will not terminate for a number of
years, even if the value in your policy becomes insufficient to pay the
monthly charges.
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GUARANTEE PREMIUM TEST. If your policy's net cash surrender value is not
sufficient to pay a monthly deduction that has become due, we check to see if
the cumulative amount of premiums that you have paid to date at least equals
the cumulative guarantee premiums due to date for either of the two
above-listed guarantee options that are then available under your policy. If it
does, your policy will not lapse, provided that you have no policy loans
outstanding (or you repay all of such loans before the end of the 61 day grace
period mentioned above) and provided that the period of the corresponding
guarantee has not expired.
When we calculate the cumulative amount of guarantee premiums for the two
above-listed guarantee options, we compound each amount at a 4% annual interest
rate from its due date through the date of the calculation. (This interest rate
is purely for purposes of determining whether you have satisfied the guarantee
test for an available duration. It does not bear any relation to the returns
you will actually earn or any loan interest you will actually pay.) We use the
same calculation for determining the cumulative amount of premiums paid,
beginning with the date each premium is received. The amount of premiums you
must pay
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Policy features and benefits 12
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to maintain a guarantee against termination will be increased by the cumulative
amount of any partial withdrawals you have taken from your policy (calculated
by the same method, beginning with the date of withdrawal).
ENHANCED DEATH BENEFIT GUARANTEE. On your application for a policy, you may
elect an enhanced death benefit guarantee rider, that will guarantee your
policy against termination for a longer period of time than either of the two
guarantee options described above. If elected, a monthly charge of $.02 per
$1000 of the policy's face amount is deducted from your account value for this
enhanced death benefit guarantee. To elect this feature, all of your policy's
account value must be allocated to our variable investment options.
While the enhanced death benefit guarantee is in effect, your policy will not
lapse, even if your net cash surrender value is insufficient to pay a monthly
deduction that has become due, as long as you do not have an outstanding loan
(or you repay the loan within the 61 day grace period). This guarantee is
available for the following periods:
(a) If you have always chosen death benefit Option A, for the life of the
insured person; or
(b) If you have ever selected death benefit Option B (even if you
subsequently changed it to Option A), until the later of the date the
insured person reaches age 80 or the end of the 15th year of the policy.
This option is not available in all states.
If you have elected the enhanced death benefit guarantee, we test on each
policy anniversary to see if the required premium (the enhanced death benefit
"guarantee premium") has been paid. (The enhanced guarantee premium will be set
forth on page 3 of your policy.) The required premium has been paid if the
total of all premiums paid, less all withdrawals, is at least equal to the
total of all enhanced guarantee premiums due to date. (In this comparison,
unlike the test for the shorter duration guarantees discussed above, we do not
compound these amounts using any hypothetical interest rate.)
If the required premium has not been paid as of any policy anniversary, we will
mail you a notice requesting that you send us the shortfall. If we do not
receive this additional premium, the enhanced death benefit guarantee will
terminate. The enhanced death benefit guarantee also will terminate if you
request that we cancel it, or if you allocate any value to our guaranteed
interest option. If the enhanced death benefit guaranty terminates, the related
charge terminates, as well. Once terminated, this guarantee can never be
reinstated or restored.
GUARANTEE PREMIUMS. The amount of the guarantee premiums for each of the
guarantees discussed above is set forth in your policy if that guarantee is
available to you. The guarantee premiums are actuarially determined at policy
issuance and depend on the age and other insurance risk characteristics of the
insured person, as well as the amount of the coverage and additional features
you select. Certain additional benefit riders will cause the guarantee premiums
to increase after policy issue. The guarantee premiums also may change if, for
example, you make policy changes that increase or decrease the face amount of
the policy or a rider, add or eliminate a rider, or if there is a change in the
insured person's risk characteristics. We will send you a new policy page
showing any change in your guarantee premiums. Any change will be prospective
only, and no change will extend a guarantee period beyond its original number
of years.
We will not bill you separately for guarantee premiums. If you want to be
billed, therefore, you must select a planned periodic premium that at least
equals the guarantee premium that you plan to pay. If you wish your bills for
planned periodic premiums to cover your guarantee premiums, please remember to
change your planned periodic premium amount, as necessary, if you take any
action that causes your guarantee premiums to change.
YOU CAN ELECT A "PAID UP" DEATH BENEFIT GUARANTEE
In most states, you may elect to take advantage of our "paid up death benefit
guarantee" at any time after the fourth
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Policy features and benefits 13
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year of your policy. If you elect the paid up death benefit guarantee, we may
initially reduce your policy's face amount (see below). Thereafter, your policy
will not lapse and the death benefit will never be less than the face amount,
so long as the guarantee remains in effect. The guarantee will terminate,
however, if (i) subsequent to the election, any outstanding policy loans and
accrued loan interest, together with any then applicable surrender charge,
exceed your policy's account value or if (ii) you request us to terminate the
election.
In order to elect the paid up death benefit guarantee:
o you must have death benefit "Option A" in effect (discussed below on page
15),
o you must terminate any riders to your policy that carry additional charges,
o the election must not cause the policy to lose its qualification as life
insurance under the Internal Revenue Code or require a current distribution
from the policy to avoid such disqualification, and
o the election must not reduce the face amount (see below) to less than the
minimum face amount for which we would then issue a policy.
The paid up death benefit guarantee is not available in all states.
POSSIBLE REDUCTION OF FACE AMOUNT. The face amount of your policy after this
guarantee is elected is the lesser of (a) the face amount immediately before
the election or (b) the policy account value divided by a factor based on the
then age of the insured person. The factors are set forth in your policy. As a
general matter, the factors change as the insured person ages so that, if your
account value stayed the same, the component of the face amount calculation
determined under clause (b) above would be lower the longer your policy is
outstanding.
If electing the paid up death benefit guarantee causes a reduction in face
amount, we will deduct the same portion of any remaining surrender charge as we
would have deducted if you had requested that decrease directly (rather than
electing the paid up death benefit guarantee). See the table on page 6 above.
OTHER EFFECTS OF THIS GUARANTEE. You generally may continue to pay premiums
after you have elected the paid up death benefit guarantee (subject to the same
limits as before), but premium payments are not required. If the election
causes your face amount to decrease, however, the amount of additional premiums
you can pay, if any, may be reduced. You may continue to make transfers, but
you may not change the death benefit option or add riders that have their own
charges while the paid up death benefit guarantee is in effect.
Partial withdrawals while the paid up death benefit guarantee is in effect will
generally be subject to the same terms and conditions as any other partial
withdrawal (see "Making withdrawals from your policy" at page 24 below), except
that:
o We may decline your request for a partial withdrawal (or any other policy
change) under the circumstances described in the paid up death benefit
guarantee policy endorsement. If this occurs, you may wish to consider
asking us to terminate the paid up death benefit guarantee.
o Partial withdrawals (and any distributions we may be required to make for
tax purposes) will generally reduce your policy's face amount by more than
the amount of the withdrawal.
Election of the paid up death benefit guarantee may cause your policy to become
a modified endowment contract under certain circumstances. See "Tax treatment
of distributions to you" beginning on page 26 below. You should consult your
tax advisor before making this election.
INVESTMENT OPTIONS WITHIN YOUR POLICY
We will initially put all amounts which your have allocated to variable
investment options into our Alliance Money Market investment option. On the
twenty-first day after your policy's issue date (the "Allocation Date"), we
will re-allocate that
<PAGE>
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14 Policy features and benefits
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investment in accordance with your premium allocation instructions then in
effect. You give such instructions in your application to purchase a policy.
You can change the premium allocation percentages at any time, but this will
not affect any prior allocations. The allocation percentages that you specify
must always be in whole numbers and total exactly 100%.
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You can choose among 22 variable investment options
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VARIABLE INVESTMENT OPTIONS. The 22 available variable investment options are
listed on the front cover of this prospectus. (Your policy and other
supplemental materials may refer to these as "Investment Funds".) The
investment results you will achieve in any one of these options will depend on
the investment performance of the corresponding Portfolio that shares the same
name as that option. That Portfolio follows investment practices, policies and
objectives that are appropriate to the variable investment option you have
chosen. The advisers who make the investment decisions for each Portfolio are
as follows:
o Alliance Capital Management L.P. (for each "Alliance" or "EQ/Alliance"
option)
o Bankers Trust Company (for the "BT" options)
o Capital Guardian Trust Company (for the "Capital Guardian" options)
o J.P. Morgan Investment Management Inc. (for the "JPM" option)
o Lazard Asset Management (for both "Lazard" options)
o Massachusetts Financial Services Company (for the "MFS" options)
o Morgan Stanley Asset Management Inc. (for the "Morgan Stanley" option)
o Putnam Investment Management, Inc. (for both "EQ/Putnam" options)
The Portfolio that corresponds to each variable investment option that has
"Alliance" in its name is a part of The Hudson River Trust (except for the
"EQ/Alliance" Portfolio). Each other Portfolio is a part of EQ Advisors Trust.
EQ Financial Consultants, Inc., a subsidiary of Equitable Life, serves as
investment manager of the EQ Advisors Trust. As such, EQ Financial Consultants
oversees the activities of the above-listed advisers with respect to EQ
Advisors Trust and is responsible for retaining or discontinuing the services
of those advisers. You will find other important information about each
Portfolio in the separate prospectuses for The Hudson River Trust and EQ
Advisors Trust attached at the end of this prospectus. We may add or delete
variable investment options or Portfolios at any time.
PROPOSED SUBSTITUTION OF PORTFOLIOS. We are asking the SEC to approve the
substitution of newly created Portfolios of the EQ Advisors Trust for The
Hudson River Trust Portfolios currently available under the variable investment
options (the "Substitution"). The EQ Advisors Trust Portfolios will have
substantially identical investment objectives, strategies and policies as those
of The Hudson River Trust Portfolios they would replace. The assets of any
Portfolio of The Hudson River Trust underlying your contract would be
transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of investment options with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the
Portfolios, rather than the two separate prospectuses you now receive. EQ
Financial Consultants, Inc. will be the manager of the new EQ Advisors Trust
Portfolios, and Alliance Capital Management L.P. will continue to provide the
day-to-day advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
<PAGE>
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Policy features and benefits 15
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o The elections you have on file for allocating your account value, premium
payments and deductions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution transaction.
o The management fees for the new Portfolios will be the same as those for the
corresponding Portfolios of The Hudson River Trust. Certain of the new EQ
Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your account value
(i.e., the value of the units you own) in the variable investment options
will be the same as before the transaction.
o The Substitution will have no tax consequences for you.
Please review the EQ Advisors Trust prospectus that accompanies this
prospectus. It contains more information about the Trust, including its
management structure, advisory arrangements, and general fees and expenses that
will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your account value among
the investment options, as usual. The Substitution transaction itself will not
be treated as a transfer of account value for purposes of the transfer
provisions of your contract.
We will notify you when we receive SEC approval, and again when the
Substitution is complete.
GUARANTEED INTEREST OPTION. You can also allocate some or all of your policy's
value to our guaranteed interest option. We, in turn, invest such amounts as
part of our general assets. Periodically, we declare a fixed rate of interest
(3% minimum) on amounts you allocate to our guaranteed interest option. (The
guaranteed interest option is part of what your policy and other supplemental
material may refer to as the "Guaranteed Interest Account".)
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We will pay at least 3% annual interest on our guaranteed interest option.
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ABOUT YOUR LIFE INSURANCE BENEFIT
YOUR POLICY'S FACE AMOUNT. In your application to buy an Incentive Life
policy, you tell us how much insurance coverage you want on the life of the
insured person. We call this the "face amount" of the policy. $50,000 is the
smallest amount of coverage you can request.
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If the insured person dies, we pay a life insurance benefit to the
"beneficiary" you have named. The amount we pay depends on whether you have
chosen death benefit Option A or death benefit Option B.
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YOUR POLICY'S "DEATH BENEFIT" OPTIONS. In your policy application, you also
choose whether the basic amount (or "benefit") we will pay if the insured
person dies is
o Option A -- THE POLICY'S FACE AMOUNT on the date of the insured person's
death. The amount of this death benefit doesn't change over time, unless you
take any action that changes the policy's face amount;
or
o Option B -- THE FACE AMOUNT PLUS THE POLICY'S "ACCOUNT VALUE" on the date of
death. Under this option, the amount of death benefit generally changes from
day to day, because many factors (including investment performance, charges,
premium payments and withdrawals) affect your policy's account value.
Your policy's "account value" is the total amount that at any time is earning
interest for you or being credited with investment gains and losses under your
policy. (Account value is discussed in more detail under "Determining your
policy's value" beginning on page 20 below.)
Under Option B, your policy's death benefit will tend to be higher than under
Option A. As a result, the monthly insurance charge we deduct will also be
higher, to compensate us for our additional risk.
<PAGE>
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16 Policy features and benefits
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ALTERNATIVE HIGHER DEATH BENEFIT IN LIMITED CASES. Your policy is designed
to always provide a minimum level of insurance protection relative to your
policy's value, in part to meet the Internal Revenue Code's definition of "life
insurance." Thus, we will automatically pay an alternative death benefit if it
is HIGHER than the basic Option A or Option B death benefit you have selected.
This alternative death benefit is computed by multiplying your policy's account
value on the insured person's date of death by a percentage specified in your
policy. The percentage depends on the insured person's age. Representative
percentages are as follows:
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If the value in your policy is high enough, relative to the face amount, the
life insurance benefit will automatically be greater than the Option A or
Option B death benefit you have selected.
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Age* 40 45 50 55 60 65
and under
% 250 % 215% 185% 150% 130% 120%
70 75-95 99-Over
% 115 % 105% 101%
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* For the then-current policy year.
This higher alternative death benefit exposes us to greater insurance risk than
the regular Option A and B death benefits. Because the cost of insurance
charges we make under your policy are based in part on the amount of our risk,
you will pay more cost of insurance charges for any periods during which the
higher alternative death benefit is the operative one.
OTHER ADJUSTMENTS TO DEATH BENEFIT. We will increase the death benefit proceeds
by the amount of any other benefits we owe upon the insured person's death
under any optional riders which are in effect.
We will reduce the death benefit proceeds by the amount of any remaining policy
loans and unpaid loan interest, as well as any amount of monthly charges under
the policy that remain unpaid because the insured person died during a grace
period. We also reduce the death benefit if we have already paid part of it
under a living benefit rider. We reduce it by the amount of the living benefit
payment plus interest. See "Your Option to Receive a Living Benefit" on page 25
below.
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You can request to change your death benefit option any time after the second
year of the policy.
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CHANGE OF DEATH BENEFIT OPTION. If you change from Option A to B, we
automatically reduce your policy's face amount by an amount equal to your
policy's account value at the time of the change. We may refuse this change if
the policy's face amount would be reduced below our then current minimum for
new policies. Changes from Option A to Option B are not permitted once the
insured person reaches age 81.
If you change from Option B to A, we automatically increase your policy's face
amount by an amount equal to your policy's account value at the time of the
change.
If the alternative death benefit discussed above would be in effect at the time
of the change, we will determine the new face amount somewhat differently from
the general procedures described above.
We will not deduct or establish any amount of surrender charge as a result of a
change in death benefit option. Please refer to "Tax information" beginning on
page 26 below, to learn about certain possible income tax consequences that may
result from a change in death benefit option, including the effect of an
increase or decrease in face amount.
YOU CAN INCREASE OR DECREASE YOUR INSURANCE COVERAGE
If the face amount increase endorsement is issued with your policy, you may
increase the life insurance coverage under your policy by requesting an
increase in your policy's face amount. You can do so any time after the first
year of your policy. You may request a decrease in your policy's face amount
any time after the second year of your policy. The requested increase or
decrease must be at least $10,000.
<PAGE>
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Policy features and benefits 17
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Please refer to "Tax information" beginning on page 26 for certain possible tax
consequences of changing the face amount.
We can refuse any requested increase or decrease. We will not approve any
increase or decrease if we are at that time being required to waive charges or
pay premiums under any optional disability waiver rider that is part of the
policy. We will also not approve a face amount increase if the insured person
has reached age 81. The following additional conditions also apply:
FACE AMOUNT INCREASES. We treat an increase in face amount in many respects as
if it were the issuance of a new policy. For example, you must submit
satisfactory evidence that the insured person still meets our requirements for
coverage. Also, we establish additional amounts of surrender charge and
guarantee premiums under your policy for the face amount increase; reflecting
the amount of additional coverage.
In most states, you can cancel the face amount increase within 10 days after
you receive a new policy page showing the increase. If you cancel, we will
reverse any charges attributable to the increase and recalculate all values
under your policy to what they would have been had the increase not taken
place.
The monthly insurance charge we make for the amount of the increase will be
based on the age and other insurance risk characteristics of the insured person
at the time of the increase. If we refuse a requested face amount increase
because the insured person's risk characteristics have become less favorable,
we may issue the additional coverage as a separate Incentive Life policy with a
different insurance risk classification. In that case, we would waive the
monthly administrative charge that otherwise would apply to that separate
policy.
FACE AMOUNT DECREASES. You may not reduce the face amount below the minimum we
are then requiring for new policies. Nor will we permit a decrease that would
cause your policy to fail the Code's definition of life insurance. Guarantee
premiums, as well as our monthly deductions for the cost of insurance coverage,
will generally decrease (prospectively) after you reduce the face amount.
If you reduce the face amount during the first 15 years of your policy, or
during the first 15 years after a face amount increase you have requested, we
will deduct all or part of the remaining surrender charge from your policy.
Assuming you have not previously changed the face amount, the amount of
surrender charge we will deduct will be determined by dividing the amount of
the decrease by the initial face amount and multiplying that fraction by the
total amount of surrender charge that still remains applicable to your policy.
We deduct the charge from the same investment options as if it were a part of a
regular monthly deduction under your policy.
In some cases, we may have to make a distribution to you from your policy at
the time of the decrease in order to decrease your policy's face amount. This
may be necessary in order to preserve your policy's status as life insurance
under the Internal Revenue Code. We may also be required to make such a
distribution to you in the future on account of a prior decrease in face
amount.
OTHER BENEFITS YOU CAN ADD BY RIDER
You may be eligible for the following other optional benefits we currently make
available by rider:
o disability waiver benefits
o ten-year term insurance on the insured person or an additional insured
person
o accidental death benefit
o option to purchase additional insurance
o children's term insurance
o cost-of-living rider
Equitable Life or your registered representative can provide you with more
information about these riders. The riders provide additional information, and
we will furnish samples of them to you on request. The maximum amount of any
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18 Policy features and benefits
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charge we make for a rider will be set forth in the rider or in the policy
itself. We can, however, add, delete, or modify the riders we are making
available, at any time before they become effective as part of your policy.
The option to purchase additional insurance rider permits you to purchase
additional coverage on the insured person, without evidence of insurability, if
specified events occur.
The cost of living rider provides for scheduled automatic face amount increases
that, within limits, reflect increases in the Consumer Price Index. These
automatic face amount increases will result in a prospective increase in your
guarantee premiums and an additional surrender charge, in the same manner as
would any other face amount increase you request.
See also "Tax information" beginning on page 26 below for certain possible tax
consequences of face amount increases or adding or deleting riders.
YOUR OPTIONS FOR RECEIVING POLICY PROCEEDS
BENEFICIARY OF DEATH BENEFIT. You designate your beneficiary in your policy
application. You can change your policy's beneficiary at any other time during
the insured person's life. If no beneficiary is living when the insured person
dies, we will pay the death benefit proceeds in equal shares to the insured
person's surviving children. If there are no surviving children, we will
instead pay the insured person's estate.
PAYMENT OPTIONS FOR DEATH BENEFIT. In your policy application, or at any other
time during the insured person's life, you may choose among several payment
options for all or part of any death benefit proceeds that subsequently become
payable. These payment options are described in the policy and may result in
varying tax consequences. The terms and conditions of each option are set out
in a separate contract that we will send the payee when any such option goes
into effect. Equitable Life or your registered representative can provide you
with samples of such contracts on request.
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You can choose to have the proceeds from the policy's life insurance benefit
paid under one of our payment options, rather than as a single sum.
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If you have not elected a payment option, we will pay any death benefit in a
single sum. If the beneficiary is a natural person (i.e., not an entity such as
a corporation or trust) we will pay any such single sum death benefit through
an interest-bearing checking account (the "Equitable Access Account(TM)") that
we will automatically open for the beneficiary. The beneficiary will have
immediate access to the proceeds by writing a check on the account. We pay
interest on the proceeds from the date of death to the date the beneficiary
closes the Equitable Access Account. The annual rate will be at least 3%.
If a registered representative has assisted the beneficiary in preparing the
documents that are required for payment of the death benefit, we will send the
Equitable Access Account checkbook or check to the associate within the periods
specified for death benefit payments under "When we pay policy proceeds,"
beginning on page 38 below. Our associates will take reasonable steps to
arrange for prompt delivery to the beneficiary.
PAYMENT OPTIONS FOR SURRENDER AND WITHDRAWAL PROCEEDS. You can also choose to
receive all or part of any proceeds from a surrender or withdrawal from your
policy under one of the above referenced payment options, rather than as a
single sum.
YOUR RIGHT TO CANCEL WITHIN A CERTAIN
NUMBER OF DAYS
If for any reason you are not satisfied with your policy, you may return it to
us for a full refund of the premiums paid. In some states, we will adjust this
amount for any investment performance (whether positive or negative).
To exercise this cancellation right, you must mail the policy directly to our
Administrative Office with a written request to cancel. Your cancellation
request must be postmarked within 10 days after you receive the policy and your
coverage will terminate as of the date of the postmark. In some states,
<PAGE>
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Policy features and benefits 19
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this "free look" period is longer than 10 days. Your policy will indicate the
length of your "free look" period.
VARIATIONS AMONG INCENTIVE LIFE POLICIES
Time periods and other terms and conditions described in this prospectus may
vary due to legal requirements in your state. These variations will be
reflected in your policy.
Equitable Life also may vary the charges and other terms of Incentive Life
where special circumstances result in sales or administrative expenses or
mortality risks that are different from those normally associated with
Incentive Life. We will make such variations only in accordance with uniform
rules that we establish.
Equitable Life or your registered representative can advise you about any
variations that may apply to your policy.
<PAGE>
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20 Determining your policy's value
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2
Determining your policy's
value
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YOUR ACCOUNT VALUE
As set forth on page 6 above, we deduct certain charges from each premium
payment you make. We credit the rest of each premium payment to your policy's
"account value." You instruct us to allocate your account value to one or more
of the policy's investment options indicated on the front cover of this
prospectus.
Your account value is the total of (i) your amounts in our variable investment
options, (ii) your amounts in our guaranteed interest option, and (iii) any
amounts that we are holding to secure policy loans that you have taken. See
"Borrowing from your policy" beginning on page 23 below. (Your policy and other
supplemental material may refer to (ii) and (iii) above as our "Guaranteed
Interest Account.") These amounts are subject to certain charges discussed in
the table on page 6.
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Your account value will be credited with the same returns as are achieved by
the Portfolios (or guaranteed interest option) that you select, but will also
be reduced by the amount of charges we deduct under the policy.
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YOUR POLICY'S VALUE IN OUR VARIABLE INVESTMENT OPTIONS. We invest the account
value that you have allocated to any variable investment option in shares of
the corresponding Portfolio. Your value in each variable investment option is
measured by "units."
The number of your units in any variable investment option does not change,
absent an event or transaction under your policy that involves moving assets
into or out of that option. Whenever any amount is withdrawn or otherwise
deducted from one of your policy's variable investment options, we "redeem"
(cancel) the number of units that has a value equal to that amount. This can
happen, for example, when all or a portion of monthly deductions and
transaction-based charges are allocated to that option, or when loans,
transfers, withdrawals and surrenders are made from that option. Similarly, you
"purchase" additional units having the same value as the amount of any premium,
loan repayment, or transfer that you allocate to that option.
The value of each unit will increase or decrease each day, by the same amount
as if you had invested in the corresponding Portfolio's shares directly (and
reinvested all dividends and distributions from the Portfolio in additional
Portfolio shares). The units' values will be reduced, however, by the amount of
the mortality and expense risk charge for that period (the charge is described
in the table on page 6 above). On any day, your value in any variable
investment option equals the number of units credited to your policy under that
option, multiplied by that day's value for one such unit.
YOUR POLICY'S VALUE IN OUR GUARANTEED INTEREST OPTION. Your policy's value in
our guaranteed interest option includes: (i) any amounts you have specifically
requested that we allocate to that option and (ii) any "restricted" amounts
that we hold in that option as a result of your election to receive a living
benefit (these restricted amounts may be referred to in your policy as "liened
policy amounts"). See "Your option to receive a living benefit" on page 25
below. We credit all of such amounts with interest at rates we declare from
time to time. We guarantee that these rates will not be less than a 3%
effective annual rate. The mortality and expense risk charge mentioned above
does not apply to our guaranteed interest option.
Amounts may be allocated to or removed from your policy's value in our
guaranteed interest option for the same purposes as described above for the
variable investment options. We credit your policy with a number of dollars in
that option that equals any amount that is being allocated to it. Similarly, if
amounts are being removed from your guaranteed interest option for any reason,
we reduce the amount you have credited to that option on a dollar-for-dollar
basis.
<PAGE>
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Transferring your money among our investment options 21
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3
Transferring your money
among our
investment options
TRANSFERS YOU CAN MAKE
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You can transfer freely among our variable investment options and into our
guaranteed interest option.
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After your policy's initial investment Allocation Date, you can transfer
amounts from one investment option to another. The total of all transfers you
make on the same day must be at least $500; except that you may transfer your
entire balance in an investment option, even if it is less than $500. You may
submit a written request for a transfer to our Administrative Office or you can
make a telephone request (see below).
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Transfers out of our guaranteed interest option are more limited.
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RESTRICTIONS ON TRANSFER OUT OF THE GUARANTEED INTEREST OPTION. We only permit
you to make one transfer out of our guaranteed interest option during each
policy year. (No such limit applies to transfers out of our variable investment
options.) Also, the maximum transfer from our guaranteed interest option is the
greater of (a) 25% of your then current balance in that option (b) $500, or (c)
the amount (if any) that you transferred out of the guaranteed interest option
during the immediately preceding policy year.
We will not accept a request to transfer out of the guaranteed interest option
unless we receive it within the period beginning 30 days before and ending 60
days after an anniversary of your policy. If we receive the request within that
period, the transfer will occur as of that anniversary or, if later, the date
we receive it.
TRANSFER CHARGE. We do not currently make any charge for transfers. We reserve
the right, however, to impose up to a $25 charge for each transfer you make.
This charge would not apply to a transfer of all of your variable investment
option amounts to our guaranteed investment option, however, or to any transfer
pursuant to our dollar cost averaging service.
TELEPHONE TRANSFERS
You can make telephone transfers by following one of two procedures:
o if you are both the policy's insured person and its owner, by calling
1-888-228-6690 (toll free) from a touch tone phone; or
o if you are not both the insured person and owner, by signing a telephone
transfer authorization form and sending it to us. Once we have the form on
file, we will provide you with a toll-free telephone number to make
transfers.
For more information see "Telephone requests" on page 37 below. We allow only
one request for telephone transfers each day (although that request can cover
multiple transfers), and we will not allow you to revoke a telephone transfer.
If you are unable to reach us by telephone, you should send a written transfer
request to our Administrative Office.
OUR DOLLAR COST AVERAGING SERVICE
We offer you a dollar cost averaging service. This service allows you to
gradually allocate amounts to the variable investment options by periodically
transferring approximately the same dollar amount to the variable investment
options you select. This will cause you to purchase more units if the unit's
value is low, and fewer units if the unit's value is high. Therefore, you may
get a lower average cost per unit over the long term. This plan of investing,
however, does not guarantee that you will earn a profit or be protected against
losses.
Our dollar cost averaging service (also referred to as our "automatic transfer
service") enables you to make automatic monthly transfers from the Alliance
Money Market option to our other variable investment options. You need a
minimum of $5,000 in the Alliance Money Market option to begin using the dollar
cost averaging service. You can choose up to eight other variable options to
receive the automatic transfers but each transfer to each option must be at
least $50.
You may elect the dollar cost averaging service with your policy application or
at any later time. You can also cancel the dollar cost averaging service at any
time.
<PAGE>
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22 Transferring your money among our investment options
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OUR ASSET REBALANCING SERVICE (AVAILABLE BEGINNING SEPTEMBER 15, 1999)
You may wish us to periodically redistribute the amounts you have in our
variable investment options so that the relative amount of your account value
in each variable option is restored to the initial allocation you specify, or
to any other allocation percentages you choose. You can accomplish this
automatically through our asset rebalancing service. The rebalancing may be on
a one-time basis or at monthly, quarterly, semi-annual, or annual intervals.
The allocation percentage you specify for each variable investment option
selected must be at least 5% (whole percentage only) of the total value you
hold under the variable investment options, and the sum of the percentages must
equal 100%. You may not use more than eight variable investment options at any
time if you are using the asset rebalancing service. You may not simultaneously
participate in the asset rebalancing service and the dollar cost averaging
service (discussed above).
Beginning September 15, 1999, you may request the asset rebalancing service in
your policy application or at any later time. You may change your allocation
instructions or discontinue participation in the asset rebalancing service at
any time. If you request a transfer while the rebalancing service is in effect,
we will process the transfer as requested, and then cancel the asset
rebalancing service.
<PAGE>
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Accessing your money 23
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4
Accessing your money
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BORROWING FROM YOUR POLICY
You may borrow up to 90% of the difference between your policy's account value
and any surrender charges that are in effect under your policy. (In your
policy, this "difference" is referred to as your Cash Surrender Value.)
However, the amount you can borrow will be reduced by any amount that we hold
on a "restricted" basis following your receipt of a living benefit payment, as
well as by any other loans (and accrued loan interest) you have outstanding.
See "Your option to receive a living benefit" beginning on page 25 below.
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You can use policy loans to obtain funds from your policy without surrender
charges or, in most cases, paying current income taxes. However, the borrowed
amount is no longer credited with the investment results of any of our
investment options under the policy.
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When you take a policy loan, we remove an amount equal to the loan from one or
more of your investment options and hold it as collateral for the loan's
repayment. (Your policy may sometimes refer to the collateral as the "loaned
portion of your policy account.") We hold this loan collateral under the same
terms and conditions as apply to amounts supporting our guaranteed interest
option, with several exceptions:
o you cannot make transfers or withdrawals of the collateral;
o we expect to credit different rates of interest to loan collateral than we
credit under our guaranteed interest option;
o we do not count the collateral when we compute our customer loyalty credit;
and
o the collateral is not available to pay policy charges.
When you request your loan, you should tell us how much of the loan collateral
you wish to have taken from any amounts you have in each of our investment
options. If you do not give us directions (or if we are making the loan
automatically to cover unpaid interest), we will take the loan from your
investment options in the same proportion as we are then taking monthly
deductions for charges. If that is not possible, we will take the loan from
your investment options in proportion to your value in each.
LOAN INTEREST WE CHARGE. The interest we charge on a policy loan accrues daily
at an adjustable interest rate. We determine the rate at the beginning of each
year of your policy and that rate applies to all policy loans that are
outstanding at any time during the year. The maximum rate is the greater of (a)
4% or (b) the "Monthly Average Corporate" yield published in Moody's Corporate
Bond Yield Averages for the month that ends two months before the interest rate
is set. (If that average is no longer published, we will use another average,
as the policy provides.) In no event, however, will the loan interest rate be
greater than 15%. We will notify you of the current loan interest rate when you
apply for a loan, and will notify you in advance of any rate increase.
Loan interest payments are due on each policy anniversary. If not paid when
due, we automatically add the interest as a new policy loan.
INTEREST THAT WE CREDIT ON LOAN COLLATERAL. Under our current rules, the annual
interest rate we credit on your loan collateral during any of your policy's
first fifteen years will be 1% less than the rate we are then charging you for
policy loan interest, and, beginning in the policy's 16th year, equal to the
loan interest rate. The elimination of the rate differential is not guaranteed.
Accordingly, we have discretion to increase the rate differential for any
period, including under policies that are already outstanding (and may have
outstanding loans). We do guarantee that the annual rate of interest credited
on your loan collateral will never be less than 3% and that the differential
will not exceed 2% (except if tax law changes increase the taxes we pay on
policy loans or loan interest). Because we first offered Incentive Life
policies in 1999 the interest rate differential has not yet been eliminated
under any outstanding policies.
Interest we pay on your loan collateral accrues daily. On each anniversary of
your policy (or when your policy loans
<PAGE>
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24 Accessing your money
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are fully discharged) we contribute that interest to your policy's investment
options in the same proportions as if it were a premium payment.
EFFECTS OF POLICY LOANS. A loan can reduce the length of time that your
insurance remains in force, because the amount we set aside as loan collateral
cannot be used to pay charges as they become due. A loan can also cause any
paid up guaranteed death benefit to terminate or may cause any other guarantee
against termination to become unavailable. We will deduct any outstanding
policy loan plus accrued loan interest from your policy's proceeds if you do
not pay it back. Even if a loan is not taxable when made, it may later become
taxable, for example, upon termination or surrender. See "Tax information"
beginning on page 26 below for a discussion of the tax consequences of policy
loans.
PAYING OFF YOUR LOAN. You can repay all or part of your loan at any time. We
normally assume that payments you send us are premium payments. Therefore, you
must submit instructions with your payment indicating that it is a loan
repayment. If you send us more than all of the loan principal and interest you
owe, we will treat the excess as a premium payment.
When you send us a loan repayment, we will transfer an amount equal to such
repayment from your loan collateral back to the investment options under your
policy. First we will restore any amounts that, before being designated as loan
collateral, had been in the guaranteed interest option under your policy. We
will allocate any additional repayments among investment options as you
instruct; or, if you don't instruct us, in the same proportion as if they were
premium payments.
MAKING WITHDRAWALS FROM YOUR POLICY
You may make a partial withdrawal of your net cash surrender value at any time
after the first year of your policy. The request must be for at least $500,
however, and we have discretion to decline any request. If you do not tell us
from which investment options you wish us to take the withdrawal, we will use
the same allocation that then applies for the monthly deductions we make for
charges; and, if that is not possible, we will take the withdrawal from all of
your investment options in proportion to your value in each.
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You can withdraw all or part of your policy's net cash surrender value,
although you may incur charges and tax consequences by doing so.
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EFFECT OF PARTIAL WITHDRAWALS ON INSURANCE COVERAGE. If the Option A death
benefit is in effect, a partial withdrawal results in a dollar-for-dollar
automatic reduction in the policy's face amount (and, hence, an equal reduction
in the Option A death benefit). If the paid up death benefit guarantee is in
effect, a partial withdrawal will generally reduce the face amount by more than
the amount of the withdrawal. Face amount reductions that occur automatically
as a result of withdrawals, however, do not result in our deducting any portion
of any then remaining surrender charge. We will not permit a partial withdrawal
that would reduce the face amount below our minimum for new policy issuances at
the time, or that would cause the policy to no longer be treated as life
insurance for federal income tax purposes.
If death benefit Option B is in effect, a partial withdrawal reduces the death
benefit on a dollar for dollar basis, but does not affect the face amount.
The result is different, however, during any time when the alternative death
benefit (discussed on page 16 above) would be higher than the Option A or B
death benefit you have selected. In that case, a partial withdrawal will cause
the death benefit to decrease by more than the amount of the withdrawal, even
if the paid up death benefit guarantee is not then in effect. Please also
remember that a partial withdrawal reduces the amount of your premium payments
that counts toward maintaining our other guarantees against termination, as
well.
You should refer to "Tax information" beginning on page 26 below, for
information about possible tax consequences of partial withdrawals and any
associated reduction in policy benefits. A partial withdrawal may increase the
chance that
<PAGE>
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Accessing your money 25
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your policy could lapse because of insufficient value to pay policy charges as
they fall due.
SURRENDERING YOUR POLICY FOR ITS NET CASH SURRENDER VALUE
You can surrender (give us back) your policy for its "net cash surrender value"
at any time. The net cash surrender value equals your account value, minus any
outstanding loans and unpaid loan interest, minus any amount of your account
value that is "restricted" as a result of previously distributed "living
benefits," and minus any surrender charge that then remains applicable. The
surrender charge is described on page 6 above.
Please refer to "Tax information" beginning on page 26 below for the possible
tax consequences of surrendering your policy.
YOUR OPTION TO RECEIVE A LIVING BENEFIT
Subject to our insurance underwriting guidelines and availability in your
state, your policy will automatically include our living benefit rider. This
feature enables you to receive a portion (generally 75%) of the policy's death
benefit (excluding death benefits payable under certain other policy riders),
if the insured person has a terminal illness (as defined in the rider).
We make no additional charge for the rider. However, 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, we will need to evaluate the insurance risk at that time, and we may
decline to issue the rider.
If you receive a living benefit, the remaining benefits under your policy will
be affected. We will deduct the amount of any living benefit we have paid, plus
interest (as specified in the rider), from the death benefit proceeds that
become payable under the policy if and when the insured person dies.
When we pay a living benefit we automatically transfer a pro-rata portion of
your policy's net cash surrender value to the policy's guaranteed interest
option. This amount, together with the interest you earn thereon, will be
"restricted" - that is, it will not be available for any loans, transfers or
partial withdrawals that you may wish to make. In addition, it may not be used
to satisfy the charges we deduct from your policy's value, and we do not count
it in computing any customer loyalty credit. We will deduct these restricted
amounts from any subsequent surrender proceeds that we pay. (In your policy, we
refer to this as a "lien" we establish against your policy.)
The receipt of a living benefit payment may qualify for exclusion from income
tax. See "Tax information" below. Receipt of a living benefit payment may
affect your eligibility for certain government benefits or entitlements.
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You can arrange to receive a "living benefit" if the insured person becomes
terminally ill.
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<PAGE>
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26 Tax information
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5
Tax information
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This discussion is based on current federal income tax law and
interpretations. It assumes that the policyowner is a natural person who is a
U.S. citizen and resident. The tax effects on corporate taxpayers, non-U.S.
residents or non-U.S. citizens may be different. This discussion is general in
nature, and should not be considered tax advice, for which you should consult
a qualified tax advisor.
BASIC TAX TREATMENT FOR YOU AND YOUR BENEFICIARY
An Incentive Life policy will be treated as "life insurance" for federal income
tax purposes (a) if it meets the definition of life insurance under Section
7702 of the Internal Revenue Code (the "Code") and (b) as long as the
investments made by the underlying Portfolios satisfy certain investment
diversification requirements under Section 817(h) of the Code. We believe that
the policies will meet these requirements and, therefore, that
o the death benefit received by the beneficiary under your policy will not be
subject to federal income tax; and
o increases in your policy's 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 surrender, a
partial withdrawal, loan or a payment to you that we believe is required to
maintain your policy's status as life insurance under the Code.
There may be different tax consequences if you assign your policy or designate
a new owner. See "Assigning your policy" at page 31 below.
TAX TREATMENT OF DISTRIBUTIONS TO YOU
The federal income tax consequences of a distribution from your policy depend
on whether your policy is a "modified endowment contract" (sometimes also
referred to as a "MEC"). In all cases, however, the character of any income
described below as being taxable to the recipient will be ordinary income (as
opposed to capital gain).
TESTING FOR MODIFIED ENDOWMENT CONTRACT STATUS. Your policy will be a "modified
endowment contract" if, at any time during the first seven years of your
policy, you have paid a cumulative amount of premiums that exceeds the
cumulative seven-pay limit. The cumulative seven-pay limit is the amount of
premiums that you would have paid by that time under a similar fixed-benefit
insurance policy that was designed (based on certain assumptions mandated under
the Code) to provide for paid up future benefits after the payment of seven
equal annual premiums. ("Paid up" means that no future premiums would be
required.) This is called the "seven-pay" test.
Whenever there is a "material change" under a policy, the policy will generally
be (a) treated as a new contract for purposes of determining whether the policy
is a modified endowment contract and (b) 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 prescribed formula, the account value of the policy at
the time of such change. A materially changed policy would be considered a
modified endowment contract if it failed to satisfy the new seven-pay limit at
any time during the new seven-pay period. A "material change" for these
purposes could occur as a result of a change in death benefit option, the
selection of additional rider benefits, an increase in your policy's face
amount (including pursuant to our cost-of-living rider), or certain other
changes.
If your policy's benefits are reduced during its first seven years (or within
seven years after a material change), the seven-pay limit will be redetermined
based on the reduced level of benefits and applied retroactively for purposes
of the seven-pay test. (Such a reduction in benefits could include, for
example, a requested decrease in face amount, the termination of additional
benefits under a rider or, in some cases, a partial withdrawal.) If the
premiums previously paid are greater than the recalculated (lower) seven-pay
limit, the policy will become a modified endowment contract.
A life insurance policy that you receive in exchange for a modified endowment
contract will also be considered a modified endowment contract.
<PAGE>
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Tax information 27
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In addition to the above premium limits for testing for modified endowment
status, there are overall limits on the amount of premiums you may pay under
your policy in order for it to qualify as life insurance. Changes made to your
policy, for example, a decrease in face amount (including any decrease that may
occur as a result of a partial withdrawal) or other decrease in benefits may
impact the maximum amount of premiums that can be paid as well as the maximum
amount of account value that may be maintained under the policy. In some cases,
this may cause us to take current or future action in order to assure that your
policy continues to qualify as life insurance, including distribution of
amounts to you that may be includible as income. See "Changes we can make" on
page 39 below.
TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT
CONTRACT. As long as your policy remains in force as a non-modified endowment
contract, policy loans will be treated as indebtedness, and no part of the loan
proceeds will be subject to current federal income tax. Interest on the loan
will generally not be tax deductible, although interest credited on loan
collateral may become taxable under the rules below if distributed.
If you make a partial withdrawal after the first 15 years of your policy, the
proceeds will not be subject to federal income tax except to the extent such
proceeds exceed your "basis" in your policy. (Your basis generally will equal
the premiums you have paid, less the amount of any previous distributions from
your policy that were not taxable.) During the first 15 years, however, the
proceeds from a partial withdrawal could be subject to federal income tax,
under a complex formula, to the extent that your account value exceeds your
basis.
Upon full surrender, any amount by which the proceeds we pay (including amounts
we use to discharge any policy loan and unpaid loan interest) exceed your basis
in the policy will be subject to federal income tax. IN ADDITION, IF A POLICY
TERMINATES AFTER A GRACE PERIOD, THE EXTINGUISHMENT OF ANY THEN-OUTSTANDING
POLICY LOAN AND UNPAID LOAN INTEREST WILL BE TREATED AS A DISTRIBUTION AND
COULD BE SUBJECT TO TAX UNDER THE FOREGOING RULES. Finally, if you make an
assignment of rights or benefits under your policy, you may be deemed to have
received a distribution from your policy, all or part of which may be taxable.
TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS A MODIFIED ENDOWMENT
CONTRACT. Any distribution from your policy will be taxed on an "income-first"
basis if your policy is a modified endowment contract. 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
withdrawal. Any such distributions will be considered taxable income to you to
the extent your account value exceeds your basis in the policy. (For modified
endowment contracts, your basis is similar to the basis described above for
other policies, except that it also 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 endowment contracts issued by Equitable Life (or its affiliate) to the
same owner (excluding certain qualified plans) during any calendar year are
treated as if they were a single contract.
A 10% penalty tax also will apply to the taxable portion of most distributions
from a policy that is a modified endowment contract. The penalty tax will not,
however, apply to (i) taxpayers whose actual age is at least 59 1/2, (ii)
distributions in the case of a disability (as defined in the Code) or (iii)
distributions 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 or her beneficiary.
IF YOUR POLICY TERMINATES AFTER A GRACE PERIOD, THE EXTINGUISHMENT OF ANY THEN
OUTSTANDING POLICY LOAN AND UNPAID LOAN INTEREST WILL BE TREATED AS A
DISTRIBUTION (to the extent the loan was not previously treated as such) and
could be subject to tax, including the 10% penalty tax, as described above. In
addition, upon a full surrender, any excess of the proceeds we pay (including
any amounts we use to discharge any loan) over your basis in the
<PAGE>
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28 Tax information
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policy, will be subject to federal income tax and, unless an exception applies,
the 10% penalty tax.
Distributions that occur during a year of your policy in which it becomes a
modified endowment contract, and during any subsequent years, will be taxed as
described in the four preceding paragraphs. In addition, distributions from a
policy within two years before it becomes a modified endowment contract also
will be subject to tax in this manner. This means that a distribution made from
a policy that is not a modified endowment contract could later become taxable
as a distribution from a modified endowment contract.
RESTORATION OF A TERMINATED POLICY. For tax purposes, some restorations of a
policy that terminated after a grace period may be treated as the purchase of a
new policy.
TAX TREATMENT OF LIVING BENEFIT PROCEEDS
Amounts received under an insurance policy on the life of an individual who is
terminally ill, as defined by the tax law, are generally excludable from the
payee's gross income. We believe that the benefits provided under our living
benefit rider meet the tax law's definition of terminally ill and can qualify
for this income tax exclusion. This exclusion does not apply to amounts paid to
someone other than the insured person, however, if the payee has an insurable
interest in the insured person's life only because the insured person is a
director, officer or employee of the payee or by reason of the insured person
being financially interested in any trade or business carried on by the payee.
EFFECT OF POLICY ON INTEREST DEDUCTIONS TAKEN BY BUSINESS ENTITIES
Ownership of a policy by a trade or business entity can limit the amount of any
interest on business borrowings that entity otherwise could deduct for federal
income tax purposes, even though such business borrowings may be unrelated to
the policy. To avoid the limit, the insured person must be an officer,
director, employee or 20% owner of the trade or business entity when coverage
on that person commences.
The limit does not generally apply for policies owned by natural persons (even
if those persons are conducting a trade or business as sole proprietorships),
unless a trade or business entity that is not a sole proprietorship is a direct
or indirect beneficiary under the policy. Entities commonly have such a
beneficial interest, for example, in so-called "split dollar" arrangements. If
the trade or business entity has such an interest in a policy, it will be
treated the same as if it owned the policy for purposes of the limit on
deducting interest on unrelated business income.
The limit generally applies only to policies issued after June 8, 1997 in
taxable years ending after such date. However, for this purpose, any material
increase in face amount that you request, or other material change in a policy,
will be treated as the issuance of a new policy.
In cases where the above-discussed limit on deductibility applies, the
non-deductible portion of unrelated interest on business loans is determined by
multiplying the total amount of such interest by a fraction. The numerator of
the fraction is the policy's average account value (excluding amounts we are
holding to secure any policy loans) for the year in question, and the
denominator is the average for the year of the aggregate tax bases of all the
entity's other assets.
Any corporate, trade, or business use of a policy should be carefully reviewed
by your tax advisor with attention to these rules, as well as the other rules
and possible tax law changes that could occur with respect to such coverage.
REQUIREMENT THAT WE DIVERSIFY INVESTMENTS
Under Section 817(h) of the Code, the Treasury Department has issued
regulations that implement investment diversification requirements. Failure to
comply with these regulations would disqualify your policy as a life insurance
policy under Section 7702 of the Code. If this were to occur, you would be
subject to federal income tax on any income and gains under the policy and the
death benefit proceeds would lose their income tax-free status. These
consequences would continue for the period of the disqualification and for
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Tax information 29
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subsequent periods. Through the Portfolios, we intend to comply with the
applicable diversification requirements.
ESTATE, GIFT, AND GENERATION-SKIPPING TAXES
If the policy's owner is the insured person, the death benefit will generally
be includable in the owner's estate for purposes of federal estate tax. If the
owner is not the insured person, and the owner dies before the insured person,
the value of the policy would be includable in the owner's estate. If the owner
is neither the insured person nor the beneficiary, the owner will be considered
to have made a gift to the beneficiary of the death benefit proceeds when they
become payable.
In general, a person will not owe estate or gift taxes until gifts made by such
person, plus that person's taxable estate, total at least $650,000 (a figure
that is scheduled to rise at periodic intervals to $1 million by the year
2006). For this purpose, however, certain amounts may be deductible or
excludable, such as gifts and bequests to the person's spouse or charitable
institutions and certain gifts of $10,000 or less per year for each recipient.
As a general rule, if you make a "transfer" to a person two or more generations
younger than you, a generation- skipping tax may be payable.
Generation-skipping transactions would include, for example, a case where a
grandparent "skips" his or her children and names grandchildren as a policy's
beneficiaries. In that case, the generation-skipping "transfer" would be deemed
to occur when the insurance proceeds are paid. The generation-skipping tax
rates are similar to the maximum estate tax rate in effect at the time.
Individuals, however, are generally allowed an aggregate generation-skipping
tax exemption of $1 million.
The particular situation of each policyowner, insured person or beneficiary
will determine how ownership or receipt of policy proceeds will be treated for
purposes of federal estate, gift and generation-skipping taxes, as well as
state and local estate, inheritance and other taxes. Because these rules are
complex, you should consult with a qualified tax adviser for specific
information, especially where benefits are passing to younger generations.
PENSION AND PROFIT-SHARING PLANS
There are special limits on the amount of insurance that may be purchased by a
trust or other entity that forms part of a pension or profit-sharing plan
qualified under Section 401(a) or 403 of the Code. In addition, the federal
income tax consequences will be different from those described in this
prospectus. These rules are complex, and you should consult a qualified tax
adviser.
OTHER EMPLOYEE BENEFIT PROGRAMS
Complex rules may also apply when a policy is held by an employer or a trust,
or acquired by an employee, in connection with the provision of other employee
benefits. These policyowners must consider whether the policy was applied for
by or issued to a person having an insurable interest under applicable state
law and with the insured person's consent. The lack of an insurable interest or
consent 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
receive a death benefit.
ERISA
Employers and employer-created trusts may be subject to reporting, disclosure
and fiduciary obligations under the Employee Retirement Income Security Act of
1974. You should consult a qualified legal advisor.
OUR TAXES
The operations of our Separate Account FP are reported in our federal income
tax return. The separate account's investment income and capital gains,
however, are, for tax purposes, reflected in our variable life insurance policy
reserves. Therefore, we currently pay no taxes on such income and gains and
impose no charge for such taxes. We reserve the right to impose a charge in the
future for taxes
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incurred; for example, a charge to the separate account for income taxes
incurred by us that are allocable to the policies.
If our state, local or other tax expenses increase, we may add or increase our
charges for such taxes when they are attributable to Separate Account FP, based
on premiums, or otherwise allocable to the policies.
WHEN WE WITHHOLD TAXES FROM DISTRIBUTIONS
Generally, unless you provide us with a satisfactory written election to the
contrary prior to the distribution, we are required to withhold income tax from
any proceeds we distribute as part of a taxable transaction under your policy.
If you do not wish us to withhold tax from the payment, or if we do not
withhold enough, you may have to pay later, and you may incur penalties under
the estimated income tax rules. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory notification that no such taxes are due. States may also
require us to withhold tax on distributions to you. Special withholding rules
apply if you are not a U.S. resident or not a U.S. citizen.
POSSIBILITY OF FUTURE TAX CHANGES
The U.S. Congress frequently considers legislation that, if enacted, could
change the tax treatment of life insurance policies or increase the taxes we
pay in connection with such 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 law. State and local tax law or, if you are not a U.S. citizen and
resident, foreign tax law, may also affect the tax consequences to you, the
insured person or your beneficiary, and are subject to change. Any changes in
federal, state, local or foreign tax law or interpretations could have a
retroactive effect.
The Treasury Department has stated that it anticipates the issuance of
guidelines prescribing the circumstances in which your ability to direct your
investment to particular Portfolios within a separate account may cause you,
rather than the insurance company, to be treated as the owner of the Portfolio
shares attributable to your policy. In that case, income and gains attributable
to such Portfolio shares would be included in your gross income for federal
income tax purposes. Under current law, however, we believe that Equitable
Life, and not the owner of a policy, would be considered the owner of the
Portfolio shares.
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This section provides further detail about certain subjects that are addressed
in the previous pages. The following discussion generally does not repeat the
information already contained in those pages.
WAYS TO MAKE PREMIUM AND
LOAN PAYMENTS
CHECKS AND MONEY ORDERS. Premiums or loan payments generally must be paid by
check or money order drawn on a U.S. bank in U.S. dollars and made payable to
"Equitable Life."
We prefer that you make each payment to us with a single check drawn on your
business or personal bank account. We also will accept a single money order,
bank draft or cashier's check payable directly to Equitable Life, although we
must report such "cash equivalent" payments to the Internal Revenue Service
under certain circumstances. Cash and travelers' checks, or any payments in
foreign currency, are not acceptable. We will accept third party checks payable
to someone other than Equitable Life and endorsed over to Equitable Life only
(1) as a direct payment from a qualified retirement plan or (2) if it is made
out to a trustee who owns the policy and endorses the entire check (without any
refund) as a payment to the policy.
REQUIREMENTS FOR SURRENDER REQUESTS
Your surrender request must include the policy number, your name, your tax
identification number, the name of the insured person, and the address where
proceeds should be mailed. The request must be signed by you, as the owner, and
by any joint owner, collateral assignee or irrevocable beneficiary. We may also
require you to complete specific tax forms.
Finally, in order for your surrender request to be complete, you must return
your policy to us.
WAYS WE PAY POLICY PROCEEDS
The payee for death benefit or other policy proceeds (e.g. upon surrenders) may
name a successor to receive any amounts that we still owe following the payee's
death. Otherwise, we will pay any such amounts to the payee's estate.
We must approve any payment 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 payment 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 payees, and the methods for proving the payee's age and
continued survival.
ASSIGNING YOUR POLICY
You may assign (transfer) your rights in a policy to someone else as collateral
for a loan, to effect a change of ownership 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 we take before we
receive notice of the assignment or for the validity of the assignment. An
absolute assignment is a change of ownership.
Certain transfers for value may subject you to income tax and penalties and
cause the death benefit to lose its income-tax free treatment. Further, a gift
of a policy that has a loan outstanding may be treated as part gift and part
transfer for value, which could result in both gift tax and income tax
consequences. You should consult your tax advisor prior to making a transfer or
other assignment.
DATES AND PRICES AT WHICH POLICY
EVENTS OCCUR
We describe below the general rules for when, and at what prices, events under
your policy will occur. Other portions of this prospectus describe
circumstances that may cause exceptions. We generally do not repeat those
exceptions below.
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DATE OF RECEIPT. Where this prospectus refers to the day when we receive a
payment, request, election, or notice from you, we usually mean the day on
which that item (or the last thing necessary for us to process that item)
arrives in complete and proper form at our Administrative Office or via the
appropriate telephone or fax number if the item is a type we accept by those
means. There are two main exceptions: if the item arrives (1) on a day that is
not a business day or (2) after the close of a business day, then, in each
case, we are deemed to have received that item on the next business day.
BUSINESS DAYS. Every day that the New York Stock Exchange is open for regular
trading is a business day for us. Each business day ends at the time regular
trading on the exchange closes (or is suspended) for the day. We compute unit
values for our variable investment options as of the end of each business day.
This usually is 4:00 p.m., Eastern Time.
PAYMENTS YOU MAKE. The following are reflected in your policy as of the date
we receive them:
o premium payments received after the policy's investment start date
(discussed below)
o loan repayments and interest payments
REQUESTS YOU MAKE. The following transactions occur as of the date we receive
your request:
o withdrawals
o tax withholding elections
o face amount decreases that result from a withdrawal
o changes of allocation percentages for premium payments or monthly
deductions
o surrenders
o changes of beneficiary
o transfers from a variable investment option to the guaranteed interest
option
o changes in form of death benefit payment
o loans
o transfers among variable investment options
o assignments
o termination of paid up death benefit guarantee
The following transactions occur on your policy's next monthly anniversary that
coincides with or follows the date we approve your request:
o changes in face amount
o election of paid up death benefit guarantee
o changes in death benefit option
o changes of insured person
o termination of enhanced death benefit guarantee
o restoration of terminated policies
DOLLAR COST AVERAGING SERVICE. Transfers pursuant to our dollar cost averaging
service occur as of the first day of each month of your policy. We make the
first such transfer, as of your policy's first monthly anniversary that
coincides with or follows the date we receive your request. If you request the
dollar cost averaging service in your original policy application, however, the
first transfer will occur as of the first day of the second month of your
policy that begins after your policy's initial Allocation date.
ASSET REBALANCING SERVICE (AVAILABLE BEGINNING SEPTEMBER 15, 1999). We will
effect one-time asset rebalancing requests, and the initial transaction of a
periodic rebalancing program, as of the later of (1) the date we receive your
request or (2) your initial Allocation Date. Subsequent periodic rebalancings
occur on each monthly, quarterly, annual or semi-annual anniversary of your
policy, as you have requested.
DELAY IN CERTAIN CASES. We may delay allocating any payment you make to our
variable investment options, or
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any transfer, for the same reasons stated in "Delay of variable investment
option proceeds" on page 38 below. We may also delay such transactions for any
other legally permitted purpose.
PRICES APPLICABLE TO POLICY TRANSACTIONS. If a transaction will increase or
decrease the amount you have in a variable investment option as of a certain
date, we process the transaction using the unit values for that option computed
as of that day's close of business, unless that day is not a business day. In
that case, we use unit values computed as of the next business day's close.
EFFECT OF DEATH OR SURRENDER. You may not make any surrender or partial
withdrawal request after the insured person has died. Also, all insurance
coverage ends on the date as of which we process any request for a surrender.
POLICY ISSUANCE
REGISTER DATE. When we issue a policy, we assign it a "register date," which
will be shown in the policy. We measure the months, years, and anniversaries of
your policy from your policy's register date.
o If you submit the full minimum initial premium to your registered
representative 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 you signed part I of the policy application or (b) the date a medical
professional signed part II of the policy application.
o If we do not receive your full minimum initial premium at our Administrative
Office before the issue date or, if we issue the policy on a different basis
than you applied for, the register date will be the same as the date we
actually issue the policy (the "issue date").
Policies that would otherwise receive a register date of the 29th, 30th or 31st
of any month will receive a register date of the 28th of that month.
We may also permit an earlier than customary register date (a) for
employer-sponsored cases, to accommodate a common register date for all
employees or (b) to provide a younger age at issue. (A younger age at issue
reduces the monthly charges that we deduct under a policy.) The charges and
deductions commence as of the register date, even when we have permitted an
early register date. We may also permit policyowners to delay a register date
(up to three months) in employer-sponsored cases.
INVESTMENT START DATE. This is the date your investment first begins to earn a
return for you in our Alliance Money Market option (prior to the Allocation
Date). Generally, this is the register date, or, if later, the date we receive
your full minimum initial premium at our Administrative Office.
COMMENCEMENT OF INSURANCE COVERAGE. You must give the full minimum initial
premium to your registered representative on or before the day the policy is
delivered to you. No insurance under your policy will take effect unless (1)
the insured person is still living at the time such payment and delivery are
completed and (2) unless the information in the application continues to be
true and complete, without material change, as of the time of such payment. If
you submit 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 person. You may review a copy of our temporary
insurance agreement, on request, for more information about the terms and
conditions of that coverage.
NON-ISSUANCE. If, after considering your application, we decide not to issue a
policy, we will refund any premium you have paid, without interest.
AGE; AGE AT ISSUE. Unless the context in this prospectus requires otherwise, we
consider the insured person's "age" during any policy year be his or her age on
his or her birthday nearest to the beginning of that policy year. For example,
the insured person's age for the first policy year ("age at issue") is that
person's age on whichever birthday is closer to (i.e., before or after) the
policy's register date.
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GENDER-NEUTRAL POLICIES
Congress and various states have from time to time considered legislation that
would require insurance rates to be the same for males and females. 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 Incentive Life in connection with an 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.
There will be no distinctions based on sex in the cost of insurance rates for
Incentive Life policies sold in Montana. We will also make such gender-neutral
policies available on request in connection with certain employee benefit
plans. Cost of insurance rates applicable to a gender-neutral policy will not
be greater than the comparable male rates under a gender specific Incentive
Life policy.
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YOUR VOTING PRIVILEGES
VOTING OF PORTFOLIO SHARES. As the legal owner of any Portfolio shares that
support a variable investment option, we will attend (and have the right to
vote at) any meeting of shareholders of the Portfolio (or the Trust of which
that Portfolio is a part). To satisfy currently-applicable legal requirements,
however, we will give you the opportunity to tell us how to vote the number of
each Portfolio's shares that are attributable to your policy. We will vote
shares attributable to policies for which we receive no instructions in the
same proportion as the instructions we do receive from all policies that
participate in our Separate Account FP (discussed below). With respect to any
Portfolio shares that we are entitled to vote directly (because we do not hold
them in a separate account or because they are not attributable to policies),
we will vote in proportion to the instructions we have received from all
holders of variable annuity and variable life insurance policies who are using
that Portfolio.
Under current legal requirements, we may disregard the voting instructions we
receive from policyowners only in certain narrow circumstances prescribed by
SEC regulations. If we do, we will advise you of the reasons in the next annual
or semi-annual report we send to you.
VOTING AS POLICYOWNER. In addition to being able to instruct voting of
Portfolio shares as discussed above, policyowners that use our variable
investment options may in a few instances be called upon to vote on matters
that are not the subject of a shareholder vote being taken by any Portfolio. If
so, you will have one vote for each $100 of account value in any such option;
and we will vote our interest in Separate Account FP in the same proportion as
the instructions we receive from holders of Incentive Life and other policies
that Separate Account FP supports.
ABOUT OUR SEPARATE ACCOUNT FP
Each variable investment option is a part (or "subaccount") of our Separate
Account FP. We established Separate Account FP under special provisions of the
New York Insurance Law. These provisions prevent creditors from any other
business we conduct from reaching the assets we hold in our variable investment
options for owners of our variable life insurance policies. We are the legal
owner of all of the assets in Separate Account FP and may withdraw any amounts
that exceed our reserves and other liabilities with respect to variable
investment options under our policies. The results of Separate Account FP's
operations are accounted for without regard to Equitable Life's other
operations.
Separate Account FP's predecessor was established on April 19, 1985 by our then
wholly-owned subsidiary, Equitable Variable Life Insurance Company. We
established our Separate Account FP under New York Law on September 21, 1995.
When Equitable Variable Life Insurance Company merged into Equitable Life, as
of January 1, 1997, our Separate Account FP succeeded to all the assets,
liabilities and operations of its predecessor.
Separate Account FP is registered with the SEC under the Investment Company Act
of 1940 and is classified by that act as a "unit investment trust." The SEC,
however, does not manage or supervise Equitable Life or Separate Account FP.
Each subaccount (variable investment option) of Separate Account FP available
under Incentive Life invests solely in class IB shares issued by the
corresponding Portfolio of The Hudson River Trust or EQ Advisors Trust.
Separate Account FP immediately reinvests all dividends and other distributions
it receives from a Portfolio in additional shares of that Portfolio.
The EQ Advisors Trust sells its shares to Equitable Life separate accounts in
connection with Equitable Life's variable life insurance and annuity products,
as well as to the trustee of a qualified plan for Equitable Life. The Hudson
River Trust sells its shares to separate accounts of insurance companies, both
affiliated and unaffiliated with Equitable Life. We currently do not foresee
any disadvantages to our policyowners arising out of this. However, the Board
of Trustees of The Hudson River Trust intends to monitor events to identify any
material irreconcilable conflicts that may arise and to determine what action,
if any, should be taken in response. If we believe that the Board's response
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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 the Trust involved, we will examine other investment
alternatives.
ABOUT OUR GENERAL ACCOUNT
Our general account assets support all of our obligations, (including those
under the Incentive Life policies and, more specifically, the guaranteed
interest option). Our general assets consist of all of our assets as to which
no class or classes of our annuity or life insurance policies have any
preferential claim. You will not share in the investment experience of our
general account assets, however; and we have full discretion about how we
invest those assets (subject only to any requirements of law).
Because of applicable exemptions and exclusions, we have not registered
interests in the general account under the Securities Act of 1933 or registered
the general account as an investment company with the SEC. Accordingly, neither
the general account, the guaranteed interest option, nor any interests therein,
are subject to regulation under those acts. The staff of the SEC has not
reviewed the portions of this prospectus that relate to the general account and
the guaranteed interest option. The disclosure, however, may be subject to
certain provisions of the federal securities law relating to the accuracy and
completeness of statements made in prospectuses.
We declare the rate of interest periodically, but it will not be less than 3%.
We credit and compound the interest daily at an effective annual rate that
equals the declared rate. The rates we are at any time declaring on outstanding
policies may differ from the rates we are then declaring for newly issued
policies.
YOU CAN CHANGE YOUR POLICY'S INSURED PERSON
After the policy's second year, we will permit you to request that a new
insured person replace the existing one. This requires that you provide us with
adequate evidence that the proposed new insured person meets our requirements
for insurance. Other requirements are outlined in your policy.
Upon making this change, the monthly insurance charges we deduct and
prospective guarantee premiums will be based on the new insured person's
insurance risk characteristics. The change of insured person will not, however,
affect the surrender charge computation for the amount of coverage that is then
in force.
Substituting the insured person is a taxable event and may, depending upon
individual circumstances, have other tax consequences as well. For example, the
change could cause the policy to be a "modified endowment contract" or to fail
the Internal Revenue Code's definition of "life insurance," unless we also
distribute certain amounts to you from the policy. See "Tax information"
beginning on page 26 above. You should consult your tax advisor 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. In no event, however, will we permit a change that causes your
policy to fail the definition of life insurance.
TRANSFERS OF YOUR ACCOUNT VALUE
TRANSFERS NOT IMPLEMENTED. When we cannot process part of a transfer request,
we will not process any other part of the request. This could occur, for
example, where the request does not comply with our transfer limitations, or
where you request transfer of an amount greater than that currently allocated
to an investment option.
Similarly, the dollar cost averaging service will terminate immediately if: (1)
your amount in the Alliance Money Market option is insufficient to cover the
automatic transfer amount; (2) your policy is in a grace period; or (3) we
receive notice of the insured person's death.
MARKET TIMING. We may, at any time, restrict the use of market timers and
other agents acting under a power of attorney who are acting on behalf of more
than one
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policyowner. Any agreements to use marketing timing services to make transfers
are subject to our rules in effect at that time.
TELEPHONE REQUESTS
If you are a properly authorized person, you may make telephone transfers as
described above on page 21.
Also, if you are both the owner and the insured person under your policy, you
may call 1-888-228-6690 (toll free) from a touch tone phone to make the
following additional types of requests:
o policy loans
o changes of premium allocation percentages
o changes of address
All telephone requests are automatically tape-recorded and are invalid if the
information given is incomplete or any portion of the request is inaudible. We
have established procedures reasonably designed to confirm that telephone
instructions are genuine. These include requiring personal identification
information from the caller and providing subsequent written confirmation of
the instructions. If we do not employ reasonable procedures to confirm the
genuineness of telephone instructions, we may be liable for any losses arising
out of any act or omission that constitutes negligence, lack of good faith, or
willful misconduct. In light of our procedures, we will not be liable for
following telephone instructions that we reasonably believe to be genuine.
Any telephone transaction request that you make after the close of a business
day (which is usually 4:00 p.m. Eastern Time) will be processed as of the next
business day. During times of extreme market activity, or for other reasons,
you may be unable to contact us to make a telephone request. If this occurs,
you should submit a written transaction request to our Administrative Office.
We reserve the right to discontinue telephone transactions, or modify the
procedures and conditions for such transactions, at any time.
DEDUCTING POLICY CHARGES
MONTHLY COST OF INSURANCE CHARGE. The monthly cost of insurance charge is
determined by multiplying the cost of insurance rate that is then applicable to
your policy by the amount we have at risk under your policy. Our amount at risk
(also described in your policy as "net amount at risk") on any date is the
difference between (a) the death benefit that would be payable if the insured
person died on that date and (b) the then total account value under the policy.
A greater amount at risk, or a higher cost of insurance rate, will result in a
higher monthly charge.
As a general rule, the cost of insurance rate increases each year that you own
your policy. This happens automatically because of the insured person's
increasing age.
Our cost of insurance rates are guaranteed not to exceed those that will be
specified in your policy. For most insured persons at most ages, our current
rates are lower than those maximums. Therefore, we have the ability to raise
these rates up to the guaranteed maximum at any time. The guaranteed maximum
cost of insurance rates for gender neutral Incentive Life policies are based on
the 1980 Commissioner's Standard Ordinary SB Smoker and NB Non-Smoker Mortality
Table. For all other policies, the guaranteed maximum cost of insurance rates
are based on the 1980 Commissioner's Standard Ordinary Male and Female Smoker
and Non-Smoker Mortality Tables.
Our cost of insurance rates will generally be lower (except in Montana and in
connection with certain employee benefit plans) if the insured person is a
female than if a male. They also will generally be lower for non-tobacco users
than tobacco users and lower for persons that have other highly favorable
health characteristics, as compared to those that do not. On the other hand,
insured persons who present particular health, occupational or avocational
risks may be charged higher cost of insurance rates and other additional
charges as specified in their policies. In addition, the current rates also
vary depending on the duration of the policy (i.e., the length of time since
the policy was issued).
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We offer lower rates for non-tobacco users only if they are at least age 18.
You may ask us to review a younger insured person's tobacco habits following
the policy anniversary on which such person is age 18.
DATE OF MONTHLY DEDUCTIONS. We make the regular monthly deductions as of the
first day of each month of the policy.
PURPOSES OF POLICY CHARGES. The charges under the policies are designed to
cover, in the aggregate, our direct and indirect costs of selling,
administering and providing benefits under the policies. They are also
designed, in the aggregate, to compensate us for the risks of loss we assume
pursuant to the policies. If, as we expect, the charges that we collect from
the policies exceed our total costs in connection with the policies, we will
earn a profit. Otherwise, we will incur a loss.
The current and maximum rates of certain of our charges have been set with
reference to estimates of the amount of specific types of expenses or risks
that we will incur. In most cases, this prospectus identifies such expenses or
risks in the name of the charge: e.g., the administrative charge, cost of
insurance charge, and mortality and expense risk charge. However, the fact that
any charge bears the name of, or is designed primarily to defray, a particular
expense or risk does not mean that the amount we collect from that charge will
never be more than the amount of such expense or risk. Nor does it mean that we
may not also be compensated for such expense or risk out of any other charges
we are permitted to deduct by the terms of the policies. The surrender charge,
for example, is designed primarily to defray sales expenses, but may also be
used to defray other expenses associated with your policy that we have not
recovered by the time of any surrender. Similarly, the premium charge is
designed primarily to defray sales and tax expenses we incur that are based on
premium payments.
CUSTOMER LOYALTY CREDIT
We provide a customer loyalty credit for policies that have been outstanding
for more than six years. This is added to the account value each month. The
dollar amount of the credit is a percentage of the total amount you then have
in our investment options (not including any value we are holding as collateral
for any policy loans or for a living benefit payment). The percentage credit is
currently at an annual rate of .60% beginning in the policy's seventh year.
This credit is not guaranteed, however. Because we first offered Incentive Life
in 1999, no credit has yet been attained under any outstanding policy.
SUICIDE AND CERTAIN MISSTATEMENTS
If an insured person commits suicide within certain time periods, the amount of
death benefit we pay will be limited as described in the policy. Also, if an
application misstated the age or gender of an insured person, we will adjust
the amount of any death benefit (and certain rider benefits), as described in
the policy (or rider).
WHEN WE PAY POLICY PROCEEDS
GENERAL. We will generally pay any death benefit, surrender, withdrawal, or
loan within seven days after we receive the request and any other required
items. In the case of a death benefit, if we do not have information about the
desired manner of payment within 60 days after the date we receive notification
of the insured person's death (and other required items), we will pay the
proceeds as a single sum, normally within seven days thereafter.
CLEARANCE OF CHECKS. We reserve the right to defer payment of that portion of
your account value that is attributable to a premium payment made by check for
a reasonable period of time (not to exceed 15 days) to allow the check to clear
the banking system.
DELAY OF GUARANTEED INTEREST OPTION PROCEEDS. We also have the right to defer
payment or transfers of amounts out of our guaranteed interest option for up to
six months. If we delay more than 30 days in paying you such amounts, we will
pay interest of at least 3% per year from the date we receive your request.
DELAY OF VARIABLE INVESTMENT OPTION PROCEEDS. We reserve the right to defer
payment of any death benefit,
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transfer, loan or other distribution that is derived from a variable investment
option if (a) the New York Stock Exchange is closed (other than customary
weekend and holiday closings) or trading on that exchange is restricted; (b)
the SEC has declared that an emergency exists, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably practicable to
fairly determine the account value; or (c) the law permits the delay for the
protection of owners. If we need to defer calculation of values for any of the
foregoing reasons, all delayed transactions will be processed at the next
available unit values.
DELAY TO CHALLENGE COVERAGE. We may challenge the validity of your insurance
policy or any rider based on any material misstatements in an application you
have made to us. We cannot make such challenges, however, beyond certain time
limits set forth in the policy or rider. If the insured person dies within one
of these limits, we may delay payment of any proceeds until we decide whether
to challenge the policy.
CHANGES WE CAN MAKE
In addition to any of the other changes described in this prospectus, we have
the right to modify how we or Separate Account FP 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 combine two or more variable investment options or withdraw assets relating
to Incentive Life from one investment option and put them into another;
o end the registration of, or re-register, Separate Account FP under the
Investment Company Act of 1940;
o operate Separate Account FP under the direction of a "committee" or
discharge such a committee at any time;
o restrict or eliminate any voting rights or privileges of policyowners (or
other persons) that affect Separate Account FP;
o operate Separate Account FP, or one or more of the variable investment
options, in any other form the law allows. This includes any form that
allows us to make direct investments, in which case we may charge Separate
Account FP an advisory fee. We may make any legal investments we wish for
Separate Account FP. In addition, we may disapprove any change in
investment advisers or in investment policy unless a law or regulation
provides differently.
If we take any action that results in a material change in the underlying
investments of a variable investment option, we will notify you as required by
law. We may, for example, cause the variable investment option to invest in a
mutual fund other than, or in addition to, The Hudson River Trust or EQ
Advisors Trust. If you then wish to transfer the amount you have in that option
to another investment option, you may do so.
We may make any changes in the policy or its riders, require additional premium
payments, or make distributions from the policy to the extent we deem necessary
to ensure that your policy qualifies or continues to qualify as life insurance
for tax purposes. Any such change will apply uniformly to all policies that are
affected. We will give you written notice of such changes. Subject to all
applicable legal requirements, we also may make other changes in the policies
that do not reduce any net cash surrender value, death benefit, account value,
or other accrued rights or benefits.
REPORTS WE WILL SEND YOU
Shortly after the end of each year of your policy, we will send you a report
that includes information about your policy's current death benefit, account
value, cash surrender value (i.e., account value minus any current surrender
charge), policy loans, policy transactions and amounts of charges deducted. We
will send you individual notices to confirm premium payments, transfers and
certain other policy transactions.
<PAGE>
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40 More information about other matters
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
Equitable Life and its affiliates are parties to various legal proceedings. In
our view, none of these proceedings would be considered material with respect
to a policyowner's interest in Separate Account FP, nor would any of these
proceedings be likely to have a material adverse effect upon the Separate
Account, our ability to meet our obligations under the policies, or the
distribution of the policies.
ILLUSTRATIONS OF POLICY BENEFITS
In order to help you understand how your policy values would vary over time
under different sets of assumptions, we will provide you with certain
illustrations upon request. These will be based on the age and insurance risk
characteristics of the insured person under your policy and such factors as the
face amount, death benefit option, premium payment amounts, and rates of return
(within limits) that you request. You can request such illustrations at any
time. We have filed an example of such an illustration as an exhibit to the
registration statement referred to below.
SEC REGISTRATION STATEMENT
We have on file with the SEC a registration statement under the Securities Act
of 1933 that relates to the Incentive Life policies. The registration statement
contains additional information that is not required to be included in this
prospectus. You may obtain this information, for a fee, from the SEC's Public
Reference Section at 450 5th Street, N.W., Washington, D.C. 20549 or, without
charge, from the SEC's web-site (www.sec.gov).
HOW WE MARKET THE POLICIES
We offer variable life insurance policies (including Incentive Life) and
variable annuity contracts through Equitable Distributors Inc. ("EDI"). The
Investment Company Act of 1940, therefore, classifies EDI as a "principal
underwriter" of those policies and contracts. EDI also serves as a principal
underwriter of The Hudson River Trust and EQ Advisors Trust. EDI is a
wholly-owned subsidiary of Equitable Life, with its address at 1290 Avenue of
the Americas, New York, NY 10104. EDI is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). In 1997 and 1998, we paid EDI a fee of $20,088,049 and
$35,582,313, respectively, for its services under a Distribution Agreement with
Equitable Life and its separate accounts.
We sell Incentive Life through licensed insurance agencies (both affiliated and
unaffiliated with Equitable Life) and their affiliated broker-dealers (who are
registered with the SEC and are members of the NASD). Such agencies and their
affiliated broker-dealers have entered into selling agreements with EDI. The
licensed insurance agents who sell our policies are appointed as agents of
Equitable Life, and are registered representatives of the agencies' affiliated
broker-dealer. Sales commissions will be paid by Equitable Life to the agency
which sells you this policy. The commissions don't cost you anything above the
charges and expenses already discussed elsewhere in this prospectus. Generally,
the agencies will receive maximum commissions of: 50% of the amount of the
premium you pay in your policy's first year up to a certain amount, plus 3% of
all other premiums you pay in your policy's first year, plus 3% of all premiums
you pay in the second through tenth years. We pay comparable commissions on the
amount of premiums you pay that we deem attributable to any face amount
increase that you request. The agency may be required to return to us any
commissions on premiums that we have refunded to a policyowner.
INSURANCE REGULATION THAT APPLIES TO EQUITABLE LIFE
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 state
where we sell policies. We submit annual reports on our operations and finances
to insurance officials in all of these states. The officials are responsible
for reviewing our reports to see that we are financially sound. Such
regulation, however, does not guarantee or provide absolute assurance of our
soundness.
<PAGE>
- --------------------------------------------------------------------------------
More information about other matters 41
- --------------------------------------------------------------------------------
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer your
policy and operate the investment options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000, and
Equitable Life has identified those of its systems critical to business
operations that were not year 2000 compliant. Equitable Life has completed the
work of modifying or replacing non-compliant systems and has certified, through
testing, that its systems are year 2000 compliant. Equitable Life has contacted
third-party vendors and service providers to seek confirmation that they are
acting to address the year 2000 issue with the goal of avoiding any material
adverse effect on services provided to policyowners and on operations of the
investment options. All third-party vendors and service providers considered
critical to Equitable Life's business have provided us confirmation of their
year 2000 compliance or a satisfactory plan for compliance. With respect to
vendors and service providers considered non-critical, we believe we are on
schedule for substantially all such vendors and service providers to be
confirmed by September 30, 1999 as year 2000 compliant or be the subject of a
satisfactory plan for compliance. If such confirmation is not received by
September 30, 1999, the vendor or service provider will be replaced, eliminated
or be the subject of contingency plans. Additionally, Equitable Life has
supplemented its existing business continuity and disaster recovery plans to
cover certain categories of contingencies that could arise as a result of year
2000 related failures.
There are many risks associated with year 2000 issues, including the risk that
Equitable Life's computer systems will not operate as intended. Additionally,
there can be no assurance that the systems of third parties will be year 2000
compliant. Any significant unresolved difficulty related to the year 2000
compliance initiatives could result in an interruption in, or a failure of,
normal business operations and, accordingly, could have a material adverse
effect on our ability to administer your policy and operate the investment
options.
To the fullest extent permitted by law, the foregoing year 2000 discussion is a
"Year 2000 Readiness Disclosure" within the meaning of The Year 2000
Information and Readiness Disclosure Act (P.L. 105-271) (1998).
<PAGE>
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42 Directors and principal officers
- --------------------------------------------------------------------------------
Directors and principal
officers
- --------------------------------------------------------------------------------
Set forth below is information about our directors and, to the extent they are
responsible for variable life insurance operations, our principal officers.
Unless otherwise noted, their address is 1290 Avenue of the Americas, New York,
New York 10104.
DIRECTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FRANCOISE COLLOC'H
- ------------------------------------------------------------------------------------------------------------------------------------
AXA Director of Equitable Life since July 1992. Senior Executive Vice President, Human
23, Avenue Matignon Resources and Communications of AXA, and various positions with AXA affiliated companies.
75008 Paris, France Director of the Equitable Companies since December 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
HENRI DE CASTRIES
- ------------------------------------------------------------------------------------------------------------------------------------
AXA Director of Equitable Life since September 1993. Director (since May 1994) and
23, Avenue Matignon Chairman of the Board (since April 1998) of the Equitable Companies. Prior thereto,
75008 Paris, France Vice Chairman of the Board of the Equitable Companies (February 1996 to April 1998).
Senior Executive Vice President, Financial Services and Life Insurance Activities of
AXA since 1996. Prior thereto, Executive Vice President Financial Services and Life
Insurance Activities of AXA (1933 to 1996). Also Director or officer of various
subsidiaries and affiliates of the AXA Group. Director of other Equitable Life affiliates.
Previously held other officerships with the AXA Group.
- ------------------------------------------------------------------------------------------------------------------------------------
JOSEPH L. DIONNE
- ------------------------------------------------------------------------------------------------------------------------------------
The McGraw-Hill Companies The McGraw-Hill Companies Director of Equitable Life since May 1982. Chairman (since April
1221 Avenue of the Americas 1988) and former 1221 Avenue of the Americas Chief Executive Officer (April 1983 to April
New York, N.Y. 10020 1988) of The McGraw-Hill Companies. New York, NY 10020 Director of the Equitable Companies
(since May 1992). Director, Harris Corporation and Ryder System, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
DENIS DUVERNE
- ------------------------------------------------------------------------------------------------------------------------------------
AXA AXA Director of Equitable Life since February 1998. Senior Vice President International 23,
23, Avenue Matignon Avenue Matignon (US-UK-Benelux) AXA. Director since February 1996, Alliance. Director since
75008 Paris, France 75008 Paris, France February 1997, Donaldson Lufkin & Jenrette ("DLJ").
- ------------------------------------------------------------------------------------------------------------------------------------
JEAN-RENE FOURTOU
- ------------------------------------------------------------------------------------------------------------------------------------
Rhone-Poulenc S.A. Director of Equitable Life since July 1992. Director of Equitable Companies since July
25, Quai Paul Doumer 1992. Chairman and Chief Executive Officer of Rhone-Poulenc, S.A.; Member,
92408 Courbevoie Cedex Supervisory Board of AXA since January 1997; European Advisory Board of Bankers Trust
France Company and Consulting Council of Banque de France; Director, Societe Generale,
Schneider S.A. and Groupe Pernod-Ricard (July 1997 to present).
- ------------------------------------------------------------------------------------------------------------------------------------
NORMAN C. FRANCIS
- ------------------------------------------------------------------------------------------------------------------------------------
Xavier University of Louisiana Director of Equitable Life since March 1989. President of Xavier University of
7325 Palmetto Street Louisiana; Director, First National Bank of Commerce, New Orleans, LA, Piccadilly
New Orleans, LA 70125 Cafeterias, Inc., and Entergy Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD J. GREENE
- ------------------------------------------------------------------------------------------------------------------------------------
LeBouef, Lamb, Greene & MacRae, L.L.P. Director of Equitable Life since July 1991. Partner, LeBoeuf, Lamb, Greene & MacRae,
125 West 55th Street L.L.P. Director of the Equitable Companies since May 1992.
New York, NY 10019-4513
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Directors and principal officers 43
- --------------------------------------------------------------------------------
DIRECTORS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN T. HARTLEY
- ------------------------------------------------------------------------------------------------------------------------------------
1025 NASA Boulevard Director of Equitable Life since August 1987. Currently a Director and retired
Melbourne, FL 32919 Chairman and Chief Executive Officer of Harris Corporation (retired July 1995);
previously held other officerships with Harris Corporation. Director of the Equitable
Companies since May 1992; Director of the McGraw Hill Companies.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN H.F. HASKELL JR.
- ------------------------------------------------------------------------------------------------------------------------------------
SBC Warburg Dillon Read LLC Director of Equitable Life since July 1992; Director the Equitable Companies since
535 Madison Avenue July 1992; Managing Director of Warburg Dillon Read LLC, and member of its Board
New York, NY 10022 of Directors; Chairman, Supervisory Board, Dillon Read (France) Gestion (until 1998);
Director, Pall Corporation (November 1998 to present), and Dillon, Read Limited).
- ------------------------------------------------------------------------------------------------------------------------------------
MARY R. (NINA) HENDERSON
- ------------------------------------------------------------------------------------------------------------------------------------
Bestfoods Grocery Director of Equitable Life since December 1996. President of Bestfoods Grocery
BESTFOODS (formerly CPC Specialty Markets Group); Vice President, BESTFOODS (formerly CPC
International Plaza International, Inc.) since 1993. Prior thereto, President of CPC Specialty Markets
700 Sylvan Avenue Group. Director of the Equitable Companies since December 1996; Director,
Englewood Cliffs, NJ 07632-9976 Hunt Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
W. EDWIN JARMAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Jarmain Group Inc. Director of Equitable Life since July 1992. President of Jarmain Group Inc. and officer
121 King Street West or director of several affiliated companies. Chairman and Director of FCA
Suite 2525 International Ltd. (until May 1998). Director of various AXA affiliated companies and
Toronto, Ontario M5H 3T9 National Mutual Holdings Limited (July 1998-Present; Alternate Director, the National
Canada Mutual Life Association of Australasia Limited (until 1998); National Mutual Asia
Limited and National Mutual Insurance Company Limited, Hong Kong (February 1997 to present).
Previously held other officerships with FCA International. Director of the Equitable
Companies since July 1992.
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE T. LOWY
- ------------------------------------------------------------------------------------------------------------------------------------
Cravath, Swaine & Moore Director of Equitable Life since July 1992. Partner, Cravath, Swaine & Moore.
825 Eighth Avenue Director, Eramet.
New York, NY 10019
- ------------------------------------------------------------------------------------------------------------------------------------
DIDIER PINEAU-VALENCIENNE
- ------------------------------------------------------------------------------------------------------------------------------------
Schneider S.A. Director of Equitable Life since February 1996. Former Chairman and Chief Executive
64/70, Avenue Jean-Baptiste Clement Officer of Schneider S.A. as of February 1999, Honorary Chairman. Chairman or
92646 Boulogne-Billancourt Cedex director of numerous subsidiaries and affiliated companies of Schneider and the
France Equitable Companies. Director of the Company and Equitable Life from July 1992 to
February 1995. Member, Supervisory Board, AXA and Lagardere ERE; Director, CGIP,
Sema Group PLC and Rhone-Poulenc, SA; Member of European Advisory Board of Bankers Trust
Company, Supervisory Board of Banque Paribas (until 1998) and Advisory Boards of Bankers
Trust Company, Booz Allen & Hamilton (USA) and Banque de France.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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44 Directors and principal officers
- --------------------------------------------------------------------------------
OFFICER-DIRECTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE J. SELLA, JR.
- ------------------------------------------------------------------------------------------------------------------------------------
P.O. Box 397 Director of Equitable Life since May 1987. Retired Chairman and Chief Executive
Newton, NJ 07860 Officer of American Cyanamid Company (retired April 1993); previously held other
officerships with American Cyanamid. Director of the Equitable Companies, since
May 1992.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVE H. WILLIAMS
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Capital Management Director of Equitable Life since March 1991. Chairman and Chief Executive Officer of
Corporation Alliance until January 1999 and Chairman or Director of numerous subsidiaries and
1345 Avenue of the Americas affiliated companies of Alliance. Senior Executive Vice President of AXA since January
New York, NY 10105 1997. Director of the Equitable Companies, since May 1992.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL HEGARTY
- ------------------------------------------------------------------------------------------------------------------------------------
Director of Equitable Life since January 1998. President since January 1998 and Chief
Operating Officer since February 1998, Equitable Life. Vice Chairman since April 1998, Senior
Executive Vice President (January 1998 to April 1998), and Director and Chief Operating
Officer (both since January 1998), the Equitable Companies. Vice Chairman (from 1996 to
1997), Chase Manhattan Corporation. Vice Chairman (from 1995 to 1996) and Senior Executive
Vice President (from 1991 to 1995), Chemical Bank. Executive Vice President, Chief Operating
Officer and Director since March 1998, Equitable Investment Corporation ("EIC"); ACMC, Inc.
("ACMC") (since March 1998). Director, Equitable Capital Management Corporation ("ECMC")
(since March 1998), Alliance and DLJ (both May 1998 to Present).
- ------------------------------------------------------------------------------------------------------------------------------------
EDWARD D. MILLER
- ------------------------------------------------------------------------------------------------------------------------------------
Director of Equitable Life since August 1997. Chairman of the Board since January 1998, Chief
Executive Officer since August 1997, President (August 1997 to January 1998), Equitable Life.
Director, President and Chief Executive Officer, all since August 1997, the Equitable
Companies. Senior Executive Vice President and Member of the Executive Committee, AXA; Senior
Vice Chairman, Chase Manhattan Corporation (March 1996 to April 1997). President (January
1994 to March 1996) and Vice Chairman (December 1991 to January 1994), Chemical Bank.
Director, Alliance (since August 1997), DLJ (since November 1997), ECMC (since March 1998),
ACMC, Inc. (since March 1998), and AXA Canada (since September 1998). Director, Chairman,
President and Chief Executive Officer since March 1998, EIC. Director, KeySpan Energy.
- ------------------------------------------------------------------------------------------------------------------------------------
STANLEY B. TULIN
- ------------------------------------------------------------------------------------------------------------------------------------
Director and Vice Chairman of the Board since February 1998, and Chief Financial Officer
since May 1996, Equitable Life. Senior Executive Vice President until February 1998, and
Chief Financial Officer since May 1997, the Equitable Companies. Vice President until 1998,
EQ ADVISORS TRUST. Director, Alliance (since July 1997), and DLJ (since June 1997). Prior
thereto, Chairman, Insurance Consulting and Actuarial Practice, Coopers & Lybrand, L.L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Directors and principal officers 45
- --------------------------------------------------------------------------------
OTHER OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
LEON B. BILLIS
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President (since February 1998) and Chief Information Officer (since
November 1994), Equitable Life. Previously held other officerships with Equitable Life;
Director, J.M.R. Realty Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
HARVEY BLITZ
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, Equitable Life. Senior Vice President, the Equitable Companies
Director, The Equitable of Colorado, Inc., Vice President and Chief Financial Officer
since March 1997, EQ ADVISORS TRUST. Director and Chairman, Frontier Trust
Company ("Frontier"). Executive Vice President since November 1996 and Director,
EQ Financial Consultants, Inc. ("EQF"). Director until May 1996, Equitable
Distributors, Inc. ("EDI"). Director and Senior Vice President, EquiSource. Director and
Officer of various Equitable Life affiliates. Previously held other officerships with
Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
KEVIN R. BYRNE
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Treasurer, Equitable Life and the Equitable Companies. Treasurer,
EIC (since June 1997), EquiSource and Frontier. President and Chief Executive Officer (since
September 1997), and prior thereto, Vice President and Treasurer, Equitable Casualty
Insurance Company ("Casualty"). Vice President and Treasurer, EQ ADVISORS TRUST (since March
1997). Director, Chairman, President and Chief Executive Officer, Equitable JV Holdings
(since August 1997). Director (since July 1997), and Senior Vice President and Chief
Financial Officer (since April 1998), ACMC and ECMC. Previously held other officerships with
Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
JUDY A. FAUCETT
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, Equitable Life, (since September 1996) and Actuary (September
1996 to December 1998). Partner and Senior Actuarial Consultant, Coopers &
Lybrand L.L.P. (January 1989 to August 1996).
- ------------------------------------------------------------------------------------------------------------------------------------
ALVIN H. FENICHEL
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Controller, Equitable Life and the Equitable Companies. Senior Vice
President and Chief Financial Officer, The Equitable of Colorado, Inc., since March 1997.
Previously held other officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
PAUL J. FLORA
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Auditor, Equitable Life. Vice President and Auditor, the
Equitable Companies.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. GARBER
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President and General Counsel, Equitable Life and the Equitable Companies.
Previously held other officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
46 Directors and principal officers
- --------------------------------------------------------------------------------
OTHER OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MARK A. HUG
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President since April 1997, Equitable Life. Prior thereto, Vice President,
Aetna.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. KAPLAN
- ------------------------------------------------------------------------------------------------------------------------------------
Vice President and Chief Compliance Officer and Associate General Counsel, Equitable Life.
Previously held other officerships with Equitable Life.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL S. MARTIN
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President (since September 1998) and Chief Marketing Officer (since
December 1997). Prior thereto, Senior Vice President and Chief Marketing Officer,
Equitable Life. Chairman and Chief Executive Officer, EQF. Vice President, EQ
ADVISORS TRUST (until April 1998) and THE HUDSON RIVER TRUST. Director,
Equitable Underwriting and Sales Agency (Bahamas), Ltd. and EquiSource; Director
and Executive Vice President (since December 1998), Colorado, prior thereto, Director
and Senior Vice President. Previously held other officerships with Equitable Life and
its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
DOUGLAS MENKES
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Corporate Actuary since June 1997, Equitable Life. Prior
thereto, Consulting Actuary, Milliman & Robertson, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
PETER D. NORIS
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President and Chief Investment Officer, Equitable Life. Executive Vice
President since May 1995 and Chief Investment Officer since July 1995, The Equitable
Companies. Trustee, THE HUDSON RIVER TRUST, and Chairman, President and
Trustee since March 1997, EQ ADVISORS TRUST. Director, Alliance, and Equitable
Real Estate (until June 1997). Executive Vice President, EQF, since November 1996.
Director, EREIM Managers Corp. (since July 1997), and EREIM LP Corp. (since
October 1997). Prior to May 1995, Vice President/Manager, Insurance Companies
Investment Strategies Group, Salomon Brothers, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
ANTHONY C. PASQUALE
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, Equitable Life. Director, Chairman and Chief Operating Officer,
Casualty, (since September 1997). Director, Equitable Agri-Business, Inc. (until
June 1997). Previously held other officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Directors and principal officers 47
- --------------------------------------------------------------------------------
OTHER OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address Business Experience Within Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PAULINE SHERMAN
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President (since February 1999); Vice President, Secretary and Associate General
Counsel, Equitable Life and the Equitable Companies, since September 1995. Previously held
other officerships with Equitable Life.
- ------------------------------------------------------------------------------------------------------------------------------------
RICHARD V. SILVER
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President (since February 1995) and Deputy General Counsel (since June 1996),
Equitable Life. Senior Vice President and Associate General Counsel (since September 1996),
The Equitable Companies. Director, EQF. Senior Vice President and General Counsel, EIC (June
1997 to March 1998). Previously held other officerships with Equitable Life and its
affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
JOSE S. SUQUET
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Executive Vice President (since February 1998), Chief Distribution Officer (since
December 1997) and Chief Agency Officer (August 1994 to December 1997), Equitable Life. Prior
thereto, Agency Manager. Executive Vice President since May 1996, the Equitable Companies.
Vice President since March 1998, THE HUDSON RIVER TRUST. Chairman (since December 1997), EDI.
- ------------------------------------------------------------------------------------------------------------------------------------
R. LEE WILSON
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President (since May 1998) and Deputy Chief Financial Officer (since
September 1998), Equitable Life. Prior thereto, Executive Vice President, Chase
Manhattan Bank.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
48 Financial statements of Separate Account FP and Equitable Life
- --------------------------------------------------------------------------------
8
Financial statements of
Separate Account FP and
Equitable Life
- --------------------------------------------------------------------------------
The financial statements of Separate Account FP as of December 31, 1998 and for
each of the three years in the period ended December 31, 1998 and the financial
statements of Equitable Life as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing. The financial statements of
Equitable Life have relevance for the policies only to the extent that they
bear upon the ability of Equitable Life to meet its obligations under the
policies.
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants.................................................................................. FSA-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998......................................................... FSA-3
Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996................................... FSA-4
Statements of Changes in Net Assets for the Years Ended December 31, 1998, 1997 and 1996........................ FSA-7
Notes to Financial Statements................................................................................... FSA-10
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants.................................................................................. F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997......................................................... F-2
Consolidated Statements of Earnings, Years Ended December 31, 1998, 1997 and 1996............................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1998, 1997 and 1996................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1998, 1997 and 1996............................. F-5
Notes to Consolidated Financial Statements...................................................................... F-6
</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 Alliance Money Market Fund,
Alliance High Yield Fund, Alliance Common Stock Fund, Alliance Aggressive Stock
Fund, Alliance Small Cap Growth Fund, (collectively "Hudson River Trust funds")
and the EQ/Putnam Growth & Income Value Fund, MFS Research Fund, Morgan Stanley
Emerging Markets Equity Fund and MFS Emerging Growth Companies Fund
(collectively "EQ Advisors Trust funds"), 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, 1998 and the results of each of their operations and
changes in each of their net assets for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of shares owned in The
Hudson River Trust and in The EQ Advisors Trust at December 31, 1998 with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FSA-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
MONEY HIGH COMMON AGGRESSIVE ALLIANCE
MARKET YIELD STOCK STOCK SMALL CAP
FUND FUND FUND FUND GROWTH FUND
--------------- -------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts -- at market value (Notes 2 and 6)
Cost: $ 252,036,846............... $253,573,296
191,596,765............... $170,697,910
2,256,517,409............... $2,945,826,613
945,225,569............... $971,940,783
40,047,285............... $48,828,240
24,727,882...............
49,044,186...............
12,317,395...............
15,594,112...............
Receivable for Trust shares sold....... -- -- -- 15,756,667 12,471,839
Receivable for policy-related
transactions........................ 17,848,216 -- 3,228,813 -- --
--------------- -------------- ----------------- -------------- --------------
Total Assets........................... 271,421,512 170,697,910 2,949,055,426 987,697,450 61,300,079
--------------- -------------- ----------------- -------------- --------------
LIABILITIES
Payable for Trust shares purchased..... 16,331,370 35,027 5,828,987 -- --
Payable for policy-related --
transactions........................ 289,889 -- 16,503,396 12,640,148
Amount retained by Equitable Life
in Separate Account
FP (Note 4)......................... 414,349 136,603 699,865 415,973 188,682
--------------- -------------- ----------------- -------------- --------------
Total Liabilities...................... 16,745,719 461,519 6,528,852 16,919,369 12,828,830
--------------- -------------- ----------------- -------------- --------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS..................... $254,675,793 $170,236,391 $2,942,526,574 $970,778,081 $48,471,249
=============== ============== ================= ============== ==============
<CAPTION>
-----------------------------------------------------------------------------------------
MFS MORGAN
EMERGING STANLEY EQ/PUTNAM
MFS GROWTH EMERGING GROWTH &
RESEARCH COMPANIES MARKETS INCOME
FUND FUND EQUITY FUND VALUE FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts -- at market value (Notes 2 and 6)
Cost: $ 252,036,846..................
191,596,765..................
2,256,517,409..................
945,225,569..................
40,047,285..................
24,727,882.................. $28,040,945
49,044,186.................. $56,040,636
12,317,395.................. $9,374,762
15,594,112.................. $16,754,714
Receivable for Trust shares sold.......... -- 1,181,194 -- --
Receivable for policy-related
transactions........................... 63,970 -- -- --
----------- ------------- ------------- -------------
Total Assets.............................. 28,104,915 57,221,557 9,374,762 16,754,714
------------ ------------- ------------- -------------
LIABILITIES
Payable for Trust shares purchased........ 82,934 -- 18,854 3,033
Payable for policy-related
transactions........................... -- 1,224,733 7,369 8,426
Amount retained by Equitable Life
in Separate Account
FP (Note 4)............................ 60,594 31,895 2,334,195 106,949
----------- ------------- ------------- -------------
Total Liabilities......................... 143,528 1,256,628 2,360,418 118,408
----------- ------------- ------------- -------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS........................ $27,961,387 $55,964,929 $7,014,344 $16,636,306
=========== ============= ============= =============
</TABLE>
- -------------------------
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
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>
-------------------------------------------------
ALLIANCE MONEY MARKET
FUND
-----------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts............................... $10,719,684 $9,754,675 $9,126,793
Expenses (Note 3):
Mortality and expense risk charges...................... 1,204,220 1,101,168 1,025,149
--------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS).................................. 9,515,464 8,653,507 8,101,644
--------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments..................... (161,314) (513,800) (110,954)
Realized gain distribution from the Trusts.............. 7,750 13,435 --
--------------- --------------- ---------------
NET REALIZED GAIN (LOSS)...................................... (153,564) (500,365) (110,954)
--------------- --------------- ---------------
Unrealized appreciation (depreciation) on investments:
Beginning of period..................................... 804,349 24,023 89,976
End of period........................................... 1,536,450 804,349 24,023
--------------- --------------- ---------------
Change in unrealized appreciation (depreciation)
during the period...................................... 732,101 780,326 (65,953)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................ 578,537 279,961 (176,907)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................. $10,094,001 $8,933,468 $7,924,737
=============== =============== ===============
<CAPTION>
-----------------------------------------------------
ALLIANCE HIGH YIELD
FUND
--------------------------------------------------- -
1998 1997 1996
------------------ ---------------- ----------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts................................ $ 18,449,747 $12,918,934 $ 8,696,039
Expenses (Note 3):
Mortality and expense risk charges....................... 1,007,106 789,982 518,429
------------------ ---------------- ----------------
NET INVESTMENT INCOME (LOSS)................................... 17,442,641 12,128,952 8,177,610
------------------ ---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments...................... (2,344,392) 936,554 939,559
Realized gain distribution from the Trusts............... 3,396,523 6,365,633 6,119,053
------------------ ---------------- ----------------
NET REALIZED GAIN (LOSS)....................................... 1,052,131 7,302,187 7,058,612
------------------ ---------------- ----------------
Unrealized appreciation (depreciation) on investments:
Beginning of period...................................... 8,622,836 5,664,824 3,823,981
End of period............................................ (20,898,854) 8,622,836 5,664,824
------------------ ---------------- ----------------
Change in unrealized appreciation (depreciation)
during the period........................................ (29,521,690) 2,958,012 1,840,843
------------------ ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS.............................................. (28,469,559) 10,260,199 8,899,455
------------------ ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................... $(11,026,918) $22,389,151 $17,077,065
================== ================ ================
<CAPTION>
----------------------------------------------------------
ALLIANCE COMMON STOCK
FUND
-------------------------------------------------------
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts................................. $ 15,939,680 $ 10,668,337 $ 11,773,551
Expenses (Note 3):
Mortality and expense risk charges........................ 14,600,706 11,435,936 8,267,795
----------------- ------------------ -----------------
NET INVESTMENT INCOME (LOSS).................................... 1,338,974 (767,599) 3,505,756
----------------- ------------------ -----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments....................... 169,109,310 53,841,049 30,128,838
Realized gain distribution from the Trusts................ 353,834,250 164,814,473 157,423,606
----------------- ------------------ -----------------
NET REALIZED GAIN (LOSS)........................................ 522,943,560 218,655,522 187,552,444
----------------- ------------------ -----------------
Unrealized appreciation (depreciation) on investments:
Beginning of period....................................... 567,231,009 294,432,897 181,824,279
End of period............................................. 689,309,204 567,231,009 294,432,897
----------------- ------------------ -----------------
Change in unrealized appreciation (depreciation)
during the period......................................... 122,078,195 272,798,112 112,608,618
----------------- ------------------ -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................... 645,021,755 491,453,634 300,161,062
----------------- ------------------ -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................................... $646,360,729 $490,686,035 $303,666,818
================= ================== =================
</TABLE>
- -------------------------
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
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>
-----------------------------------------------------
ALLIANCE AGGRESSIVE STOCK
FUND
-----------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts........................................... $ 4,461,389 $ 1,311,613 $ 1,661,263
Expenses (Note 3):
Mortality and expense risk charges.................................. 5,581,296 5,299,127 4,086,388
----------------- ----------------- -----------------
NET INVESTMENT INCOME (LOSS).............................................. (1,119,907) (3,987,514) (2,425,125)
----------------- ----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments................................. (39,688,312) 28,217,939 30,549,608
Realized gain distribution from the Trusts.......................... 46,528,461 79,729,154 133,080,595
----------------- ----------------- -----------------
NET REALIZED GAIN (LOSS).................................................. 6,840,149 107,947,093 163,630,203
----------------- ----------------- -----------------
Unrealized appreciation (depreciation) on investments:
Beginning of period................................................. 32,695,620 46,617,235 80,271,118
End of period....................................................... 26,715,214 32,695,620 46,617,235
----------------- ----------------- -----------------
Change in unrealized appreciation (depreciation)
during the period................................................... (5,980,406) (13,921,615)) (33,653,883)
----------------- ----------------- -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS......................................................... 859,743 94,025,478 129,976,320
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ (260,164) $ 90,037,964 $127,551,195
================= ================= =================
<CAPTION>
---------------------------- -------------------------
ALLIANCE SMALL
CAP GROWTH MFS RESEARCH
FUND FUND
---------------------------- -------------------------
1998* 1997* 1998 1997*
------------- ------------- --------------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts........................................... $ 4,062 $ 4,189 $ 71,137 $ 20,442
Expenses (Note 3):
Mortality and expense risk charges.................................. 215,285 41,540 86,044 13,127
----------- ------------- --------------- -----------
NET INVESTMENT INCOME (LOSS).............................................. (211,223) (37,351) (14,907) 7,315
----------- ------------- --------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments................................. (7,585,521) (609,208) 494,412 6,989
Realized gain distribution from the Trusts.......................... -- 545,833 -- 81,156
----------- ------------- --------------- -----------
NET REALIZED GAIN (LOSS).................................................. (7,585,521) (63,375) 494,412 88,145
----------- ------------- --------------- -----------
Unrealized appreciation (depreciation) on investments:
Beginning of period................................................. 771,812 -- 249,382 --
End of period....................................................... 8,780,955 771,812 3,313,063 249,382
----------- ------------- --------------- -----------
Change in unrealized appreciation (depreciation)
during the period................................................... 8,009,143 771,812 3,063,681 249,382
----------- ------------- --------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS......................................................... 423,622 708,437 3,558,093 337,527
----------- ------------- --------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 212,399 $ 671,086 $3,543,186 $344,842
=========== ============= =============== ===========
</TABLE>
- -------------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-5
<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>
---------------------------------------------------------------------
MFS EMERGING MORGAN STANLEY EQ/PUTNAM
GROWTH COMPANIES EMERGING MARKETS EQUITY GROWTH & INCOME
FUND FUND VALUE FUND
---------------------------------------------------------------------
1998 1997* 1998 1997** 1998 1997*
---------------------------------------------------------- ---------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts............ $ 969 $ 24,358 $ 37,240 $ 16,623 $ 143,999 $ 33,273
Expenses (Note 3):
Mortality and expense risk charges... 157,484 18,835 23,921 2,862 56,995 9,655
------------ ---------- --------- ----------- ----------- ----------
NET INVESTMENT INCOME (LOSS).............. (156,515) 5,523 13,319 13,761 87,004 23,618
------------ ---------- --------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.. 4,270,964 161,034 (637,290) (14,566) 209,398 1,078
Realized gain distribution from the
Trusts -- 296,998 -- -- 130,047 27,226
------------ ---------- --------- ----------- ----------- ----------
NET REALIZED GAIN (LOSS).................. 4,270,964 458,032 (637,290) (14,566) 339,445 28,304
----------- ---------- --------- ----------- ----------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period................ 171,320 -- (1,079,388) -- 269,561 --
End of period...................... 6,996,177 171,320 (2,942,633) (1,079,388) 1,160,602 269,561
----------- ---------- --------- ----------- ----------- ----------
Change in unrealized appreciation
(depreciation) during the period..... 6,824,857 171,320 (1,863,245) (1,079,388) 891,041 269,561
----------- ---------- --------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.................. 11,095,821 629,352 (2,500,535) (1,093,954) 1,230,486 297,865
------------ ---------- --------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. $10,939,306 $634,875 $(2,487,216)$(1,080,193)$1,317,490 $321,483
============ ======== =========== =========== =========== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997
** Commencement of Operations on August 20, 1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-6
<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>
--------------------------------------------------------
ALLIANCE MONEY MARKET
FUND
--------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)........................... $ 9,515,464 $ 8,653,507 $ 8,101,644
Net realized gain (loss)............................... (153,564) (500,365) (110,954)
Change in unrealized appreciation
(depreciation) on investments....................... 732,101 780,326 (65,953)
----------------- ------------------ ---------------
Net increase (decrease) in net assets
from operations..................................... 10,094,001 8,933,468 7,924,737
----------------- ------------------ ---------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3).................................. 229,608,273 234,059,930 101,890,108
Benefits and other policy-related
transactions (Note 3)............................... (41,370,215) (40,687,124) (38,404,209)
Net transfers among funds and
guaranteed interest account......................... (128,607,686) (259,049,840) (36,607,946)
---------------- ------------------ ---------------
Net increase (decrease) in net assets
from policy-related transactions.................... 59,630,372 (65,677,034) 26,877,953
---------------- ------------------ ---------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)........................... (128,382) (49,726) (63,127)
----------------- ------------------ ---------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS........................... 69,595,991 (56,793,292) 34,739,563
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD.................................... 185,079,802 241,873,094 207,133,531
--------------- ------------------ ---------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD.......................................... $ 254,675,793 $ 185,079,802 $241,873,094
================= ================== ================
<CAPTION>
-----------------------------------------------------
ALLIANCE HIGH YIELD
FUND
-----------------------------------------------------
1998 1997 1996
--------------- ----------------- ----------------- -
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)......................... $ 17,442,641 $ 12,128,952 $ 8,177,610
Net realized gain (loss)............................. 1,052,131 7,302,187 7,058,612
Change in unrealized appreciation
(depreciation) on investments..................... (29,521,690) 2,958,012 1,840,843
------------------ ----------------- ---------------
Net increase (decrease) in net assets
from operations................................... (11,026,918) 22,389,151 17,077,065
------------------ ----------------- ---------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)................................ 36,502,918 26,933,221 19,454,716
Benefits and other policy-related (20,288,710) (14,530,462) (16,165,764)
transactions (Note 3).............................
Net transfers among funds and
guaranteed interest account....................... 2,677,159 26,385,799 9,301,980
------------------ ----------------- ---------------
Net increase (decrease) in net assets
from policy-related transactions.................. 18,891,177 38,788,558 12,590,932
------------------ ----------------- ---------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)......................... (6,237) (189,179) (209,120)
------------------ ----------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS......................... 7,858,022 60,988,530 29,458,877
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD.................................. 162,378,369 101,389,839 71,930,962
------------------ ----------------- ---------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD........................................ $170,236,391 $162,378,369 $101,389,839
================== ================= ===============
<CAPTION>
----------------------------------------------------------
ALLIANCE COMMON STOCK
FUND
----------------------------------------------------------
1998 1997 1996
----------------- -------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)......................... $ 1,338,974 $ (767,599) $ 3,505,756
Net realized gain (loss)............................. 522,943,560 218,655,522 187,552,444
Change in unrealized appreciation
(depreciation) on investments..................... 122,078,195 272,798,112 112,608,618
-------------------- -------------------- -------------------
Net increase (decrease) in net assets
from operations................................... 646,360,729 490,686,035 303,666,818
-------------------- -------------------- -------------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)................................ 322,874,015 282,279,826 271,193,481
Benefits and other policy-related
transactions (Note 3)............................. (250,079,870) (199,662,183) (154,302,728)
Net transfers among funds and
guaranteed interest account....................... 24,136,275 56,849,823 4,064,266
-------------------- -------------------- -------------------
Net increase (decrease) in net assets
from policy-related transactions.................. 96,930,420 139,467,466 120,955,019
-------------------- -------------------- -------------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)......................... (1,609,215) (86,740) (429,232)
-------------------- -------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS......................... 741,681,934 630,066,761 424,192,605
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD.................................. 2,200,844,640 1,570,777,879 1,146,585,274
-------------------- -------------------- -------------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD........................................ $2,942,526,574 $2,200,844,640 $1,570,777,879
==================== ==================== ===================
</TABLE>
- -------------------------
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-7
<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>
--------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK
FUND
-------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ----------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)............................. $ (1,119,907) $ (3,987,514) $ (2,425,125)
Net realized gain (loss)................................. 6,840,149 107,947,093 163,630,203
Change in unrealized appreciation
(depreciation) on investments........................ (5,980,406) (13,921,615) (33,653,883)
------------- -------------- ---------------
Net increase (decrease) in net assets
from operations...................................... (260,164) 90,037,964 127,551,195
------------- -------------- ---------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3).................................... 172,792,283 179,662,167 167,830,465
Benefits and other policy-related
transactions (Note 3)................................ (115,442,947) (107,529,554) (85,246,883)
Net transfers among funds and
guaranteed interest account.......................... (43,660,488) 1,712,877 28,481,572
------------- -------------- ---------------
Net increase (decrease) in net assets
from policy-related transactions..................... 13,688,848 73,845,490 111,065,154
------------- -------------- ---------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)............................. 308,967 (442,155) (205,349)
------------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS............................. 13,737,651 163,441,299 238,411,000
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD...................................... 957,040,430 793,599,131 555,188,131
------------- -------------- ---------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS, END OF PERIOD....... $970,778,081 $957,040,430 $793,599,131
============== ============== ===============
<CAPTION>
--------------------------------------------------------------------------
ALLIANCE SMALL
CAP GROWTH MFS RESEARCH
FUND FUND
--------------------------------- ----------------------------------------
1998* 1997* 1998 1997*
------------- ------------------- ------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)........................ $ (211,223) $ (37,351) $ (14,907) $ 7,315
Net realized gain (loss)............................ (7,585,521) (63,375) 494,412 88,145
Change in unrealized appreciation
(depreciation) on investments................... 8,009,143 771,812 3,063,681 249,382
------------- ------------ ------------ -----------
Net increase (decrease) in net assets
from operations................................. 212,399 671,086 3,543,186 344,842
------------- ------------ ------------ -----------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)............................... 14,863,783 2,947,848 6,795,257 1,177,137
Benefits and other policy-related
transactions (Note 3)........................... (3,897,615) (599,875) (1,705,211) (162,042)
Net transfers among funds and
guaranteed interest account..................... 15,043,596 19,670,856 12,108,388 6,389,251
------------- ------------ ------------ -----------
Net increase (decrease) in net assets
from policy-related transactions................ 26,009,764 22,018,829 17,198,434 7,404,346
------------- ------------ ------------ -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)........................ (116,777) (324,052) (208,262) (321,159)
------------- ------------ ------------ -----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS........................ 26,105,386 22,365,863 20,533,358 7,428,029
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD................................. 22,365,863 -- 7,428,029 --
------------- ------------ ------------ -----------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS, END OF PERIOD.. $48,471,249 $22,365,863 $27,961,387 $7,428,029
============= ============ ============= ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
MFS EMERGING MORGAN STANLEY EQ/PUTNAM
GROWTH COMPANIES EMERGING MARKETS EQUITY GROWTH & INCOME VALUE
FUND FUND FUND
-------------------------------------------------------------------------
1998 1997* 1998 1997** 1998 1997*
------------------------ ----------- ------------------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss)..........$ (156,515)$ 5,523 $ 13,319 $ 13,761 $ 87,004 $ 23,618
Net realized gain (loss).............. 4,270,964 458,032 (637,290) (14,566) 339,445 28,304
Change in unrealized appreciation
(depreciation) on investments....... 6,824,857 171,320 (1,863,245) (1,079,388) 891,041 269,561
---------- ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net
assets
from operations..................... 10,939,306 634,875 (2,487,216) (1,080,193) 1,317,490 321,483
----------- ------------ ----------- ----------- ------------ ------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)................. 11,533,783 1,598,358 2,442,975 323,739 5,099,897 1,149,748
Benefits and other policy-related
transactions (Note 3)............... (2,705,605) (294,924) (488,932) (7,501) (1,485,166) (154,351)
Net transfers among funds and
guaranteed interest account......... 25,975,152 8,886,415 4,158,460 2,483,527 6,086,532 4,539,465
----------- ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
from policy-related transactions.... 34,803,330 10,189,849 6,112,503 2,799,765 9,701,263 5,534,862
----------- ------------ ----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4).......... (153,261) (449,170) 861,681 807,804 (46,809) (191,983)
----------- ------------ ----------- ----------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS.......... 45,589,375 10,375,554 4,486,968 2,527,376 10,971,944 5,664,362
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD................... 10,375,554 -- 2,527,376 -- 5,664,362 --
---------- ------------ ----------- ----------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD.........................$55,964,929 $10,375,554 $ 7,014,344 $ 2,527,376 $16,636,306 $5,664,362
=========== =========== =========== =========== ============ ============
</TABLE>
- -------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997.
** Commencement of Operations on on August 20,1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
Effective January 1, 1997 Equitable Variable Life Insurance Company
("Equitable Variable Life" ) was merged into The Equitable Life Assurance
Society of the United States ("Equitable Life"). 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.
The merger had no effect on the net assets of the Separate Account
attributable to contractowners. Alliance Capital Management L.P., an
indirect, majority-owned subsidiary of Equitable Life, manages The Hudson
River Trust ("HR Trust") and is investment adviser for all of the investment
funds of HR Trust. EQ Financial Consultants, Inc. ("EQFC"), and Equitable
Distributors Inc. ("EDI") are wholly owned subsidiaries of Equitable Life.
EQFC manages the EQ Advisors Trust ("EQ Trust") and has overall
responsibility for general management and administration of EQ Trust.
Equitable Life Separate Account FP ("the Account") is organized as a unit
investment trust, a type of investment company, and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
The Account consists of 24 investments funds ("Funds") of which 9 are
reported herein: the Alliance Money Market Fund, the Alliance High Yield
Fund, the Alliance Common Stock Fund, the Alliance Aggressive Stock Fund,
the Alliance Small Cap Growth Fund, the MFS Research Fund, the MFS Emerging
Growth Companies Fund, the Morgan Stanley Emerging Markets Equity Fund, the
EQ/Putnam Growth & Income Value Fund. The assets in each fund are invested
in shares of a corresponding portfolio ("Portfolio") of a mutual fund, Class
1B shares of HR Trust or EQ Trust (collectively, the "Trusts"). Class 1B
shares are offered by the Trust at net asset value and are subject to fees
for investment management and advisory services and other Trust expenses.
Class 1B shares are subject to distribution fees imposed under a
distribution plan (herein the "Rule 12b-1 Plans") adopted in 1997 pursuant
to Rule 12b-1 under the 1940 Act, as amended. The Rule 12b-1 Plans provide
that the Trusts, on behalf of each Fund, may charge annually up to 0.25% of
the average daily net assets of a Fund attributable to its Class 1B shares
in respect of activities primarily intended to result in the sale of the
Class 1B shares. These fees are reflected in the net asset value of the
shares. The Trusts are open-ended, diversified management investment
companies that invest separate account assets of insurance companies. Each
Portfolio has separate investment objectives.
EQFC and EDI earns fees from both Trusts under distribution agreements held
with the Trusts. EQFC also earns fees under an investment management
agreement with the EQ Trust. Alliance earns fees under an investment
advisory agreement with the HR Trust.
The Account supports the operations of various Equitable life insurance
products. These products are sold through both Equitable's Agent
Distribution Channel and Equitable's Independent Broker Dealer Distribution
Channel. These financial statement footnotes discuss the products, charges
and investment return applicable to those life insurance products (Incentive
Life Plus & Survivorship 2000) which are sold through Equitable's
Independent Broker Dealer Distribution Channel.
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.
Receivable/payable for policy-related transactions represent amount due
to/from General Account predominately related to premiums, surrenders and
death benefits.
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 account of Equitable Life's General Account. Net transfers to
(from) the guaranteed interest account of the General Account and other
Separate Accounts of $56,300,263, $165,714,430 and $(7,511,567) for the
years ended 1998, 1997 and 1996, 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.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments are made in shares of the Trusts and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trusts using the market or fair value of the underlying
assets of the Portfolio less liabilities.
Investment transactions are recorded on the trade date. Dividends are
recorded by HR Trust as income at the end of each quarter and by EQ Trust in
the fourth quarter on the ex-dividend date. Dividend and capital gain
distributions are automatically reinvested on the ex-dividend 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 are
distributed by the Trust at the end of each year.
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, charges the daily net assets of the Account. These
charges apply to all products supported by the Account. The products sold
through Equitable's Independent Broker Dealer Distribution Channel have
charges currently for Incentive Life Plus of .60%, and for Survivorship
2000 of .90%. The products sold through Equitable Life's Agent Distribution
Channel have charges ranging from 0.60% to 1.80% depending on the features
of those products.
Before amounts are remitted to the Account, Equitable Life deducts a charge
for taxes and a premium sales charge from premiums. For one product offered
to investors in Equitable's Agent Distribution Channel, the entire premium
is allocated to the account, but before additional premiums are allocated to
the account an administrative charge is deducted.
The amounts attributable to various life products in the Account, including
Incentive Life Plus and Survivorship 2000 policyowners' accounts, are
assessed monthly by Equitable Life for cost of insurance and administrative
charges. These charges are withdrawn from the policyowner accounts 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.
Included in the Withdrawals and Administrative Charges line of the Statement
of Changes in Net Assets are certain administrative charges which are
deducted from the policyowners account value.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
4. Amounts Retained by Equitable Life in Separate Account FP
The amount retained by Equitable Life (surplus) in the Account arises
principally from (1) contributions from Equitable Life, (2) mortality and
expense risk charges and administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Policies. Amounts retained by Equitable Life are not subject
to charges for mortality and expense charges and administrative charges.
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 1998 1997 1996
--------------- ---- ---- ----
Alliance Money Market $ (1,591,380) $ -- $ --
Alliance High Yield (1,839,368) -- --
Alliance Common Stock (17,381,053) -- (185,000)
Alliance Aggressive Stock (6,122,856) -- (125,000)
Alliance Small Cap Growth (1,675,446) 1,200,000 --
MFS Research (2,558,541) 2,000,000 --
MFS Emerging Growth Companies (2,732,997) 2,000,000 --
Morgan Stanley Emerging Markets Equity (21,425) 4,000,000 --
EQ/Putnam Growth & Income Value (1,391,562) 1,200,000 --
5. Distribution and Servicing Agreements
Equitable Life has entered into Distribution and Servicing Agreements with
EQFC, an affiliate of Equitable Life, and EDI, whereby registered
representatives of EQFC, 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. Investment Returns
As of December 31, 1998 no units have been sold for products distributed
through Equitable's Independent Broker Dealer Distribution Channel, and
consequently investment returns were not presented.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-12
<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 comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of The Equitable Life Assurance Society of the United States and its
subsidiaries ("Equitable Life") at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly owned
life insurance subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("AXA"), a French
holding company for an international group of insurance and related
financial services companies, is the Holding Company's largest
shareholder, owning approximately 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance segment offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and
small groups. It also administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations. This segment includes Separate Accounts for
individual insurance and annuity products.
The Investment Services segment includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
reasonably expected to be sufficient to support such business, including
provision for payment of claims, certain expenses and taxes, and for
continuation of dividend scales payable in 1991, assuming the experience
underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account. The excess of Closed Block
liabilities over Closed Block assets represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review continues to involve numerous estimates
and subjective judgments regarding the expected performance of
Discontinued Operations Investment Assets. There can be no assurance the
losses provided for will not differ from the losses ultimately realized.
To the extent actual results or future projections of the discontinued
operations differ from management's current best estimates and
assumptions underlying the allowance for future losses, the difference
would be reflected in the consolidated statements of earnings in
discontinued operations. In particular, to the extent income, sales
proceeds and holding periods for equity real estate differ from
management's previous assumptions, periodic adjustments to the allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of
January 1, 1996. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 to other assets to be disposed of resulted
in a charge for the cumulative effect of an accounting change of $23.1
million, net of a Federal income tax benefit of $12.4 million, due to
the writedown to fair value of building improvements relating to
facilities vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
F-9
<PAGE>
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("DAC") related to universal life and investment-type
products and participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 25 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996 a loss recognition study of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
F-11
<PAGE>
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its Pension Par
and DI reserves have been calculated on a reasonable basis and are
adequate, there can be no assurance reserves will be sufficient to
provide for future liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $115.1
million and $183.4 million at December 31, 1998 and 1997, respectively.
Gross interest income on restructured mortgage loans on real estate that
would have been recorded in accordance with the original terms of such
loans amounted to $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated
depreciation on real estate was $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater, is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note which was paid in 1998. The Company recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. and
Cursitor Holdings Limited (collectively, "Cursitor") for approximately
$159.0 million. The purchase price consisted of $94.3 million in cash,
1.8 million of Alliance's publicly traded units ("Alliance Units"), 6%
notes aggregating $21.5 million payable ratably over four years, and
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. The excess of the purchase price,
including acquisition costs and minority interest, over the fair value
of Cursitor's net assets acquired resulted in the recognition of
intangible assets consisting of costs assigned to contracts acquired and
goodwill of approximately $122.8 million and $38.3 million,
respectively. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. On
June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's acquisition of Cursitor by $120.9
million. This charge reflected Alliance's view that Cursitor's
continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the facility,
the interest rate, at the option of Alliance, is a floating rate
generally based upon a defined prime rate, a rate related to the London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and medical benefits will be limited to 200%
of 1993 costs for all participants.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. Equitable Life
has implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1998 and 1997.
F-30
<PAGE>
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance and
certain other defendants affiliated with Alliance, including the Holding
Company, alleging violations of Federal securities laws, fraud and
breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings
have been brought on behalf of various alleged classes of claimants and
certain of these claimants seek damages of unspecified amounts. While
the ultimate outcome of such matters cannot be predicted with certainty,
in the opinion of management no such matter is likely to have a material
adverse effect on the Company's consolidated financial position or
results of operations.
16) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. The Company's ownership interest will be further
reduced upon the issuance of common stock after the vesting of
forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
<PAGE>
- --------------------------------------------------------------------------------
Appendix I: Investment performance record A-1
- --------------------------------------------------------------------------------
Appendix I: Investment
performance record
- --------------------------------------------------------------------------------
The tables below show performance information for the variable investment
options. The performance shown for each option equals the performance of the
Portfolio corresponding to that option, reduced by the current rate of the
policies' mortality and expense risk charge (.60% annual rate). You can find
more information about the performance of the Portfolios in The Hudson River
Trust and EQ Advisors Trust prospectuses attached at the end of this
prospectus. The performance figures on which the tables are based are after
deduction of all fees and expenses paid by the Trusts or any of the Portfolios.
The tables below, however, do not take into account the following additional
charges that we will deduct under your policy: (1) the sales charge that we
deduct from each premium payment you make; (2) the monthly cost of insurance
charge; (3) the surrender charge; (4) any charge for optional rider benefits
you may select or (5) the policies' monthly administrative charge (currently
$20 for your policy's first 12 months and $7 per month thereafter, for issue
ages 18 and older). For more information about these charges, see "Charges and
expenses you will pay" beginning on page 6 of this prospectus. If we reflected
these charges, the performance shown below would be reduced. We have not done
so, however, because the actual impact of these charges on a particular policy
varies considerably based on such factors as the insurance risk characteristics
of the insured person; the face amount and other options you select for your
policy; the amount and timing of your premium payments; and whether you make
withdrawals, take policy loans, or surrender your policy. In order to better
understand how the charges we have omitted from the below tables will affect
your policy's value, you should refer to your Illustrations of Policy Benefits
that your registered representative will provide. You can request Equitable
Life or your registered representative to provide you with such illustrations
at any time, whether before or after you purchase a policy.
In a few cases, the return information shown in the first table below includes
a period of time prior to when Separate Account FP first offered a
corresponding variable investment option under any form of variable life
insurance policy. Therefore, the second table below provides additional
performance information from the date that those investment options actually
received initial funding.
<PAGE>
- --------------------------------------------------------------------------------
A-2 Appendix I: Investment performance record
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN
AFTER DEDUCTION OF MORTALITY AND EXPENSE RISK CHARGE FOR PERIODS ENDING
DECEMBER 31, 1998*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SINCE PORTFOLIO
INCEPTION
VARIABLE INVESTMENT OPTION 1 YR. 3 YRS. 5 YRS. 10 YRS. (DATE**)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Money Market 4.44% 4.47% 4.28% 4.69% 6.19% (7/31/81)
Alliance High Yield (5.96)% 10.41% 9.06% 10.22% 9.66% (1/2/87)
Alliance Common Stock 28.29% 26.52% 20.88% 17.63% 15.37% (1/13/76)
Alliance Aggressive Stock (0.56)% 9.80% 10.50% 17.87% 16.75% (1/27/86)
Alliance Small Cap Growth (5.09)% - - - 11.30% (5/1/97)
BT Equity 500 Index 24.38% - - - 24.38% (12/31/97)
BT Small Company Index (2.90)% - - - (2.90)% (12/31/97)
BT International Equity Index 19.37% - - - 19.37% (12/31/97)
JFM Core Bond 8.37% - - - 8.37% (12/31/97)
Lazard Large Cap Value 19.34% - - - 19.34% (12/31/97)
Lazard Small Cap Value (7.72)% - - - (7.72)% (12/31/97)
MFS Research 23.36% - - - 23.70% (5/1/97)
MFS Emerging Growth Companies 33.71% - - - 34.05% (5/1/97)
Morgan Stanley Emerging Markets Equity (27.46)% - - - (33.12)% (8/20/97)
EQ/Putnam Growth & Income Value 12.14% - - - 16.92% (5/1/97)
EQ/Putnam Investors Growth 35.47% - - - 36.56% (5/1/97)
EQ/Putnam International Equity 18.76% - - - 16.82% (5/1/97)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* No performance information is shown for EQ/Alliance Premier Growth, Capital
Guardian U.S. Equity, Capital Guardian Research, Capital Guardian
International or MFS Growth with Income, as those Portfolios had not
commenced operations prior to December 31, 1998.
** The inception date shown is the date that the relevant Portfolio (or its
predecessor) received its initial funding.
<PAGE>
- --------------------------------------------------------------------------------
Appendix I: Investment performance record A-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RATES OF RETURN FOR PERIODS ENDING
DECEMBER 31, 1998 SINCE VARIABLE INVESTMENT OPTION
VARIABLE INVESTMENT OPTION INCEPTION (DATE)
- --------------------------------------------------------------------------------
Alliance Money Market 4.96% (1/27/86)
Alliance Common Stock 16.85% (1/27/86)
- --------------------------------------------------------------------------------
Unlike the rate of return tables above, the following yield information does not
include capital gains and losses that the Portfolios corresponding to the
indicated variable investment options may have experienced.
- --------------------------------------------------------------------------------
ANNUALIZED YIELD FOR PERIODS
VARIABLE INVESTMENT OPTION ENDING DECEMBER 31, 1998
- --------------------------------------------------------------------------------
7 DAYS 30 DAYS
- --------------------------------------------------------------------------------
Alliance Money Market 3.80% -
Alliance High Yield - 13.53%
- --------------------------------------------------------------------------------
The information in the tables above is not a guarantee, a prediction, or
necessarily an indication of future performance.
<PAGE>
- --------------------------------------------------------------------------------
Appendix II: Our Data on market performance B-1
- --------------------------------------------------------------------------------
Appendix II: Our Data on
market performance
- --------------------------------------------------------------------------------
In reports or other communications to policyowners or in advertising material,
we may describe general economic and market conditions affecting our variable
investment options, and the Portfolios and may compare the performance or
ranking of those options and the Portfolios with:
o those 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;
o other appropriate indices of investment securities and averages for peer
universes of mutual funds; or
o data developed by us derived from such indices or averages.
We also may furnish to present or prospective policyowners advertisements or
other communications that include evaluations of a variable investment option
or Portfolio by nationally recognized financial publications. Examples of such
publications are:
- --------------------------------------------------------------------------------
Barron's Money Management Letter
Morningstar's Variable Annuities/Life Investment Dealers Digest
Business Week National Underwriter
Forbes Pension & Investments
Fortune USA Today
Institutional Investor Investor's Daily
Money The New York Times
Kiplinger's Personal Finance The Wall Street Journal
Financial Planning The Los Angeles Times
Investment Adviser The Chicago Tribune
Investment Management Weekly
- --------------------------------------------------------------------------------
Lipper Analytical Services, Inc. (Lipper) compiles performance data for peer
universes of Portfolios with similar investment objectives in its Lipper
Variable Insurance Products Performance Analysis Service (Lipper Survey).
Morningstar, Inc. compiles similar data in the Morningstar Variable
Annuity/Life Report (Morningstar Report).
The Lipper Survey records performance data as reported to it by over 800 mutual
funds underlying variable annuity and life insurance products. It divides these
actively managed portfolios into 25 categories by portfolio objectives. The
Lipper Survey contains two different universes, which reflect different types
of fees in performance data:
o 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; and
o The "Mutual Fund" universe reports performance net only of investment
management fees and direct operating expenses, and therefore reflects only
charges that relate to the underlying mutual fund.
The Morningstar Report consists of nearly 700 variable life and annuity
portfolios, all of which report their data net of investment management fees,
direct operating expenses and separate account level charges.
LONG-TERM MARKET TRENDS
The following chart presents historical return trends for various types of
securities. The information presented does not directly relate to the
performance of our variable investment options or the Trusts. Nevertheless, it
may help you gain 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 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.
However, common stocks have also experienced dramatic changes in value over
short periods of time. One of our variable investment options that invests
primarily in common stocks may, therefore, be a desirable selection for owners
who are willing to accept such risks. If, on the other hand, you wish to limit
your short-term risk, you may find it preferable to allocate a smaller
percentage of net premiums to those options that invest primarily in common
stock. All investments in securities, whether equity or debt, involve varying
degrees of risk. They also offer varying degrees of potential reward.
<PAGE>
- --------------------------------------------------------------------------------
B-2 Appendix II: Our Data on market performance
- --------------------------------------------------------------------------------
The chart below illustrates the average annual compound rates of return over
selected time periods between December 31, 1926 and December 31, 1998 for the
types of securities indicated in the chart. These rates of return assume the
reinvestment of dividends, capital gains and interest. The Consumer Price Index
is also shown as a measure of inflation for comparison purposes. The investment
return information presented is an historical record of unmanaged categories of
securities. In addition, the rates of return shown do not reflect either (1)
investment management fees and expenses, or (2) costs and charges associated
with ownership of a variable life insurance policy.
The rates of return illustrated do not represent returns of our variable
investment options or the Portfolios and do not constitute a representation
that the performance of those options or the Portfolios will correspond to
rates of return such as those illustrated in the chart.
AVERAGE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON GOVERNMENT CORPORATE TERM GOV'T U.S. TREASURY CONSUMER
ENDING DECEMBER 31, 1998 STOCKS BONDS BONDS BONDS BILLS PRICE INDEX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year 28.58% 13.06% 10.76% 10.21% 4.86% 1.80%
3 Years 28.27 9.07 8.25 6.84 5.11 2.27
5 years 24.06 9.52 8.74 6.20 4.96 2.41
10 years 19.19 11.66 10.85 8.74 5.29 3.14
20 years 17.75 11.14 10.86 9.85 7.17 4.53
30 years 12.67 9.09 9.14 8.71 6.76 5.24
40 years 12.00 7.20 7.43 7.39 5.94 4.44
50 years 13.56 5.89 6.20 6.21 5.07 3.92
60 years 12.49 5.43 5.62 5.50 4.26 4.19
Since 1926 11.21 5.29 5.78 5.32 3.78 3.15
Inflation Adjusted Since 1926 7.82 2.08 2.55 2.11 0.62 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Ibbotson, Roger G. and Rex A. Sinquefield, STOCKS, BONDS, BILLS, AND
INFLATION (SBBI), 1982, updated in STOCKS, BONDS, BILLS, AND INFLATION 1999
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 1969-1998, 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
1969-1998; 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.
Consumer Price Index - Measured by the Consumer Price Index for all Urban
Consumers (CPI-U), not seasonally adjusted.
<PAGE>
- --------------------------------------------------------------------------------
Appendix III: An index of key words and phrases C-1
- --------------------------------------------------------------------------------
Appendix III: An index of key
words and phrases
- --------------------------------------------------------------------------------
This index should help you locate more information on the terms used in this
prospectus.
PAGE
account value 19
Administrative Office 5
age 33
Allocation Date 13
alternative death benefit 16
amount at risk 37
anniversary 33
assign; assignment 31
automatic transfer service 20
basis 27
beneficiary 17
business day 32
Cash Surrender Value 23
Code 26
collateral 23
cost of insurance charge 37
cost of insurance rates 37
customer loyalty credit 38
day 32
death benefit guarantee 11
default 10
dollar cost averaging service 21
enhanced death benefit guarantee 12
EQ Advisors Trust 14
EQ Financial Consultants 14
Equitable Distributors 40
Equitable Life 4
Equitable Access Account 18
face amount 15
grace period 10
guarantee premium 12
guaranteed interest option 15
Guaranteed Interest Account 15
Hudson River Trust 14
insured person 15
Investment Funds 14
investment option 13
issue date 33
lapse 10
loan, loan interest 23
modified endowment contract 10
month, year 33
monthly deduction 6, 9
net cash surrender value 25
no-lapse guarantee 11
Option A, B 15
our 2
owner 2
paid up 26
paid up death benefit guarantee 12
partial withdrawal 24
payment option 17
planned periodic premium 10
policy cover
Portfolio cover
premium charge 6
premium payments 10
prospectus cover
rebalancing 22
receive 32
restore, restoration 11
rider 17
SEC cover
Separate Account FP 35
state 2
subaccount 35
Substitution 14
Survivorship Incentive Life cover
surviving insured person 15
surrender 25
surrender charge 7
target premium 7
telephone transfer 20
transfers 20
Trust(s) 14
units 19
unit values 19
us 2
variable investment option 14
we 2
withdrawal 24
you, your 2
<PAGE>
Incentive Life(SM)
A flexible premium variable life
insurance policy
PROSPECTUS DATED AUGUST 1, 1999
[FIRST UNION VERSION]
Please read this prospectus and keep it for future reference. It contains
important information that you should know before purchasing, or taking any
other action under a policy. Also, at the end of this prospectus you will find
attached the prospectuses for The Hudson River Trust and EQ Advisors Trust,
which contain important information about their Portfolios.
- --------------------------------------------------------------------------------
This prospectus describes many aspects of an Incentive Life policy, but is not
itself a policy. The policy is the actual contract that determines your
benefits and obligations under Incentive Life. To make this prospectus easier
to read, we sometimes use different words than the policy. Equitable Life or
your registered representative can provide any further explanation about your
policy.
WHAT IS INCENTIVE LIFE?
Incentive Life is issued by Equitable Life. It provides life insurance
coverage, plus the opportunity for you to earn a return in our guaranteed
interest option and/or one or more of the following variable investment
options:
- --------------------------------------------------------------------------------
VARIABLE INVESTMENT OPTIONS:
- --------------------------------------------------------------------------------
o Alliance Money Market o JPM Core Bond
o Alliance High Yield o Lazard Large Cap Value
o Alliance Common Stock o Lazard Small Cap Value
o Alliance Aggressive Stock o MFS Growth with Income
o Alliance Small Cap Growth o MFS Research
o EQ/Alliance Premier Growth o MFS Emerging Growth
o BT Equity 500 Index Companies
o BT Small Company Index o Morgan Stanley Emerging
o BT International Equity Index Markets Equity
o Capital Guardian U.S. Equity* o EQ/Putnam Growth & Income
o Capital Guardian Research* Value
o Capital Guardian o EQ/Putnam Investors Growth
International* o EQ/Putnam International
o EQ/Evergreen Equity
o EQ/Evergreen Foundation
- --------------------------------------------------------------------------------
* Available August 30, 1999
Amounts that you allocate under your policy to any of the variable investment
options are invested in a corresponding "Portfolio" that is part of one of the
following two mutual funds: The Hudson River Trust or the EQ Advisors Trust.
Your investment results in a variable investment option will depend on those of
the related Portfolio. Any gains will generally be tax-deferred and the life
insurance benefits we pay if the policy's insured person dies will generally be
income tax-free.
OTHER CHOICES YOU HAVE. You have considerable flexibility to tailor the policy
to your needs. For example, subject to our rules, you can (1) choose when and
how much you contribute (as "premiums") to your policy, (2) pay certain premium
amounts to guarantee that your insurance coverage will continue for a number of
years, regardless of investment performance, (3) borrow or withdraw amounts you
have accumulated, (4) change the amount of insurance coverage, (5) choose
between two life insurance benefit options, (6) elect to receive an insurance
benefit if the insured person becomes terminally ill, and (7) add or delete
certain optional benefits that we offer by "riders" to your policy.
Your registered representative 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 Incentive Life or another policy
may not be to your advantage.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE POLICIES ARE NOT
INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE SUBJECT TO
INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
Contents of this prospectus
- --------------------------------------------------------------------------------
2 Contents of this prospectus
- --------------------------------------------------------------------------------
INCENTIVE LIFE
- --------------------------------------------------------------------------------
What is Incentive Life? Cover
Who is Equitable Life? 4
How to reach us 5
Charges and expenses you will pay 6
Risks you should consider 9
1
- --------------------------------------------------------------------------------
POLICY FEATURES AND BENEFITS 10
- --------------------------------------------------------------------------------
How you can pay for and contribute to your policy 10
The minimum amount of premiums you must pay 10
You can guarantee that your policy will not terminate before a certain date 11
You can elect a "paid up" death benefit guarantee 12
Investment options within your policy 13
About your life insurance benefit 15
You can increase or decrease your insurance coverage 17
Other benefits you can add by rider 17
Your options for receiving policy proceeds 18
Your right to cancel within a certain number of days 19
Variations among Incentive Life policies 19
2
- --------------------------------------------------------------------------------
DETERMINING YOUR POLICY'S VALUE 20
- --------------------------------------------------------------------------------
Your account value 20
3
- --------------------------------------------------------------------------------
TRANSFERRING YOUR MONEY AMONG OUR INVESTMENT OPTIONS 21
- --------------------------------------------------------------------------------
Transfers you can make 21
Telephone transfers 21
Our dollar cost averaging service 21
Our asset rebalancing service 22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
"We", "our" and "us" refers to Equitable Life. A "registered representative"
is authorized to sell you this policy on Equitable Life's behalf.
When we address the reader of this prospectus with words such as "you" and
"your," we mean the person or persons having the right or responsibility that
the prospectus is discussing at that point. This usually is the policy's owner.
If a policy has more than one owner, all owners must join in the exercise of any
rights an owner has under the policy, and the word "owner" therefore refers to
all owners.
When we use the word "state," we also mean any other local jurisdiction
whose laws or regulations affect a policy.
We do not offer Incentive Life in all states. This prospectus does not offer
Incentive Life anywhere such offers are not lawful. Equitable Life does not
authorize any information or representation about the offering other than that
contained or incorporated in this prospectus, in any current supplements
thereto, or in any related sales materials authorized by Equitable Life.
<PAGE>
- --------------------------------------------------------------------------------
Contents of this prospectus 3
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
ACCESSING YOUR MONEY 23
- --------------------------------------------------------------------------------
Borrowing from your policy 23
Making withdrawals from your policy 24
Surrendering your policy for its net cash surrender value 25
Your option to receive a living benefit 25
5
- --------------------------------------------------------------------------------
TAX INFORMATION 26
- --------------------------------------------------------------------------------
Basic tax treatment for you and your beneficiary 26
Tax treatment of distributions to you 26
Tax treatment of living benefit proceeds 28
Effect of policy on interest deductions taken by business entities 28
Requirement that we diversify investments 28
Estate, gift, and generation-skipping taxes 29
Pension and profit-sharing plans 29
Other employee benefit programs 29
ERISA 29
Our taxes 29
When we withhold taxes from distributions 30
Possibility of future tax changes 30
6
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT PROCEDURES THAT APPLY TO YOUR POLICY 31
- --------------------------------------------------------------------------------
Ways to make premium and loan payments 31
Requirements for surrender requests 31
Ways we pay policy proceeds 31
Assigning your policy 31
Dates and prices at which policy events occur 31
Policy issuance 33
Gender-neutral policies 34
7
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT OTHER MATTERS 35
- --------------------------------------------------------------------------------
Your voting privileges 35
About our Separate Account FP 35
About our general account 36
You can change your policy's insured person 36
Transfers of your account value 36
Telephone requests 37
Deducting policy charges 37
Customer loyalty credit 38
Suicide and certain misstatements 38
When we pay policy proceeds 38
Changes we can make 39
Reports we will send you 39
Legal proceedings 40
Illustrations of policy benefits 40
SEC registration statement 40
How we market the policies 40
Insurance regulation that applies to Equitable Life 40
Year 2000 progress 41
Directors and principal officers 42
8
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT FP AND EQUITABLE LIFE 48
- --------------------------------------------------------------------------------
Separate Account FP financial statements FSA-1
Equitable Life financial statements F-1
- --------------------------------------------------------------------------------
APPENDICES
- --------------------------------------------------------------------------------
I - Investment performance record A-1
II - Our data on market performance B-1
III - An index of key words and phrases C-1
- --------------------------------------------------------------------------------
THE HUDSON RIVER TRUST PROSPECTUS
(follows after page C-1 of this prospectus, but is not a part of this
prospectus)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EQ ADVISORS TRUST PROSPECTUS (follows after The Hudson River Trust Prospectus,
but is not a part of that prospectus or this prospectus.)
- --------------------------------------------------------------------------------
<PAGE>
Who is Equitable Life?
- --------------------------------------------------------------------------------
4 Who is Equitable Life?
- --------------------------------------------------------------------------------
We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing
business since 1859. Equitable Life is a wholly owned subsidiary of The
Equitable Companies Incorporated ("Equitable Companies"), whose majority
shareholder is AXA, a French holding company for an international group of
insurance and related financial services companies. As a majority shareholder,
and under its other arrangements with Equitable Life and Equitable Life's
parent, AXA exercises significant influence over the operations and capital
structure of Equitable Life and its parent. No company other than Equitable
Life, however, has any legal responsibility to pay amounts that Equitable Life
owes under the policies. During 1999, Equitable Companies plans to change its
name to AXA Financial, Inc.
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For more than 100 years we
have been among the largest insurance companies in the United States. We are
licensed to sell life insurance and annuities in all fifty states, the District
of Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is
located at 1290 Avenue of the Americas, New York, N.Y. 10104.
<PAGE>
- --------------------------------------------------------------------------------
Who is Equitable Life? 5
- --------------------------------------------------------------------------------
HOW TO REACH US
To obtain (1) any forms you need for communicating with us, (2) unit values and
other values under your policy, and (3) any other information or materials that
we provide in connection with your policy or the Portfolios, you can contact us
- --------------------------------------------------------------------------------
BY MAIL:
- --------------------------------------------------------------------------------
at the Post Office Box for our Administrative Office:
Equitable Life Client Services
Radio City Station
P.O. Box 808
New York, New York 10101-0808
- --------------------------------------------------------------------------------
BY EXPRESS DELIVERY:
- --------------------------------------------------------------------------------
at the Street Address for our Administrative Office:
Equitable Life Client Services
135 W. 50th St., 10th Floor
New York, New York 10020
- --------------------------------------------------------------------------------
BY TOLL-FREE PHONE:
- --------------------------------------------------------------------------------
1-888-228-6690
- --------------------------------------------------------------------------------
BY E-MAIL:
- --------------------------------------------------------------------------------
life-service@ equitable.com
- --------------------------------------------------------------------------------
BY FAX:
- --------------------------------------------------------------------------------
1-212-641-7075
- --------------------------------------------------------------------------------
BY INTERNET:
- --------------------------------------------------------------------------------
Our web site (www.equitable.com) can also provide you information.
- --------------------------------------------------------------------------------
We require that the following types of communications be on specific forms we
provide for that purpose:
(1) request for automatic transfer service;
(2) authorization for telephone transfers by a person who is not also the
insured person; and
(3) request for asset rebalancing service.
We also have specific forms that we recommend you use for the following:
(a) policy surrenders;
(b) address changes;
(c) beneficiary changes;
(d) transfers between investment options; and
(e) changes in allocation percentages for premiums and deductions.
Except for properly authorized telephone transactions, any notice or request
that does not use our standard form must be in writing dated and signed by you
and should also specify your name, the insured person's name (if different),
your policy number, and adequate details about the notice you wish to give or
other action you wish us to take. For information about transaction requests
you can make by phone, see "Telephone transfers" on page 21 and "Telephone
requests" on page 37 of this prospectus. We may require you to return your
policy to us before we make certain policy changes that you may request.
The proper person to sign forms, notices and requests would normally be the
owner or any other person that our procedures permit to exercise the right or
privilege in question. If there are joint owners both must sign. Any
irrevocable beneficiary or assignee that we have on our records also must sign
certain types of requests.
You should send all requests, and notices to our Administrative Office at the
addresses specified above. We will also accept requests and notices by fax at
the above number, if we believe them to be genuine. We reserve the right,
however, to require an original signature before acting on any faxed item. You
must send premium payments after the first one to our Administrative Office at
the above addresses; except that you should send any premiums for which we have
billed you to the address on the billing notice.
<PAGE>
Charges and expenses you will pay
- --------------------------------------------------------------------------------
6 Charges and expenses you will pay
- --------------------------------------------------------------------------------
TABLE OF POLICY CHARGES
This table shows the charges that we deduct under the terms of your policy. For
more information about some of these charges, see "Deducting policy charges"
beginning on page 37 below.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
CHARGES WE DEDUCT FROM Premium charge (a) 6% of each premium payment you make up to a certain
AMOUNTS YOU CONTRIBUTE amount(1) and (b) 3% of each premium payment thereafter
TO YOUR POLICY: (which we may increase up to 6%)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
CHARGES WE DEDUCT FROM Administrative charge3 (i) For adults (age 18 and older), $20 in each of your
YOUR POLICY'S VALUE EACH policy's first 12 months; or, for children, $10 in each of
MONTH: your policy's first 24 months and (ii) for everyone, $7 in
each subsequent month (which we may increase up
to $10)
--------------------------------------------------------------------------------------------------------
Cost of insurance charges(3) Amount varies depending on the specifics of your policy(4)
and Optional rider charges
--------------------------------------------------------------------------------------------------------
Charge if you have elected our $.02 for each $1000 of your policy's face amount at the
optional enhanced death time the charge is deducted(5)
benefit guarantee
- ------------------------------------------------------------------------------------------------------------------------------------
CHARGES WE DEDUCT FROM Mortality and expense .60% (effective annual rate) of the value you have in our
YOUR POLICY'S VARIABLE risk charge variable investment options (we may increase this rate up
INVESTMENT PERFORMANCE to .90%)(6)
EACH DAY:
- ------------------------------------------------------------------------------------------------------------------------------------
CHARGES WE DEDUCT FROM Surrender (turning in) of your A surrender charge that will not exceed the amount set
YOUR ACCOUNT VALUE AT THE policy during its first 15 years forth in your policy.(7) (We will also deduct the remaining
TIME OF THE TRANSACTION: amount of surrender charge associated with any face
amount increase, as discussed immediately below.)
--------------------------------------------------------------------------------------------------------
Surrender of your policy during An amount of surrender charge that we will compute on
the first 15 years after you have essentially the same basis as if each such face amount
requested an increase in your increase had been a separate, newly-issued Incentive Life
policy's face amount policy.(8)
--------------------------------------------------------------------------------------------------------
Requested decrease in your A pro-rata portion of the full surrender charge that would
policy's face amount apply to a surrender at the time of the decrease
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Charges and expenses you will pay 7
- --------------------------------------------------------------------------------
1 Up to an amount equal to ten "target premiums." The "target premium" is
actuarially determined for each policy, based on that policy's
characteristics.
2 The Illustrations of Policy Benefits that your registered representative will
provide will show the impact of the actual current and guaranteed maximum
rates of these and any other charges, based on various assumptions. We may
increase this charge higher than 6%, however, as a result of changes in the
tax laws which increase our expenses.
3 Not applicable after the insured person reaches age 100.
4 See "Monthly cost of insurance charge" on page 37 below and "Other benefits
you can add by rider" on page 17 below.
5 The "face amount" is the basic amount of insurance coverage under your
policy.
6 This charge does not apply to amounts in our guaranteed interest option.
7 Beginning in your policy's ninth year, this amount declines at a constant
rate each month until no surrender charge applies to surrender made after
the policy's 15th year. The initial amount of surrender charge depends on
each policy's specific characteristics. For any policy, the lowest initial
surrender charge per $1,000 of initial face amount would be $2.91, and the
highest initial surrender charge per $1,000 of initial face amount would be
$12.99.
8 This additional surrender charge, however, applies only to the amount (if
any) by which the increase causes the face amount to exceed its highest
previous amount. For these purposes, we disregard any face amount changes
that we make automatically as a result of any change in your death benefit
option.
<PAGE>
- --------------------------------------------------------------------------------
8 Charges and expenses you will pay
- --------------------------------------------------------------------------------
YOU ALSO BEAR YOUR PROPORTIONATE SHARE OF ALL FEES AND EXPENSES PAID BY A
"PORTFOLIO" THAT CORRESPONDS TO ANY VARIABLE INVESTMENT OPTION YOU ARE USING:
This table shows the fees and expenses paid by each Portfolio for the year
ended December 31, 1998. These fees and expenses are reflected in the
Portfolio's net asset value each day. Therefore, they reduce the investment
return of the Portfolio and of the related variable investment option. Actual
fees and expenses are likely to fluctuate from year to year. All figures are
expressed as an annual percentage of each Portfolio's daily average net assets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIOS THAT ARE PART OF THE HUDSON RIVER TRUST 1998 FEES AND EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL
MANAGEMENT 12B-1 OTHER ANNUAL
FEE FEE EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Money Market 0.35% 0.25% 0.02% 0.62%
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield 0.60% 0.25% 0.03% 0.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Common Stock 0.36% 0.25% 0.03% 0.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock 0.54% 0.25% 0.03% 0.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth 0.90% 0.25% 0.05% 1.20%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIOS THAT ARE PART OF THE EQ ADVISORS TRUST 1998 FEES AND EXPENSES*
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FEE WAIVERS NET TOTAL
MANAGEMENT OTHER ANNUAL AND/OR EXPENSE ANNUAL
FEE 12B-1 FEE EXPENSES EXPENSES REIMBURSEMENTS EXPENSES
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
EQ/Alliance Premier Growth 0.90% 0.25% 0.74% 1.89% 0.74% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index 0.25% 0.25% 0.33% 0.83% 0.28% 0.55%
- ------------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index 0.25% 0.25% 1.31% 1.81% 1.06% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
BT International Equity Index 0.35% 0.25% 0.89% 1.49% 0.49% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity** 0.65% 0.25% 0.74% 1.64% 0.69% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Guardian Research** 0.65% 0.25% 0.74% 1.64% 0.69% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Guardian International** 0.75% 0.25% 1.03% 2.03% 0.83% 1.20%
- ------------------------------------------------------------------------------------------------------------------------------------
EQ/Evergreen 0.75% 0.25% 0.76% 1.76% 0.71% 1.05%
- ------------------------------------------------------------------------------------------------------------------------------------
EQ/Evergreen Foundation 0.63% 0.25% 0.86% 1.74% 0.79% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
JPM Core Bond 0.45% 0.25% 0.33% 1.03% 0.23% 0.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Lazard Large Cap Value 0.55% 0.25% 0.40% 1.20% 0.25% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
Lazard Small Cap Value 0.80% 0.25% 0.49% 1.54% 0.34% 1.02%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Growth with Income 0.55% 0.25% 0.59% 1.39% 0.54% 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research 0.55% 0.25% 0.25% 1.05% 0.20% 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies 0.55% 0.25% 0.24% 1.04% 0.19% 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity 1.15% 0.25% 1.23% 2.63% 0.88% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value 0.55% 0.25% 0.24% 1.04% 0.19% 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam Investors Growth 0.55% 0.25% 0.29% 1.09% 0.14% 0.95%
- ------------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam International Equity 0.70% 0.25% 0.51% 1.46% 0.26% 1.20%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Other Expenses and Total Annual Expenses are based upon the actual
expenses incurred by each Portfolio for the year ended December 31, 1998,
except for MFS Growth with Income which commenced operations on December
31, 1998 and EQ/Alliance Premier Growth, Capital Guardian Research,
Capital Guardian U.S. Equity, Capital Guardian International,
EQ/Evergreen and EQ/Evergreen Foundation which commenced operations on
May 1, 1999. The expenses for those Portfolios are based on annualized
estimates for 1999. The EQ Advisors Trust's manager, EQ Financial
Consultants, Inc., has entered into an Expense Limitation Agreement with
respect to each Portfolio under which it has agreed to waive or reduce
its fees and to assume other expenses of each of the Portfolios, if
necessary, in an amount that limits each Portfolio's Total Annual
Expenses (exclusive of interest, taxes, brokerage commissions,
capitalized expenditures, extraordinary expenses and 12b-1 fees) to not
more than the amounts specified above as Net Total Annual Expenses. See
the EQ Advisors Trust prospectus for more information.
** Available beginning August 30, 1999.
<PAGE>
- --------------------------------------------------------------------------------
Risks you should consider 9
- --------------------------------------------------------------------------------
HOW WE ALLOCATE CHARGES AMONG YOUR INVESTMENT OPTIONS
In your application for a policy, you tell us from which investment options you
want us to take the policy's monthly deductions as they fall due. You can
change these instructions at any time. If we cannot deduct the charge as your
most current instructions direct, we will allocate the deduction among your
investment options proportionately to your value in each.
CHANGES IN CHARGES
We reserve the right in the future to (1) make a charge for certain taxes or
reserves set aside for taxes (see "Our taxes" on page 29 below), (2) make a
charge for the operating expenses of our variable investment options
(including, without limitation, SEC registration fees and related legal counsel
fees and auditing fees), (3) make a charge of up to $25 for each transfer among
investment options that you make or (4) make a charge for our asset rebalancing
service.
Any changes that we make in our current charges or charge rates will be by
class of insured person and will be based on changes in future expectations
about such factors as investment earnings, mortality experience, the length of
time policies will remain in effect, premium payments, expenses and taxes. Any
changes in charges may apply to then outstanding policies, as well as to new
policies, but we will not raise any charges above any maximums discussed in
this prospectus and shown in your policy.
-------------------------------------------------------------------------------
Risks you should consider
-------------------------------------------------------------------------------
Some of the principal risks of investing in a policy are as follows:
o If the investment options you choose perform poorly, you could lose some or
all of the premiums you pay.
o If the investment options you choose do not make enough money to pay for the
policy charges, you could have to pay more premiums to keep your policy from
terminating.
o We can increase certain charges without your consent, within limits stated
in your policy.
o You may have to pay a surrender charge if you wish to discontinue some or
all of your insurance coverage under a policy.
Your policy permits other transactions that also have risks. These and other
risks and benefits of investing in a policy are discussed in detail throughout
this prospectus.
<PAGE>
1
Policy features and benefits
- --------------------------------------------------------------------------------
10 Policy features and benefits
- --------------------------------------------------------------------------------
HOW YOU CAN PAY FOR AND CONTRIBUTE TO YOUR POLICY
PREMIUM PAYMENTS. We call the amounts you contribute to your policy "premiums"
or "premium payments." The amount we require as your first premium varies
depending on the specifics of your policy and the insured person. Each
subsequent premium payment must be at least $100, although we can increase this
minimum if we give you advance notice. (Policies issued in some states or on an
automatic premium payment plan may have different minimums.) Otherwise, with a
few exceptions mentioned below, you can make premium payments at any time and
in any amount.
- --------------------------------------------------------------------------------
You can generally pay premiums at such times and in such amounts as you like,
so long as you don't exceed certain limits determined by the federal income tax
laws applicable to life insurance.
- --------------------------------------------------------------------------------
LIMITS ON PREMIUM PAYMENTS. The federal tax law definition of "life insurance"
limits your ability to pay certain high levels of premiums (relative to the
amount of your policy's insurance coverage). Also, if your premium payments
exceed certain other amounts specified under the Internal Revenue Code, your
policy will become a "modified endowment contract," which may subject you to
additional taxes and penalties on any distributions from your policy. See "Tax
information" beginning on page 26 below. We may return to you any premium
payments that would exceed those limits.
You can ask your registered representative to provide you with an illustration
of policy benefits that shows you the amount of premium you can pay, based on
various assumptions, without exceeding these tax law limits. The tax law limits
can change as a result of certain changes you make to your policy. For example,
a reduction in the face amount of your policy may reduce the amount of premiums
that you can pay.
If at any time when your policy's account value is high enough that the
alternative death benefit discussed on page 16 below would apply, we reserve
the right to limit the amount of any premiums that you pay, unless the insured
person provides us with adequate evidence that he/she continues to meet our
requirements for issuing insurance.
PLANNED PERIODIC PREMIUMS. Page 3 of your policy will specify a "planned
periodic premium." This is the amount that you request us to bill you. However,
payment of these or any other specific amounts of premiums is not mandatory.
Rather, you need to pay only the amount of premiums (if any) that is necessary
to keep your policy from lapsing and terminating as discussed below.
THE MINIMUM AMOUNT OF PREMIUMS YOU MUST PAY
POLICY "LAPSE" AND TERMINATION. Your policy will lapse (also referred to in
your policy as "default") if it does not have enough "net cash surrender value"
to pay your policy's monthly charges when due unless
o you have paid sufficient premiums to maintain one of our available
guarantees against termination and your policy is still within the period of
that guarantee (see "You can guarantee that your policy will not terminate
before a certain date" below) or
o you have elected the "paid up" death benefit guarantee and it remains in
effect (see "You can elect a "paid up" death benefit guarantee" at page 12
below).
("Net cash surrender value" is explained under "Surrendering your policy for
its net cash surrender value" on page 25 below.)
We will mail a notice to you at your last known address if your policy lapses.
You will have a 61 day grace period to pay at least an amount prescribed in
your policy which would be enough to keep your policy in force for
approximately three months (without regard to investment performance). You may
not make any transfers or request any other policy changes during a grace
period. If we do not receive your payment by the end of the grace period, your
policy (and all riders to the policy) will terminate without
<PAGE>
- --------------------------------------------------------------------------------
Policy features and benefits 11
- --------------------------------------------------------------------------------
value and all coverage under your policy will cease. We will mail an additional
notice to you if your policy terminates.
- --------------------------------------------------------------------------------
Your policy will terminate if you don't either (i) pay enough premiums to pay
the charges we deduct or (ii) maintain in effect one or more of our other
guarantees that can keep your policy from terminating. However, we will first
send you a notice and give you a chance to cure any shortfall.
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You may owe taxes if your policy terminates while you have a loan outstanding,
even though you receive no additional money from your policy at that time. See
"Tax information," beginning on page 26 below.
RESTORING A TERMINATED POLICY. To have your policy "restored" (put back in
force), you must apply within six months after the date of termination. In some
states, you may have a longer period of time. You must also present evidence of
insurability satisfactory to us and pay at least the amount of premium that we
require. Your policy contains additional information about the minimum amount
of this premium and about the values and terms of the policy after it is
restored.
YOU CAN GUARANTEE THAT YOUR POLICY WILL NOT TERMINATE BEFORE A CERTAIN DATE
You can guarantee that your policy will not terminate for a number of years by
paying at least certain amounts of premiums. We call these amounts "guarantee
premiums" and they will be set forth on page 3 of your policy. In most states
you have three options for how long the guarantee will last. One of these
options is discussed below under "Enhanced death benefit guarantee." The other
two guarantee options are as follows:
(1) a guarantee for the first 5 years of your policy (the policy calls this
the "no-lapse guarantee")
or
(2) a guarantee until the insured reaches age 70, but in no case less than 10
years (the policy calls this the "death benefit guarantee").
These guarantees may be unavailable or limited to shorter periods in some
states.
We make no extra charge for either of the two above-listed guarantees against
policy termination. However, in order for either of those guarantees to be
available, you must have satisfied the "guarantee premium test" (discussed
below) and you must not have any outstanding policy loans. In this connection,
maintaining the "age 70/10 year" guarantee against policy termination (where
available) will require you to pay more premiums than maintaining only the 5
year guarantee.
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In most states, if you pay at least certain prescribed amounts of premiums,
and have no policy loans, your policy will not terminate for a number of
years, even if the value in your policy becomes insufficient to pay the
monthly charges.
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GUARANTEE PREMIUM TEST. If your policy's net cash surrender value is not
sufficient to pay a monthly deduction that has become due, we check to see if
the cumulative amount of premiums that you have paid to date at least equals
the cumulative guarantee premiums due to date for either of the two
above-listed guarantee options that are then available under your policy. If it
does, your policy will not lapse, provided that you have no policy loans
outstanding (or you repay all of such loans before the end of the 61 day grace
period mentioned above) and provided that the period of the corresponding
guarantee has not expired.
When we calculate the cumulative amount of guarantee premiums for the two
above-listed guarantee options, we compound each amount at a 4% annual interest
rate from its due date through the date of the calculation. (This interest rate
is purely for purposes of determining whether you have satisfied the guarantee
test for an available duration. It does not bear any relation to the returns
you will actually earn or any loan interest you will actually pay.) We use the
same calculation for determining the cumulative amount of premiums paid,
beginning with the date each premium is received. The amount of premiums you
must pay
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12 Policy features and benefits
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to maintain a guarantee against termination will be increased by the cumulative
amount of any partial withdrawals you have taken from your policy (calculated
by the same method, beginning with the date of withdrawal).
ENHANCED DEATH BENEFIT GUARANTEE. On your application for a policy, you may
elect an enhanced death benefit guarantee rider, that will guarantee your
policy against termination for a longer period of time than either of the two
guarantee options described above. If elected, a monthly charge of $.02 per
$1000 of the policy's face amount is deducted from your account value for this
enhanced death benefit guarantee. To elect this feature, all of your policy's
account value must be allocated to our variable investment options.
While the enhanced death benefit guarantee is in effect, your policy will not
lapse, even if your net cash surrender value is insufficient to pay a monthly
deduction that has become due, as long as you do not have an outstanding loan
(or you repay the loan within the 61 day grace period). This guarantee is
available for the following periods:
(a) If you have always chosen death benefit Option A, for the life of the
insured person; or
(b) If you have ever selected death benefit Option B (even if you
subsequently changed it to Option A), until the later of the date the
insured person reaches age 80 or the end of the 15th year of the policy.
This option is not available in all states.
If you have elected the enhanced death benefit guarantee, we test on each
policy anniversary to see if the required premium (the enhanced death benefit
"guarantee premium") has been paid. (The enhanced guarantee premium will be set
forth on page 3 of your policy.) The required premium has been paid if the
total of all premiums paid, less all withdrawals, is at least equal to the
total of all enhanced guarantee premiums due to date. (In this comparison,
unlike the test for the shorter duration guarantees discussed above, we do not
compound these amounts using any hypothetical interest rate.)
If the required premium has not been paid as of any policy anniversary, we will
mail you a notice requesting that you send us the shortfall. If we do not
receive this additional premium, the enhanced death benefit guarantee will
terminate. The enhanced death benefit guarantee also will terminate if you
request that we cancel it, or if you allocate any value to our guaranteed
interest option. If the enhanced death benefit guaranty terminates, the related
charge terminates, as well. Once terminated, this guarantee can never be
reinstated or restored.
GUARANTEE PREMIUMS. The amount of the guarantee premiums for each of the
guarantees discussed above is set forth in your policy if that guarantee is
available to you. The guarantee premiums are actuarially determined at policy
issuance and depend on the age and other insurance risk characteristics of the
insured person, as well as the amount of the coverage and additional features
you select. Certain additional benefit riders will cause the guarantee premiums
to increase after policy issue. The guarantee premiums also may change if, for
example, you make policy changes that increase or decrease the face amount of
the policy or a rider, add or eliminate a rider, or if there is a change in the
insured person's risk characteristics. We will send you a new policy page
showing any change in your guarantee premiums. Any change will be prospective
only, and no change will extend a guarantee period beyond its original number
of years.
We will not bill you separately for guarantee premiums. If you want to be
billed, therefore, you must select a planned periodic premium that at least
equals the guarantee premium that you plan to pay. If you wish your bills for
planned periodic premiums to cover your guarantee premiums, please remember to
change your planned periodic premium amount, as necessary, if you take any
action that causes your guarantee premiums to change.
YOU CAN ELECT A "PAID UP" DEATH BENEFIT GUARANTEE
In most states, you may elect to take advantage of our "paid up death benefit
guarantee" at any time after the fourth
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Policy features and benefits 13
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year of your policy. If you elect the paid up death benefit guarantee, we may
initially reduce your policy's face amount (see below). Thereafter, your policy
will not lapse and the death benefit will never be less than the face amount,
so long as the guarantee remains in effect. The guarantee will terminate,
however, if (i) subsequent to the election, any outstanding policy loans and
accrued loan interest, together with any then applicable surrender charge,
exceed your policy's account value or if (ii) you request us to terminate the
election.
In order to elect the paid up death benefit guarantee:
o you must have death benefit "Option A" in effect (discussed below on page
15),
o you must terminate any riders to your policy that carry additional charges,
o the election must not cause the policy to lose its qualification as life
insurance under the Internal Revenue Code or require a current distribution
from the policy to avoid such disqualification, and
o the election must not reduce the face amount (see below) to less than the
minimum face amount for which we would then issue a policy.
The paid up death benefit guarantee is not available in all states.
POSSIBLE REDUCTION OF FACE AMOUNT. The face amount of your policy after this
guarantee is elected is the lesser of (a) the face amount immediately before
the election or (b) the policy account value divided by a factor based on the
then age of the insured person. The factors are set forth in your policy. As a
general matter, the factors change as the insured person ages so that, if your
account value stayed the same, the component of the face amount calculation
determined under clause (b) above would be lower the longer your policy is
outstanding.
If electing the paid up death benefit guarantee causes a reduction in face
amount, we will deduct the same portion of any remaining surrender charge as we
would have deducted if you had requested that decrease directly (rather than
electing the paid up death benefit guarantee). See the table on page 6 above.
OTHER EFFECTS OF THIS GUARANTEE. You generally may continue to pay premiums
after you have elected the paid up death benefit guarantee (subject to the same
limits as before), but premium payments are not required. If the election
causes your face amount to decrease, however, the amount of additional premiums
you can pay, if any, may be reduced. You may continue to make transfers, but
you may not change the death benefit option or add riders that have their own
charges while the paid up death benefit guarantee is in effect.
Partial withdrawals while the paid up death benefit guarantee is in effect will
generally be subject to the same terms and conditions as any other partial
withdrawal (see "Making withdrawals from your policy" at page 24 below), except
that:
o We may decline your request for a partial withdrawal (or any other policy
change) under the circumstances described in the paid up death benefit
guarantee policy endorsement. If this occurs, you may wish to consider
asking us to terminate the paid up death benefit guarantee.
o Partial withdrawals (and any distributions we may be required to make for
tax purposes) will generally reduce your policy's face amount by more than
the amount of the withdrawal.
Election of the paid up death benefit guarantee may cause your policy to become
a modified endowment contract under certain circumstances. See "Tax treatment
of distributions to you" beginning on page 26 below. You should consult your
tax advisor before making this election.
INVESTMENT OPTIONS WITHIN YOUR POLICY
We will initially put all amounts which your have allocated to variable
investment options into our Alliance Money Market investment option. On the
twenty-first day after your policy's issue date (the "Allocation Date"), we
will re-allocate that
<PAGE>
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14 Policy features and benefits
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investment in accordance with your premium allocation instructions then in
effect. You give such instructions in your application to purchase a policy.
You can change the premium allocation percentages at any time, but this will
not affect any prior allocations. The allocation percentages that you specify
must always be in whole numbers and total exactly 100%.
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You can choose among 24 variable investment options
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VARIABLE INVESTMENT OPTIONS. The 24 available variable investment options are
listed on the front cover of this prospectus. (Your policy and other
supplemental materials may refer to these as "Investment Funds".) The
investment results you will achieve in any one of these options will depend on
the investment performance of the corresponding Portfolio that shares the same
name as that option. That Portfolio follows investment practices, policies and
objectives that are appropriate to the variable investment option you have
chosen. The advisers who make the investment decisions for each Portfolio are
as follows:
o Alliance Capital Management L.P. (for each "Alliance" or "EQ/Alliance"
option)
o Bankers Trust Company (for the "BT" options)
o Capital Guardian Trust Company (for the "Capital Guardian" options)
o Evergreen Asset Management Corp. (for the "EQ/Evergreen" options)
o J.P. Morgan Investment Management Inc. (for the "JPM" option)
o Lazard Asset Management (for both "Lazard" options)
o Massachusetts Financial Services Company (for the "MFS" options)
o Morgan Stanley Asset Management Inc. (for the "Morgan Stanley" option)
o Putnam Investment Management, Inc. (for both "EQ/Putnam" options)
The Portfolio that corresponds to each variable investment option that has
"Alliance" in its name is a part of The Hudson River Trust (except for the
"EQ/Alliance" Portfolio). Each other Portfolio is a part of EQ Advisors Trust.
EQ Financial Consultants, Inc., a subsidiary of Equitable Life, serves as
investment manager of the EQ Advisors Trust. As such, EQ Financial Consultants
oversees the activities of the above-listed advisers with respect to EQ
Advisors Trust and is responsible for retaining or discontinuing the services
of those advisers. You will find other important information about each
Portfolio in the separate prospectuses for The Hudson River Trust and EQ
Advisors Trust attached at the end of this prospectus. We may add or delete
variable investment options or Portfolios at any time.
PROPOSED SUBSTITUTION OF PORTFOLIOS. We are asking the SEC to approve the
substitution of newly created Portfolios of the EQ Advisors Trust for The
Hudson River Trust Portfolios currently available under the variable investment
options (the "Substitution"). The EQ Advisors Trust Portfolios will have
substantially identical investment objectives, strategies and policies as those
of The Hudson River Trust Portfolios they would replace. The assets of any
Portfolio of The Hudson River Trust underlying your contract would be
transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of investment options with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the
Portfolios, rather than the two separate prospectuses you now receive. EQ
Financial Consultants, Inc. will be the manager of the new EQ Advisors Trust
Portfolios, and Alliance Capital Management L.P. will continue to provide the
day-to-day advisory services to each of the new Portfolios.
<PAGE>
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Policy features and benefits 15
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You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your account value, premium
payments and deductions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution transaction.
o The management fees for the new Portfolios will be the same as those for the
corresponding Portfolios of The Hudson River Trust. Certain of the new EQ
Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your account value
(i.e., the value of the units you own) in the variable investment options
will be the same as before the transaction.
o The Substitution will have no tax consequences for you.
Please review the EQ Advisors Trust prospectus that accompanies this
prospectus. It contains more information about the Trust, including its
management structure, advisory arrangements, and general fees and expenses that
will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your account value among
the investment options, as usual. The Substitution transaction itself will not
be treated as a transfer of account value for purposes of the transfer
provisions of your contract.
We will notify you when we receive SEC approval, and again when the
Substitution is complete.
GUARANTEED INTEREST OPTION. You can also allocate some or all of your policy's
value to our guaranteed interest option. We, in turn, invest such amounts as
part of our general assets. Periodically, we declare a fixed rate of interest
(3% minimum) on amounts you allocate to our guaranteed interest option. (The
guaranteed interest option is part of what your policy and other supplemental
material may refer to as the "Guaranteed Interest Account".)
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We will pay at least 3% annual interest on our guaranteed interest option.
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ABOUT YOUR LIFE INSURANCE BENEFIT
YOUR POLICY'S FACE AMOUNT. In your application to buy an Incentive Life
policy, you tell us how much insurance coverage you want on the life of the
insured person. We call this the "face amount" of the policy. $50,000 is the
smallest amount of coverage you can request.
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If the insured person dies, we pay a life insurance benefit to the
"beneficiary" you have named. The amount we pay depends on whether you have
chosen death benefit Option A or death benefit Option B.
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YOUR POLICY'S "DEATH BENEFIT" OPTIONS. In your policy application, you also
choose whether the basic amount (or "benefit") we will pay if the insured
person dies is
o Option A - THE POLICY'S FACE AMOUNT on the date of the insured person's
death. The amount of this death benefit doesn't change over time, unless you
take any action that changes the policy's face amount;
or
o Option B - THE FACE AMOUNT PLUS THE POLICY'S "ACCOUNT VALUE" on the date of
death. Under this option, the amount of death benefit generally changes from
day to day, because many factors (including investment performance, charges,
premium payments and withdrawals) affect your policy's account value.
Your policy's "account value" is the total amount that at any time is earning
interest for you or being credited with investment gains and losses under your
policy. (Account
<PAGE>
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16 Policy features and benefits
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value is discussed in more detail under "Determining your policy's value"
beginning on page 20 below.)
Under Option B, your policy's death benefit will tend to be higher than under
Option A. As a result, the monthly insurance charge we deduct will also be
higher, to compensate us for our additional risk.
ALTERNATIVE HIGHER DEATH BENEFIT IN LIMITED CASES. Your policy is designed
to always provide a minimum level of insurance protection relative to your
policy's value, in part to meet the Internal Revenue Code's definition of "life
insurance." Thus, we will automatically pay an alternative death benefit if it
is HIGHER than the basic Option A or Option B death benefit you have selected.
This alternative death benefit is computed by multiplying your policy's account
value on the insured person's date of death by a percentage specified in your
policy. The percentage depends on the insured person's age. Representative
percentages are as follows:
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If the value in your policy is high enough, relative to the face amount, the
life insurance benefit will automatically be greater than the Option A or
Option B death benefit you have selected.
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Age* 40 45 50 55 60 65
and under
% 250% 215% 185% 150% 130% 120%
70 75-95 99-Over
% 115% 105% 101%
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* For the then-current policy year.
This higher alternative death benefit exposes us to greater insurance risk than
the regular Option A and B death benefits. Because the cost of insurance
charges we make under your policy are based in part on the amount of our risk,
you will pay more cost of insurance charges for any periods during which the
higher alternative death benefit is the operative one.
OTHER ADJUSTMENTS TO DEATH BENEFIT. We will increase the death benefit proceeds
by the amount of any other benefits we owe upon the insured person's death
under any optional riders which are in effect.
We will reduce the death benefit proceeds by the amount of any remaining policy
loans and unpaid loan interest, as well as any amount of monthly charges under
the policy that remain unpaid because the insured person died during a grace
period. We also reduce the death benefit if we have already paid part of it
under a living benefit rider. We reduce it by the amount of the living benefit
payment plus interest. See "Your Option to Receive a Living Benefit" on page 25
below.
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You can request to change your death benefit option any time after the second
year of the policy.
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CHANGE OF DEATH BENEFIT OPTION. If you change from Option A to B, we
automatically reduce your policy's face amount by an amount equal to your
policy's account value at the time of the change. We may refuse this change if
the policy's face amount would be reduced below our then current minimum for
new policies. Changes from Option A to Option B are not permitted once the
insured person reaches age 81.
If you change from Option B to A, we automatically increase your policy's face
amount by an amount equal to your policy's account value at the time of the
change.
If the alternative death benefit discussed above would be in effect at the time
of the change, we will determine the new face amount somewhat differently from
the general procedures described above.
We will not deduct or establish any amount of surrender charge as a result of a
change in death benefit option. Please refer to "Tax information" beginning on
page 26 below, to learn about certain possible income tax consequences that may
result from a change in death benefit option, including the effect of an
increase or decrease in face amount.
<PAGE>
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Policy features and benefits 17
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YOU CAN INCREASE OR DECREASE YOUR INSURANCE COVERAGE
If the face amount increase endorsement is issued with your policy, you may
increase the life insurance coverage under your policy by requesting an
increase in your policy's face amount. You can do so any time after the first
year of your policy. You may request a decrease in your policy's face amount
any time after the second year of your policy. The requested increase or
decrease must be at least $10,000. Please refer to "Tax information" beginning
on page 26 for certain possible tax consequences of changing the face amount.
We can refuse any requested increase or decrease. We will not approve any
increase or decrease if we are at that time being required to waive charges or
pay premiums under any optional disability waiver rider that is part of the
policy. We will also not approve a face amount increase if the insured person
has reached age 81. The following additional conditions also apply:
FACE AMOUNT INCREASES. We treat an increase in face amount in many respects as
if it were the issuance of a new policy. For example, you must submit
satisfactory evidence that the insured person still meets our requirements for
coverage. Also, we establish additional amounts of surrender charge and
guarantee premiums under your policy for the face amount increase; reflecting
the amount of additional coverage.
In most states, you can cancel the face amount increase within 10 days after
you receive a new policy page showing the increase. If you cancel, we will
reverse any charges attributable to the increase and recalculate all values
under your policy to what they would have been had the increase not taken
place.
The monthly insurance charge we make for the amount of the increase will be
based on the age and other insurance risk characteristics of the insured person
at the time of the increase. If we refuse a requested face amount increase
because the insured person's risk characteristics have become less favorable,
we may issue the additional coverage as a separate Incentive Life policy with a
different insurance risk classification. In that case, we would waive the
monthly administrative charge that otherwise would apply to that separate
policy.
FACE AMOUNT DECREASES. You may not reduce the face amount below the minimum we
are then requiring for new policies. Nor will we permit a decrease that would
cause your policy to fail the Code's definition of life insurance. Guarantee
premiums, as well as our monthly deductions for the cost of insurance coverage,
will generally decrease (prospectively) after you reduce the face amount.
If you reduce the face amount during the first 15 years of your policy, or
during the first 15 years after a face amount increase you have requested, we
will deduct all or part of the remaining surrender charge from your policy.
Assuming you have not previously changed the face amount, the amount of
surrender charge we will deduct will be determined by dividing the amount of
the decrease by the initial face amount and multiplying that fraction by the
total amount of surrender charge that still remains applicable to your policy.
We deduct the charge from the same investment options as if it were a part of a
regular monthly deduction under your policy.
In some cases, we may have to make a distribution to you from your policy at
the time of the decrease in order to decrease your policy's face amount. This
may be necessary in order to preserve your policy's status as life insurance
under the Internal Revenue Code. We may also be required to make such a
distribution to you in the future on account of a prior decrease in face
amount.
OTHER BENEFITS YOU CAN ADD BY RIDER
You may be eligible for the following other optional benefits we currently make
available by rider:
o disability waiver benefits
o ten-year term insurance on the insured person or an additional insured
person
o accidental death benefit
<PAGE>
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18 Policy features and benefits
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o option to purchase additional insurance
o children's term insurance
o cost-of-living rider
Equitable Life or your registered representative can provide you with more
information about these riders. The riders provide additional information, and
we will furnish samples of them to you on request. The maximum amount of any
charge we make for a rider will be set forth in the rider or in the policy
itself. We can, however, add, delete, or modify the riders we are making
available, at any time before they become effective as part of your policy.
The option to purchase additional insurance rider permits you to purchase
additional coverage on the insured person, without evidence of insurability, if
specified events occur.
The cost of living rider provides for scheduled automatic face amount increases
that, within limits, reflect increases in the Consumer Price Index. These
automatic face amount increases will result in a prospective increase in your
guarantee premiums and an additional surrender charge, in the same manner as
would any other face amount increase you request.
See also "Tax information" beginning on page 26 below for certain possible tax
consequences of face amount increases or adding or deleting riders.
YOUR OPTIONS FOR RECEIVING POLICY PROCEEDS
BENEFICIARY OF DEATH BENEFIT. You designate your beneficiary in your policy
application. You can change your policy's beneficiary at any other time during
the insured person's life. If no beneficiary is living when the insured person
dies, we will pay the death benefit proceeds in equal shares to the insured
person's surviving children. If there are no surviving children, we will
instead pay the insured person's estate.
PAYMENT OPTIONS FOR DEATH BENEFIT. In your policy application, or at any other
time during the insured person's life, you may choose among several payment
options for all or part of any death benefit proceeds that subsequently become
payable. These payment options are described in the policy and may result in
varying tax consequences. The terms and conditions of each option are set out
in a separate contract that we will send the payee when any such option goes
into effect. Equitable Life or your registered representative can provide you
with samples of such contracts on request.
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You can choose to have the proceeds from the policy's life insurance benefit
paid under one of our payment options, rather than as a single sum.
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If you have not elected a payment option, we will pay any death benefit in a
single sum. If the beneficiary is a natural person (i.e., not an entity such as
a corporation or trust) we will pay any such single sum death benefit through
an interest-bearing checking account (the "Equitable Access Account(TM)") that
we will automatically open for the beneficiary. The beneficiary will have
immediate access to the proceeds by writing a check on the account. We pay
interest on the proceeds from the date of death to the date the beneficiary
closes the Equitable Access Account. The annual rate will be at least 3%.
If a registered representative has assisted the beneficiary in preparing the
documents that are required for payment of the death benefit, we will send the
Equitable Access Account checkbook or check to the associate within the periods
specified for death benefit payments under "When we pay policy proceeds,"
beginning on page 38 below. Our associates will take reasonable steps to
arrange for prompt delivery to the beneficiary.
PAYMENT OPTIONS FOR SURRENDER AND WITHDRAWAL PROCEEDS. You can also choose to
receive all or part of any proceeds from a surrender or withdrawal from your
policy under one of the above referenced payment options, rather than as a
single sum.
<PAGE>
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Policy features and benefits 19
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YOUR RIGHT TO CANCEL WITHIN A CERTAIN NUMBER OF DAYS
If for any reason you are not satisfied with your policy, you may return it to
us for a full refund of the premiums paid. In some states, we will adjust this
amount for any investment performance (whether positive or negative).
To exercise this cancellation right, you must mail the policy directly to our
Administrative Office with a written request to cancel. Your cancellation
request must be postmarked within 10 days after you receive the policy and your
coverage will terminate as of the date of the postmark. In some states, this
"free look" period is longer than 10 days. Your policy will indicate the length
of your "free look" period.
VARIATIONS AMONG INCENTIVE LIFE POLICIES
Time periods and other terms and conditions described in this prospectus may
vary due to legal requirements in your state. These variations will be
reflected in your policy.
Equitable Life also may vary the charges and other terms of Incentive Life
where special circumstances result in sales or administrative expenses or
mortality risks that are different from those normally associated with
Incentive Life. We will make such variations only in accordance with uniform
rules that we establish.
Equitable Life or your registered representative can advise you about any
variations that may apply to your policy.
<PAGE>
2
Determining your policy's value
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20 Determining your policy's value
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YOUR ACCOUNT VALUE
As set forth on page 6 above, we deduct certain charges from each premium
payment you make. We credit the rest of each premium payment to your policy's
"account value." You instruct us to allocate your account value to one or more
of the policy's investment options indicated on the front cover of this
prospectus.
Your account value is the total of (i) your amounts in our variable investment
options, (ii) your amounts in our guaranteed interest option, and (iii) any
amounts that we are holding to secure policy loans that you have taken. See
"Borrowing from your policy" beginning on page 23 below. (Your policy and other
supplemental material may refer to (ii) and (iii) above as our "Guaranteed
Interest Account.") These amounts are subject to certain charges discussed in
the table on page 6.
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Your account value will be credited with the same returns as are achieved by
the Portfolios (or guaranteed interest option) that you select, but will also
be reduced by the amount of charges we deduct under the policy.
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YOUR POLICY'S VALUE IN OUR VARIABLE INVESTMENT OPTIONS. We invest the account
value that you have allocated to any variable investment option in shares of
the corresponding Portfolio. Your value in each variable investment option is
measured by "units."
The number of your units in any variable investment option does not change,
absent an event or transaction under your policy that involves moving assets
into or out of that option. Whenever any amount is withdrawn or otherwise
deducted from one of your policy's variable investment options, we "redeem"
(cancel) the number of units that has a value equal to that amount. This can
happen, for example, when all or a portion of monthly deductions and
transaction-based charges are allocated to that option, or when loans,
transfers, withdrawals and surrenders are made from that option. Similarly, you
"purchase" additional units having the same value as the amount of any premium,
loan repayment, or transfer that you allocate to that option.
The value of each unit will increase or decrease each day, by the same amount
as if you had invested in the corresponding Portfolio's shares directly (and
reinvested all dividends and distributions from the Portfolio in additional
Portfolio shares). The units' values will be reduced, however, by the amount of
the mortality and expense risk charge for that period (the charge is described
in the table on page 6 above). On any day, your value in any variable
investment option equals the number of units credited to your policy under that
option, multiplied by that day's value for one such unit.
YOUR POLICY'S VALUE IN OUR GUARANTEED INTEREST OPTION. Your policy's value in
our guaranteed interest option includes: (i) any amounts you have specifically
requested that we allocate to that option and (ii) any "restricted" amounts
that we hold in that option as a result of your election to receive a living
benefit (these restricted amounts may be referred to in your policy as "liened
policy amounts"). See "Your option to receive a living benefit" on page 25
below. We credit all of such amounts with interest at rates we declare from
time to time. We guarantee that these rates will not be less than a 3%
effective annual rate. The mortality and expense risk charge mentioned above
does not apply to our guaranteed interest option.
Amounts may be allocated to or removed from your policy's value in our
guaranteed interest option for the same purposes as described above for the
variable investment options. We credit your policy with a number of dollars in
that option that equals any amount that is being allocated to it. Similarly, if
amounts are being removed from your guaranteed interest option for any reason,
we reduce the amount you have credited to that option on a dollar-for-dollar
basis.
<PAGE>
3
Transferring your money among our investment options
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Transferring your money among our investment options 21
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TRANSFERS YOU CAN MAKE
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You can transfer freely among our variable investment options and into our
guaranteed interest option.
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After your policy's initial investment Allocation Date, you can transfer
amounts from one investment option to another. The total of all transfers you
make on the same day must be at least $500; except that you may transfer your
entire balance in an investment option, even if it is less than $500. You may
submit a written request for a transfer to our Administrative Office or you can
make a telephone request (see below).
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Transfers out of our guaranteed interest option are more limited.
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RESTRICTIONS ON TRANSFER OUT OF THE GUARANTEED INTEREST OPTION. We only permit
you to make one transfer out of our guaranteed interest option during each
policy year. (No such limit applies to transfers out of our variable investment
options.) Also, the maximum transfer from our guaranteed interest option is the
greater of (a) 25% of your then current balance in that option (b) $500, or (c)
the amount (if any) that you transferred out of the guaranteed interest option
during the immediately preceding policy year.
We will not accept a request to transfer out of the guaranteed interest option
unless we receive it within the period beginning 30 days before and ending 60
days after an anniversary of your policy. If we receive the request within that
period, the transfer will occur as of that anniversary or, if later, the date
we receive it.
TRANSFER CHARGE. We do not currently make any charge for transfers. We reserve
the right, however, to impose up to a $25 charge for each transfer you make.
This charge would not apply to a transfer of all of your variable investment
option amounts to our guaranteed investment option, however, or to any transfer
pursuant to our dollar cost averaging service.
TELEPHONE TRANSFERS
You can make telephone transfers by following one of two procedures:
o if you are both the policy's insured person and its owner, by calling
1-888-228-6690 (toll free) from a touch tone phone; or
o if you are not both the insured person and owner, by signing a telephone
transfer authorization form and sending it to us. Once we have the form on
file, we will provide you with a toll-free telephone number to make
transfers.
For more information see "Telephone requests" on page 37 below. We allow only
one request for telephone transfers each day (although that request can cover
multiple transfers), and we will not allow you to revoke a telephone transfer.
If you are unable to reach us by telephone, you should send a written transfer
request to our Administrative Office.
OUR DOLLAR COST AVERAGING SERVICE
We offer you a dollar cost averaging service. This service allows you to
gradually allocate amounts to the variable investment options by periodically
transferring approximately the same dollar amount to the variable investment
options you select. This will cause you to purchase more units if the unit's
value is low, and fewer units if the unit's value is high. Therefore, you may
get a lower average cost per unit over the long term. This plan of investing,
however, does not guarantee that you will earn a profit or be protected against
losses.
Our dollar cost averaging service (also referred to as our "automatic transfer
service") enables you to make automatic monthly transfers from the Alliance
Money Market option to our other variable investment options. You need a
minimum of $5,000 in the Alliance Money Market option to begin using the dollar
cost averaging service. You can choose up to eight other variable options to
receive the automatic transfers but each transfer to each option must be at
least $50.
You may elect the dollar cost averaging service with your policy application or
at any later time. You can also cancel the dollar cost averaging service at any
time.
<PAGE>
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22 Transferring your money among our investment options
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OUR ASSET REBALANCING SERVICE (AVAILABLE BEGINNING SEPTEMBER 15, 1999)
You may wish us to periodically redistribute the amounts you have in our
variable investment options so that the relative amount of your account value
in each variable option is restored to the initial allocation you specify, or
to any other allocation percentages you choose. You can accomplish this
automatically through our asset rebalancing service. The rebalancing may be on
a one-time basis or at monthly, quarterly, semi-annual, or annual intervals.
The allocation percentage you specify for each variable investment option
selected must be at least 5% (whole percentage only) of the total value you
hold under the variable investment options, and the sum of the percentages must
equal 100%. You may not use more than eight variable investment options at any
time if you are using the asset rebalancing service. You may not simultaneously
participate in the asset rebalancing service and the dollar cost averaging
service (discussed above).
Beginning September 15, 1999, you may request the asset rebalancing service in
your policy application or at any later time. You may change your allocation
instructions or discontinue participation in the asset rebalancing service at
any time. If you request a transfer while the rebalancing service is in effect,
we will process the transfer as requested, and then cancel the asset
rebalancing service.
<PAGE>
4
Accessing your money
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Accessing your money 23
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BORROWING FROM YOUR POLICY
You may borrow up to 90% of the difference between your policy's account value
and any surrender charges that are in effect under your policy. (In your
policy, this "difference" is referred to as your Cash Surrender Value.)
However, the amount you can borrow will be reduced by any amount that we hold
on a "restricted" basis following your receipt of a living benefit payment, as
well as by any other loans (and accrued loan interest) you have outstanding.
See "Your option to receive a living benefit" beginning on page 25 below.
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You can use policy loans to obtain funds from your policy without surrender
charges or, in most cases, paying current income taxes. However, the borrowed
amount is no longer credited with the investment results of any of our
investment options under the policy.
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When you take a policy loan, we remove an amount equal to the loan from one or
more of your investment options and hold it as collateral for the loan's
repayment. (Your policy may sometimes refer to the collateral as the "loaned
portion of your policy account.") We hold this loan collateral under the same
terms and conditions as apply to amounts supporting our guaranteed interest
option, with several exceptions:
o you cannot make transfers or withdrawals of the collateral;
o we expect to credit different rates of interest to loan collateral than we
credit under our guaranteed interest option;
o we do not count the collateral when we compute our customer loyalty credit;
and
o the collateral is not available to pay policy charges.
When you request your loan, you should tell us how much of the loan collateral
you wish to have taken from any amounts you have in each of our investment
options. If you do not give us directions (or if we are making the loan
automatically to cover unpaid interest), we will take the loan from your
investment options in the same proportion as we are then taking monthly
deductions for charges. If that is not possible, we will take the loan from
your investment options in proportion to your value in each.
LOAN INTEREST WE CHARGE. The interest we charge on a policy loan accrues daily
at an adjustable interest rate. We determine the rate at the beginning of each
year of your policy and that rate applies to all policy loans that are
outstanding at any time during the year. The maximum rate is the greater of (a)
4% or (b) the "Monthly Average Corporate" yield published in Moody's Corporate
Bond Yield Averages for the month that ends two months before the interest rate
is set. (If that average is no longer published, we will use another average,
as the policy provides.) In no event, however, will the loan interest rate be
greater than 15%. We will notify you of the current loan interest rate when you
apply for a loan, and will notify you in advance of any rate increase.
Loan interest payments are due on each policy anniversary. If not paid when
due, we automatically add the interest as a new policy loan.
INTEREST THAT WE CREDIT ON LOAN COLLATERAL. Under our current rules, the annual
interest rate we credit on your loan collateral during any of your policy's
first fifteen years will be 1% less than the rate we are then charging you for
policy loan interest, and, beginning in the policy's 16th year, equal to the
loan interest rate. The elimination of the rate differential is not guaranteed.
Accordingly, we have discretion to increase the rate differential for any
period, including under policies that are already outstanding (and may have
outstanding loans). We do guarantee that the annual rate of interest credited
on your loan collateral will never be less than 3% and that the differential
will not exceed 2% (except if tax law changes increase the taxes we pay on
policy loans or loan interest). Because we first offered Incentive Life
policies in 1999 the interest rate differential has not yet been eliminated
under any outstanding policies.
Interest we pay on your loan collateral accrues daily. On each anniversary of
your policy (or when your policy loans
<PAGE>
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24 Accessing your money
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are fully discharged) we contribute that interest to your policy's investment
options in the same proportions as if it were a premium payment.
EFFECTS OF POLICY LOANS. A loan can reduce the length of time that your
insurance remains in force, because the amount we set aside as loan collateral
cannot be used to pay charges as they become due. A loan can also cause any
paid up guaranteed death benefit to terminate or may cause any other guarantee
against termination to become unavailable. We will deduct any outstanding
policy loan plus accrued loan interest from your policy's proceeds if you do
not pay it back. Even if a loan is not taxable when made, it may later become
taxable, for example, upon termination or surrender. See "Tax information"
beginning on page 26 below for a discussion of the tax consequences of policy
loans.
PAYING OFF YOUR LOAN. You can repay all or part of your loan at any time. We
normally assume that payments you send us are premium payments. Therefore, you
must submit instructions with your payment indicating that it is a loan
repayment. If you send us more than all of the loan principal and interest you
owe, we will treat the excess as a premium payment.
When you send us a loan repayment, we will transfer an amount equal to such
repayment from your loan collateral back to the investment options under your
policy. First we will restore any amounts that, before being designated as loan
collateral, had been in the guaranteed interest option under your policy. We
will allocate any additional repayments among investment options as you
instruct; or, if you don't instruct us, in the same proportion as if they were
premium payments.
MAKING WITHDRAWALS FROM YOUR POLICY
You may make a partial withdrawal of your net cash surrender value at any time
after the first year of your policy. The request must be for at least $500,
however, and we have discretion to decline any request. If you do not tell us
from which investment options you wish us to take the withdrawal, we will use
the same allocation that then applies for the monthly deductions we make for
charges; and, if that is not possible, we will take the withdrawal from all of
your investment options in proportion to your value in each.
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You can withdraw all or part of your policy's net cash surrender value,
although you may incur charges and tax consequences by doing so.
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EFFECT OF PARTIAL WITHDRAWALS ON INSURANCE COVERAGE. If the Option A death
benefit is in effect, a partial withdrawal results in a dollar-for-dollar
automatic reduction in the policy's face amount (and, hence, an equal reduction
in the Option A death benefit). If the paid up death benefit guarantee is in
effect, a partial withdrawal will generally reduce the face amount by more than
the amount of the withdrawal. Face amount reductions that occur automatically
as a result of withdrawals, however, do not result in our deducting any portion
of any then remaining surrender charge. We will not permit a partial withdrawal
that would reduce the face amount below our minimum for new policy issuances at
the time, or that would cause the policy to no longer be treated as life
insurance for federal income tax purposes.
If death benefit Option B is in effect, a partial withdrawal reduces the death
benefit on a dollar for dollar basis, but does not affect the face amount.
The result is different, however, during any time when the alternative death
benefit (discussed on page 16 above) would be higher than the Option A or B
death benefit you have selected. In that case, a partial withdrawal will cause
the death benefit to decrease by more than the amount of the withdrawal, even
if the paid up death benefit guarantee is not then in effect. Please also
remember that a partial withdrawal reduces the amount of your premium payments
that counts toward maintaining our other guarantees against termination, as
well.
You should refer to "Tax information" beginning on page 26 below, for
information about possible tax consequences of partial withdrawals and any
associated reduction in policy benefits. A partial withdrawal may increase the
chance that
<PAGE>
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Accessing your money 25
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your policy could lapse because of insufficient value to pay policy charges as
they fall due.
SURRENDERING YOUR POLICY FOR ITS NET CASH SURRENDER VALUE
You can surrender (give us back) your policy for its "net cash surrender value"
at any time. The net cash surrender value equals your account value, minus any
outstanding loans and unpaid loan interest, minus any amount of your account
value that is "restricted" as a result of previously distributed "living
benefits," and minus any surrender charge that then remains applicable. The
surrender charge is described on page 6 above.
Please refer to "Tax information" beginning on page 26 below for the possible
tax consequences of surrendering your policy.
YOUR OPTION TO RECEIVE A LIVING BENEFIT
Subject to our insurance underwriting guidelines and availability in your
state, your policy will automatically include our living benefit rider. This
feature enables you to receive a portion (generally 75%) of the policy's death
benefit (excluding death benefits payable under certain other policy riders),
if the insured person has a terminal illness (as defined in the rider).
We make no additional charge for the rider. However, 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, we will need to evaluate the insurance risk at that time, and we may
decline to issue the rider.
If you receive a living benefit, the remaining benefits under your policy will
be affected. We will deduct the amount of any living benefit we have paid, plus
interest (as specified in the rider), from the death benefit proceeds that
become payable under the policy if and when the insured person dies.
When we pay a living benefit we automatically transfer a pro-rata portion of
your policy's net cash surrender value to the policy's guaranteed interest
option. This amount, together with the interest you earn thereon, will be
"restricted" - that is, it will not be available for any loans, transfers or
partial withdrawals that you may wish to make. In addition, it may not be used
to satisfy the charges we deduct from your policy's value, and we do not count
it in computing any customer loyalty credit. We will deduct these restricted
amounts from any subsequent surrender proceeds that we pay. (In your policy, we
refer to this as a "lien" we establish against your policy.)
The receipt of a living benefit payment may qualify for exclusion from income
tax. See "Tax information" below. Receipt of a living benefit payment may
affect your eligibility for certain government benefits or entitlements.
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You can arrange to receive a "living benefit" if the insured person becomes
terminally ill.
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<PAGE>
5
Tax information
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26 Tax information
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This discussion is based on current federal income tax law and
interpretations. It assumes that the policyowner is a natural person who is a
U.S. citizen and resident. The tax effects on corporate taxpayers, non-U.S.
residents or non-U.S. citizens may be different. This discussion is general in
nature, and should not be considered tax advice, for which you should consult
a qualified tax advisor.
BASIC TAX TREATMENT FOR YOU AND YOUR BENEFICIARY
An Incentive Life policy will be treated as "life insurance" for federal income
tax purposes (a) if it meets the definition of life insurance under Section
7702 of the Internal Revenue Code (the "Code") and (b) as long as the
investments made by the underlying Portfolios satisfy certain investment
diversification requirements under Section 817(h) of the Code. We believe that
the policies will meet these requirements and, therefore, that
o the death benefit received by the beneficiary under your policy will not be
subject to federal income tax; and
o increases in your policy's 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 surrender, a
partial withdrawal, loan or a payment to you that we believe is required to
maintain your policy's status as life insurance under the Code.
There may be different tax consequences if you assign your policy or designate
a new owner. See "Assigning your policy" at page 31 below.
TAX TREATMENT OF DISTRIBUTIONS TO YOU
The federal income tax consequences of a distribution from your policy depend
on whether your policy is a "modified endowment contract" (sometimes also
referred to as a "MEC"). In all cases, however, the character of any income
described below as being taxable to the recipient will be ordinary income (as
opposed to capital gain).
TESTING FOR MODIFIED ENDOWMENT CONTRACT STATUS. Your policy will be a "modified
endowment contract" if, at any time during the first seven years of your
policy, you have paid a cumulative amount of premiums that exceeds the
cumulative seven-pay limit. The cumulative seven-pay limit is the amount of
premiums that you would have paid by that time under a similar fixed-benefit
insurance policy that was designed (based on certain assumptions mandated under
the Code) to provide for paid up future benefits after the payment of seven
equal annual premiums. ("Paid up" means that no future premiums would be
required.) This is called the "seven-pay" test.
Whenever there is a "material change" under a policy, the policy will generally
be (a) treated as a new contract for purposes of determining whether the policy
is a modified endowment contract and (b) 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 prescribed formula, the account value of the policy at
the time of such change. A materially changed policy would be considered a
modified endowment contract if it failed to satisfy the new seven-pay limit at
any time during the new seven-pay period. A "material change" for these
purposes could occur as a result of a change in death benefit option, the
selection of additional rider benefits, an increase in your policy's face
amount (including pursuant to our cost-of-living rider), or certain other
changes.
If your policy's benefits are reduced during its first seven years (or within
seven years after a material change), the seven-pay limit will be redetermined
based on the reduced level of benefits and applied retroactively for purposes
of the seven-pay test. (Such a reduction in benefits could include, for
example, a requested decrease in face amount, the termination of additional
benefits under a rider or, in some cases, a partial withdrawal.) If the
premiums previously paid are greater than the recalculated (lower) seven-pay
limit, the policy will become a modified endowment contract.
A life insurance policy that you receive in exchange for a modified endowment
contract will also be considered a modified endowment contract.
<PAGE>
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Tax information 27
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In addition to the above premium limits for testing for modified endowment
status, there are overall limits on the amount of premiums you may pay under
your policy in order for it to qualify as life insurance. Changes made to your
policy, for example, a decrease in face amount (including any decrease that may
occur as a result of a partial withdrawal) or other decrease in benefits may
impact the maximum amount of premiums that can be paid as well as the maximum
amount of account value that may be maintained under the policy. In some cases,
this may cause us to take current or future action in order to assure that your
policy continues to qualify as life insurance, including distribution of
amounts to you that may be includible as income. See "Changes we can make" on
page 39 below.
TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS NOT A MODIFIED ENDOWMENT
CONTRACT. As long as your policy remains in force as a non-modified endowment
contract, policy loans will be treated as indebtedness, and no part of the loan
proceeds will be subject to current federal income tax. Interest on the loan
will generally not be tax deductible, although interest credited on loan
collateral may become taxable under the rules below if distributed.
If you make a partial withdrawal after the first 15 years of your policy, the
proceeds will not be subject to federal income tax except to the extent such
proceeds exceed your "basis" in your policy. (Your basis generally will equal
the premiums you have paid, less the amount of any previous distributions from
your policy that were not taxable.) During the first 15 years, however, the
proceeds from a partial withdrawal could be subject to federal income tax,
under a complex formula, to the extent that your account value exceeds your
basis.
Upon full surrender, any amount by which the proceeds we pay (including amounts
we use to discharge any policy loan and unpaid loan interest) exceed your basis
in the policy will be subject to federal income tax. IN ADDITION, IF A POLICY
TERMINATES AFTER A GRACE PERIOD, THE EXTINGUISHMENT OF ANY THEN-OUTSTANDING
POLICY LOAN AND UNPAID LOAN INTEREST WILL BE TREATED AS A DISTRIBUTION AND
COULD BE SUBJECT TO TAX UNDER THE FOREGOING RULES. Finally, if you make an
assignment of rights or benefits under your policy, you may be deemed to have
received a distribution from your policy, all or part of which may be taxable.
TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS A MODIFIED ENDOWMENT
CONTRACT. Any distribution from your policy will be taxed on an "income-first"
basis if your policy is a modified endowment contract. 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
withdrawal. Any such distributions will be considered taxable income to you to
the extent your account value exceeds your basis in the policy. (For modified
endowment contracts, your basis is similar to the basis described above for
other policies, except that it also 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 endowment contracts issued by Equitable Life (or its affiliate) to the
same owner (excluding certain qualified plans) during any calendar year are
treated as if they were a single contract.
A 10% penalty tax also will apply to the taxable portion of most distributions
from a policy that is a modified endowment contract. The penalty tax will not,
however, apply to (i) taxpayers whose actual age is at least 591|M/2, (ii)
distributions in the case of a disability (as defined in the Code) or (iii)
distributions 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 or her beneficiary.
IF YOUR POLICY TERMINATES AFTER A GRACE PERIOD, THE EXTINGUISHMENT OF ANY THEN
OUTSTANDING POLICY LOAN AND UNPAID LOAN INTEREST WILL BE TREATED AS A
DISTRIBUTION (to the extent the loan was not previously treated as such) and
could be subject to tax, including the 10% penalty tax, as described above. In
addition, upon a full surrender, any excess of the proceeds we pay (including
any amounts we use to discharge any loan) over your basis in the
<PAGE>
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28 Tax information
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policy, will be subject to federal income tax and, unless an exception applies,
the 10% penalty tax.
Distributions that occur during a year of your policy in which it becomes a
modified endowment contract, and during any subsequent years, will be taxed as
described in the four preceding paragraphs. In addition, distributions from a
policy within two years before it becomes a modified endowment contract also
will be subject to tax in this manner. This means that a distribution made from
a policy that is not a modified endowment contract could later become taxable
as a distribution from a modified endowment contract.
RESTORATION OF A TERMINATED POLICY. For tax purposes, some restorations of a
policy that terminated after a grace period may be treated as the purchase of a
new policy.
TAX TREATMENT OF LIVING BENEFIT PROCEEDS
Amounts received under an insurance policy on the life of an individual who is
terminally ill, as defined by the tax law, are generally excludable from the
payee's gross income. We believe that the benefits provided under our living
benefit rider meet the tax law's definition of terminally ill and can qualify
for this income tax exclusion. This exclusion does not apply to amounts paid to
someone other than the insured person, however, if the payee has an insurable
interest in the insured person's life only because the insured person is a
director, officer or employee of the payee or by reason of the insured person
being financially interested in any trade or business carried on by the payee.
EFFECT OF POLICY ON INTEREST DEDUCTIONS TAKEN BY BUSINESS ENTITIES
Ownership of a policy by a trade or business entity can limit the amount of any
interest on business borrowings that entity otherwise could deduct for federal
income tax purposes, even though such business borrowings may be unrelated to
the policy. To avoid the limit, the insured person must be an officer,
director, employee or 20% owner of the trade or business entity when coverage
on that person commences.
The limit does not generally apply for policies owned by natural persons (even
if those persons are conducting a trade or business as sole proprietorships),
unless a trade or business entity that is not a sole proprietorship is a direct
or indirect beneficiary under the policy. Entities commonly have such a
beneficial interest, for example, in so-called "split dollar" arrangements. If
the trade or business entity has such an interest in a policy, it will be
treated the same as if it owned the policy for purposes of the limit on
deducting interest on unrelated business income.
The limit generally applies only to policies issued after June 8, 1997 in
taxable years ending after such date. However, for this purpose, any material
increase in face amount that you request, or other material change in a policy,
will be treated as the issuance of a new policy.
In cases where the above-discussed limit on deductibility applies, the
non-deductible portion of unrelated interest on business loans is determined by
multiplying the total amount of such interest by a fraction. The numerator of
the fraction is the policy's average account value (excluding amounts we are
holding to secure any policy loans) for the year in question, and the
denominator is the average for the year of the aggregate tax bases of all the
entity's other assets.
Any corporate, trade, or business use of a policy should be carefully reviewed
by your tax advisor with attention to these rules, as well as the other rules
and possible tax law changes that could occur with respect to such coverage.
REQUIREMENT THAT WE DIVERSIFY INVESTMENTS
Under Section 817(h) of the Code, the Treasury Department has issued
regulations that implement investment diversification requirements. Failure to
comply with these regulations would disqualify your policy as a life insurance
policy under Section 7702 of the Code. If this were to occur, you would be
subject to federal income tax on any income and gains under the policy and the
death benefit proceeds would lose their income tax-free status. These
consequences would continue for the period of the disqualification and for
<PAGE>
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29 Tax information
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subsequent periods. Through the Portfolios, we intend to comply with the
applicable diversification requirements.
ESTATE, GIFT, AND GENERATION-SKIPPING TAXES
If the policy's owner is the insured person, the death benefit will generally
be includable in the owner's estate for purposes of federal estate tax. If the
owner is not the insured person, and the owner dies before the insured person,
the value of the policy would be includable in the owner's estate. If the owner
is neither the insured person nor the beneficiary, the owner will be considered
to have made a gift to the beneficiary of the death benefit proceeds when they
become payable.
In general, a person will not owe estate or gift taxes until gifts made by such
person, plus that person's taxable estate, total at least $650,000 (a figure
that is scheduled to rise at periodic intervals to $1 million by the year
2006). For this purpose, however, certain amounts may be deductible or
excludable, such as gifts and bequests to the person's spouse or charitable
institutions and certain gifts of $10,000 or less per year for each recipient.
As a general rule, if you make a "transfer" to a person two or more generations
younger than you, a generation- skipping tax may be payable.
Generation-skipping transactions would include, for example, a case where a
grandparent "skips" his or her children and names grandchildren as a policy's
beneficiaries. In that case, the generation-skipping "transfer" would be deemed
to occur when the insurance proceeds are paid. The generation-skipping tax
rates are similar to the maximum estate tax rate in effect at the time.
Individuals, however, are generally allowed an aggregate generation-skipping
tax exemption of $1 million.
The particular situation of each policyowner, insured person or beneficiary
will determine how ownership or receipt of policy proceeds will be treated for
purposes of federal estate, gift and generation-skipping taxes, as well as
state and local estate, inheritance and other taxes. Because these rules are
complex, you should consult with a qualified tax adviser for specific
information, especially where benefits are passing to younger generations.
PENSION AND PROFIT-SHARING PLANS
There are special limits on the amount of insurance that may be purchased by a
trust or other entity that forms part of a pension or profit-sharing plan
qualified under Section 401(a) or 403 of the Code. In addition, the federal
income tax consequences will be different from those described in this
prospectus. These rules are complex, and you should consult a qualified tax
adviser.
OTHER EMPLOYEE BENEFIT PROGRAMS
Complex rules may also apply when a policy is held by an employer or a trust,
or acquired by an employee, in connection with the provision of other employee
benefits. These policyowners must consider whether the policy was applied for
by or issued to a person having an insurable interest under applicable state
law and with the insured person's consent. The lack of an insurable interest or
consent 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
receive a death benefit.
ERISA
Employers and employer-created trusts may be subject to reporting, disclosure
and fiduciary obligations under the Employee Retirement Income Security Act of
1974. You should consult a qualified legal advisor.
OUR TAXES
The operations of our Separate Account FP are reported in our federal income
tax return. The separate account's investment income and capital gains,
however, are, for tax purposes, reflected in our variable life insurance policy
reserves. Therefore, we currently pay no taxes on such income and gains and
impose no charge for such taxes. We reserve the right to impose a charge in the
future for taxes
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incurred; for example, a charge to the separate account for income taxes
incurred by us that are allocable to the policies.
If our state, local or other tax expenses increase, we may add or increase our
charges for such taxes when they are attributable to Separate Account FP, based
on premiums, or otherwise allocable to the policies.
WHEN WE WITHHOLD TAXES FROM DISTRIBUTIONS
Generally, unless you provide us with a satisfactory written election to the
contrary prior to the distribution, we are required to withhold income tax from
any proceeds we distribute as part of a taxable transaction under your policy.
If you do not wish us to withhold tax from the payment, or if we do not
withhold enough, you may have to pay later, and you may incur penalties under
the estimated income tax rules. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory notification that no such taxes are due. States may also
require us to withhold tax on distributions to you. Special withholding rules
apply if you are not a U.S. resident or not a U.S. citizen.
POSSIBILITY OF FUTURE TAX CHANGES
The U.S. Congress frequently considers legislation that, if enacted, could
change the tax treatment of life insurance policies or increase the taxes we
pay in connection with such 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 law. State and local tax law or, if you are not a U.S. citizen and
resident, foreign tax law, may also affect the tax consequences to you, the
insured person or your beneficiary, and are subject to change. Any changes in
federal, state, local or foreign tax law or interpretations could have a
retroactive effect.
The Treasury Department has stated that it anticipates the issuance of
guidelines prescribing the circumstances in which your ability to direct your
investment to particular Portfolios within a separate account may cause you,
rather than the insurance company, to be treated as the owner of the Portfolio
shares attributable to your policy. In that case, income and gains attributable
to such Portfolio shares would be included in your gross income for federal
income tax purposes. Under current law, however, we believe that Equitable
Life, and not the owner of a policy, would be considered the owner of the
Portfolio shares.
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This section provides further detail about certain subjects that are addressed
in the previous pages. The following discussion generally does not repeat the
information already contained in those pages.
WAYS TO MAKE PREMIUM AND LOAN PAYMENTS
CHECKS AND MONEY ORDERS. Premiums or loan payments generally must be paid by
check or money order drawn on a U.S. bank in U.S. dollars and made payable to
"Equitable Life."
We prefer that you make each payment to us with a single check drawn on your
business or personal bank account. We also will accept a single money order,
bank draft or cashier's check payable directly to Equitable Life, although we
must report such "cash equivalent" payments to the Internal Revenue Service
under certain circumstances. Cash and travelers' checks, or any payments in
foreign currency, are not acceptable. We will accept third party checks payable
to someone other than Equitable Life and endorsed over to Equitable Life only
(1) as a direct payment from a qualified retirement plan or (2) if it is made
out to a trustee who owns the policy and endorses the entire check (without any
refund) as a payment to the policy.
REQUIREMENTS FOR SURRENDER REQUESTS
Your surrender request must include the policy number, your name, your tax
identification number, the name of the insured person, and the address where
proceeds should be mailed. The request must be signed by you, as the owner, and
by any joint owner, collateral assignee or irrevocable beneficiary. We may also
require you to complete specific tax forms.
Finally, in order for your surrender request to be complete, you must return
your policy to us.
WAYS WE PAY POLICY PROCEEDS
The payee for death benefit or other policy proceeds (e.g. upon surrenders) may
name a successor to receive any amounts that we still owe following the payee's
death. Otherwise, we will pay any such amounts to the payee's estate.
We must approve any payment 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 payment 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 payees, and the methods for proving the payee's age and
continued survival.
ASSIGNING YOUR POLICY
You may assign (transfer) your rights in a policy to someone else as collateral
for a loan, to effect a change of ownership 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 we take before we
receive notice of the assignment or for the validity of the assignment. An
absolute assignment is a change of ownership.
Certain transfers for value may subject you to income tax and penalties and
cause the death benefit to lose its income-tax free treatment. Further, a gift
of a policy that has a loan outstanding may be treated as part gift and part
transfer for value, which could result in both gift tax and income tax
consequences. You should consult your tax advisor prior to making a transfer or
other assignment.
DATES AND PRICES AT WHICH POLICY EVENTS OCCUR
We describe below the general rules for when, and at what prices, events under
your policy will occur. Other portions of this prospectus describe
circumstances that may cause exceptions. We generally do not repeat those
exceptions below.
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DATE OF RECEIPT. Where this prospectus refers to the day when we receive a
payment, request, election, or notice from you, we usually mean the day on
which that item (or the last thing necessary for us to process that item)
arrives in complete and proper form at our Administrative Office or via the
appropriate telephone or fax number if the item is a type we accept by those
means. There are two main exceptions: if the item arrives (1) on a day that is
not a business day or (2) after the close of a business day, then, in each
case, we are deemed to have received that item on the next business day.
BUSINESS DAYS. Every day that the New York Stock Exchange is open for regular
trading is a business day for us. Each business day ends at the time regular
trading on the exchange closes (or is suspended) for the day. We compute unit
values for our variable investment options as of the end of each business day.
This usually is 4:00 p.m., Eastern Time.
PAYMENTS YOU MAKE. The following are reflected in your policy as of the date
we receive them:
o premium payments received after the policy's investment start date
(discussed below)
o loan repayments and interest payments
REQUESTS YOU MAKE. The following transactions occur as of the date we receive
your request:
o withdrawals
o tax withholding elections
o face amount decreases that result from a withdrawal
o changes of allocation percentages for premium payments or monthly
deductions
o surrenders
o changes of beneficiary
o transfers from a variable investment option to the guaranteed interest
option
o changes in form of death benefit payment
o loans
o transfers among variable investment options
o assignments
o termination of paid up death benefit guarantee
The following transactions occur on your policy's next monthly anniversary that
coincides with or follows the date we approve your request:
o changes in face amount
o election of paid up death benefit guarantee
o changes in death benefit option
o changes of insured person
o termination of enhanced death benefit guarantee
o restoration of terminated policies
DOLLAR COST AVERAGING SERVICE. Transfers pursuant to our dollar cost averaging
service occur as of the first day of each month of your policy. We make the
first such transfer, as of your policy's first monthly anniversary that
coincides with or follows the date we receive your request. If you request the
dollar cost averaging service in your original policy application, however, the
first transfer will occur as of the first day of the second month of your
policy that begins after your policy's initial Allocation date.
ASSET REBALANCING SERVICE (AVAILABLE BEGINNING SEPTEMBER 15, 1999). We will
effect one-time asset rebalancing requests, and the initial transaction of a
periodic rebalancing program, as of the later of (1) the date we receive your
request or (2) your initial Allocation Date. Subsequent periodic rebalancings
occur on each monthly, quarterly, annual or semi-annual anniversary of your
policy, as you have requested.
DELAY IN CERTAIN CASES. We may delay allocating any payment you make to our
variable investment options, or
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any transfer, for the same reasons stated in "Delay of variable investment
option proceeds" on page 38 below. We may also delay such transactions for any
other legally permitted purpose.
PRICES APPLICABLE TO POLICY TRANSACTIONS. If a transaction will increase or
decrease the amount you have in a variable investment option as of a certain
date, we process the transaction using the unit values for that option computed
as of that day's close of business, unless that day is not a business day. In
that case, we use unit values computed as of the next business day's close.
EFFECT OF DEATH OR SURRENDER. You may not make any surrender or partial
withdrawal request after the insured person has died. Also, all insurance
coverage ends on the date as of which we process any request for a surrender.
POLICY ISSUANCE
REGISTER DATE. When we issue a policy, we assign it a "register date," which
will be shown in the policy. We measure the months, years, and anniversaries of
your policy from your policy's register date.
o If you submit the full minimum initial premium to your registered
representative 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 you signed part I of the policy application or (b) the date a medical
professional signed part II of the policy application.
o If we do not receive your full minimum initial premium at our Administrative
Office before the issue date or, if we issue the policy on a different basis
than you applied for, the register date will be the same as the date we
actually issue the policy (the "issue date").
Policies that would otherwise receive a register date of the 29th, 30th or 31st
of any month will receive a register date of the 28th of that month.
We may also permit an earlier than customary register date (a) for
employer-sponsored cases, to accommodate a common register date for all
employees or (b) to provide a younger age at issue. (A younger age at issue
reduces the monthly charges that we deduct under a policy.) The charges and
deductions commence as of the register date, even when we have permitted an
early register date. We may also permit policyowners to delay a register date
(up to three months) in employer-sponsored cases.
INVESTMENT START DATE. This is the date your investment first begins to earn a
return for you in our Alliance Money Market option (prior to the Allocation
Date). Generally, this is the register date, or, if later, the date we receive
your full minimum initial premium at our Administrative Office.
COMMENCEMENT OF INSURANCE COVERAGE. You must give the full minimum initial
premium to your registered representative on or before the day the policy is
delivered to you. No insurance under your policy will take effect unless (1)
the insured person is still living at the time such payment and delivery are
completed and (2) unless the information in the application continues to be
true and complete, without material change, as of the time of such payment. If
you submit 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 person. You may review a copy of our temporary
insurance agreement, on request, for more information about the terms and
conditions of that coverage.
NON-ISSUANCE. If, after considering your application, we decide not to issue a
policy, we will refund any premium you have paid, without interest.
AGE; AGE AT ISSUE. Unless the context in this prospectus requires otherwise, we
consider the insured person's "age" during any policy year be his or her age on
his or her birthday nearest to the beginning of that policy year. For example,
the insured person's age for the first policy year ("age at issue") is that
person's age on whichever birthday is closer to (i.e., before or after) the
policy's register date.
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GENDER-NEUTRAL POLICIES
Congress and various states have from time to time considered legislation that
would require insurance rates to be the same for males and females. 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 Incentive Life in connection with an 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.
There will be no distinctions based on sex in the cost of insurance rates for
Incentive Life policies sold in Montana. We will also make such gender-neutral
policies available on request in connection with certain employee benefit
plans. Cost of insurance rates applicable to a gender-neutral policy will not
be greater than the comparable male rates under a gender specific Incentive
Life policy.
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YOUR VOTING PRIVILEGES
VOTING OF PORTFOLIO SHARES. As the legal owner of any Portfolio shares that
support a variable investment option, we will attend (and have the right to
vote at) any meeting of shareholders of the Portfolio (or the Trust of which
that Portfolio is a part). To satisfy currently-applicable legal requirements,
however, we will give you the opportunity to tell us how to vote the number of
each Portfolio's shares that are attributable to your policy. We will vote
shares attributable to policies for which we receive no instructions in the
same proportion as the instructions we do receive from all policies that
participate in our Separate Account FP (discussed below). With respect to any
Portfolio shares that we are entitled to vote directly (because we do not hold
them in a separate account or because they are not attributable to policies),
we will vote in proportion to the instructions we have received from all
holders of variable annuity and variable life insurance policies who are using
that Portfolio.
Under current legal requirements, we may disregard the voting instructions we
receive from policyowners only in certain narrow circumstances prescribed by
SEC regulations. If we do, we will advise you of the reasons in the next annual
or semi-annual report we send to you.
VOTING AS POLICYOWNER. In addition to being able to instruct voting of
Portfolio shares as discussed above, policyowners that use our variable
investment options may in a few instances be called upon to vote on matters
that are not the subject of a shareholder vote being taken by any Portfolio. If
so, you will have one vote for each $100 of account value in any such option;
and we will vote our interest in Separate Account FP in the same proportion as
the instructions we receive from holders of Incentive Life and other policies
that Separate Account FP supports.
ABOUT OUR SEPARATE ACCOUNT FP
Each variable investment option is a part (or "subaccount") of our Separate
Account FP. We established Separate Account FP under special provisions of the
New York Insurance Law. These provisions prevent creditors from any other
business we conduct from reaching the assets we hold in our variable investment
options for owners of our variable life insurance policies. We are the legal
owner of all of the assets in Separate Account FP and may withdraw any amounts
that exceed our reserves and other liabilities with respect to variable
investment options under our policies. The results of Separate Account FP's
operations are accounted for without regard to Equitable Life's other
operations.
Separate Account FP's predecessor was established on April 19, 1985 by our then
wholly-owned subsidiary, Equitable Variable Life Insurance Company. We
established our Separate Account FP under New York Law on September 21, 1995.
When Equitable Variable Life Insurance Company merged into Equitable Life, as
of January 1, 1997, our Separate Account FP succeeded to all the assets,
liabilities and operations of its predecessor.
Separate Account FP is registered with the SEC under the Investment Company Act
of 1940 and is classified by that act as a "unit investment trust." The SEC,
however, does not manage or supervise Equitable Life or Separate Account FP.
Each subaccount (variable investment option) of Separate Account FP available
under Incentive Life invests solely in class IB shares issued by the
corresponding Portfolio of The Hudson River Trust or EQ Advisors Trust.
Separate Account FP immediately reinvests all dividends and other distributions
it receives from a Portfolio in additional shares of that Portfolio.
The EQ Advisors Trust sells its shares to Equitable Life separate accounts in
connection with Equitable Life's variable life insurance and annuity products,
as well as to the trustee of a qualified plan for Equitable Life. The Hudson
River Trust sells its shares to separate accounts of insurance companies, both
affiliated and unaffiliated with Equitable Life. We currently do not foresee
any disadvantages to our policyowners arising out of this. However, the Board
of Trustees of The Hudson River Trust intends to monitor events to identify any
material irreconcilable conflicts that may arise and to determine what action,
if any, should be taken in response. If we believe that the Board's response
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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 the Trust involved, we will examine other investment
alternatives.
ABOUT OUR GENERAL ACCOUNT
Our general account assets support all of our obligations, (including those
under the Incentive Life policies and, more specifically, the guaranteed
interest option). Our general assets consist of all of our assets as to which
no class or classes of our annuity or life insurance policies have any
preferential claim. You will not share in the investment experience of our
general account assets, however; and we have full discretion about how we
invest those assets (subject only to any requirements of law).
Because of applicable exemptions and exclusions, we have not registered
interests in the general account under the Securities Act of 1933 or registered
the general account as an investment company with the SEC. Accordingly, neither
the general account, the guaranteed interest option, nor any interests therein,
are subject to regulation under those acts. The staff of the SEC has not
reviewed the portions of this prospectus that relate to the general account and
the guaranteed interest option. The disclosure, however, may be subject to
certain provisions of the federal securities law relating to the accuracy and
completeness of statements made in prospectuses.
We declare the rate of interest periodically, but it will not be less than 3%.
We credit and compound the interest daily at an effective annual rate that
equals the declared rate. The rates we are at any time declaring on outstanding
policies may differ from the rates we are then declaring for newly issued
policies.
YOU CAN CHANGE YOUR POLICY'S INSURED PERSON
After the policy's second year, we will permit you to request that a new
insured person replace the existing one. This requires that you provide us with
adequate evidence that the proposed new insured person meets our requirements
for insurance. Other requirements are outlined in your policy.
Upon making this change, the monthly insurance charges we deduct and
prospective guarantee premiums will be based on the new insured person's
insurance risk characteristics. The change of insured person will not, however,
affect the surrender charge computation for the amount of coverage that is then
in force.
Substituting the insured person is a taxable event and may, depending upon
individual circumstances, have other tax consequences as well. For example, the
change could cause the policy to be a "modified endowment contract" or to fail
the Internal Revenue Code's definition of "life insurance," unless we also
distribute certain amounts to you from the policy. See "Tax information"
beginning on page 26 above. You should consult your tax advisor 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. In no event, however, will we permit a change that causes your
policy to fail the definition of life insurance.
TRANSFERS OF YOUR ACCOUNT VALUE
TRANSFERS NOT IMPLEMENTED. When we cannot process part of a transfer request,
we will not process any other part of the request. This could occur, for
example, where the request does not comply with our transfer limitations, or
where you request transfer of an amount greater than that currently allocated
to an investment option.
Similarly, the dollar cost averaging service will terminate immediately if: (1)
your amount in the Alliance Money Market option is insufficient to cover the
automatic transfer amount; (2) your policy is in a grace period; or (3) we
receive notice of the insured person's death.
MARKET TIMING. We may, at any time, restrict the use of market timers and
other agents acting under a power of attorney who are acting on behalf of more
than one
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policyowner. Any agreements to use marketing timing services to make transfers
are subject to our rules in effect at that time.
TELEPHONE REQUESTS
If you are a properly authorized person, you may make telephone transfers as
described above on page 21.
Also, if you are both the owner and the insured person under your policy, you
may call 1-888-228-6690 (toll free) from a touch tone phone to make the
following additional types of requests:
o policy loans
o changes of premium allocation percentages
o changes of address
All telephone requests are automatically tape-recorded and are invalid if the
information given is incomplete or any portion of the request is inaudible. We
have established procedures reasonably designed to confirm that telephone
instructions are genuine. These include requiring personal identification
information from the caller and providing subsequent written confirmation of
the instructions. If we do not employ reasonable procedures to confirm the
genuineness of telephone instructions, we may be liable for any losses arising
out of any act or omission that constitutes negligence, lack of good faith, or
willful misconduct. In light of our procedures, we will not be liable for
following telephone instructions that we reasonably believe to be genuine.
Any telephone transaction request that you make after the close of a business
day (which is usually 4:00 p.m. Eastern Time) will be processed as of the next
business day. During times of extreme market activity, or for other reasons,
you may be unable to contact us to make a telephone request. If this occurs,
you should submit a written transaction request to our Administrative Office.
We reserve the right to discontinue telephone transactions, or modify the
procedures and conditions for such transactions, at any time.
DEDUCTING POLICY CHARGES
MONTHLY COST OF INSURANCE CHARGE. The monthly cost of insurance charge is
determined by multiplying the cost of insurance rate that is then applicable to
your policy by the amount we have at risk under your policy. Our amount at risk
(also described in your policy as "net amount at risk") on any date is the
difference between (a) the death benefit that would be payable if the insured
person died on that date and (b) the then total account value under the policy.
A greater amount at risk, or a higher cost of insurance rate, will result in a
higher monthly charge.
As a general rule, the cost of insurance rate increases each year that you own
your policy. This happens automatically because of the insured person's
increasing age.
Our cost of insurance rates are guaranteed not to exceed those that will be
specified in your policy. For most insured persons at most ages, our current
rates are lower than those maximums. Therefore, we have the ability to raise
these rates up to the guaranteed maximum at any time. The guaranteed maximum
cost of insurance rates for gender neutral Incentive Life policies are based on
the 1980 Commissioner's Standard Ordinary SB Smoker and NB Non-Smoker Mortality
Table. For all other policies, the guaranteed maximum cost of insurance rates
are based on the 1980 Commissioner's Standard Ordinary Male and Female Smoker
and Non-Smoker Mortality Tables.
Our cost of insurance rates will generally be lower (except in Montana and in
connection with certain employee benefit plans) if the insured person is a
female than if a male. They also will generally be lower for non-tobacco users
than tobacco users and lower for persons that have other highly favorable
health characteristics, as compared to those that do not. On the other hand,
insured persons who present particular health, occupational or avocational
risks may be charged higher cost of insurance rates and other additional
charges as specified in their policies. In addition, the current rates also
vary depending on the duration of the policy (i.e., the length of time since
the policy was issued).
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We offer lower rates for non-tobacco users only if they are at least age 18.
You may ask us to review a younger insured person's tobacco habits following
the policy anniversary on which such person is age 18.
DATE OF MONTHLY DEDUCTIONS. We make the regular monthly deductions as of the
first day of each month of the policy.
PURPOSES OF POLICY CHARGES. The charges under the policies are designed to
cover, in the aggregate, our direct and indirect costs of selling,
administering and providing benefits under the policies. They are also
designed, in the aggregate, to compensate us for the risks of loss we assume
pursuant to the policies. If, as we expect, the charges that we collect from
the policies exceed our total costs in connection with the policies, we will
earn a profit. Otherwise, we will incur a loss.
The current and maximum rates of certain of our charges have been set with
reference to estimates of the amount of specific types of expenses or risks
that we will incur. In most cases, this prospectus identifies such expenses or
risks in the name of the charge: e.g., the administrative charge, cost of
insurance charge, and mortality and expense risk charge. However, the fact that
any charge bears the name of, or is designed primarily to defray, a particular
expense or risk does not mean that the amount we collect from that charge will
never be more than the amount of such expense or risk. Nor does it mean that we
may not also be compensated for such expense or risk out of any other charges
we are permitted to deduct by the terms of the policies. The surrender charge,
for example, is designed primarily to defray sales expenses, but may also be
used to defray other expenses associated with your policy that we have not
recovered by the time of any surrender. Similarly, the premium charge is
designed primarily to defray sales and tax expenses we incur that are based on
premium payments.
CUSTOMER LOYALTY CREDIT
We provide a customer loyalty credit for policies that have been outstanding
for more than six years. This is added to the account value each month. The
dollar amount of the credit is a percentage of the total amount you then have
in our investment options (not including any value we are holding as collateral
for any policy loans or for a living benefit payment). The percentage credit is
currently at an annual rate of .60% beginning in the policy's seventh year.
This credit is not guaranteed, however. Because we first offered Incentive Life
in 1999, no credit has yet been attained under any outstanding policy.
SUICIDE AND CERTAIN MISSTATEMENTS
If an insured person commits suicide within certain time periods, the amount of
death benefit we pay will be limited as described in the policy. Also, if an
application misstated the age or gender of an insured person, we will adjust
the amount of any death benefit (and certain rider benefits), as described in
the policy (or rider).
WHEN WE PAY POLICY PROCEEDS
GENERAL. We will generally pay any death benefit, surrender, withdrawal, or
loan within seven days after we receive the request and any other required
items. In the case of a death benefit, if we do not have information about the
desired manner of payment within 60 days after the date we receive notification
of the insured person's death (and other required items), we will pay the
proceeds as a single sum, normally within seven days thereafter.
CLEARANCE OF CHECKS. We reserve the right to defer payment of that portion of
your account value that is attributable to a premium payment made by check for
a reasonable period of time (not to exceed 15 days) to allow the check to clear
the banking system.
DELAY OF GUARANTEED INTEREST OPTION PROCEEDS. We also have the right to defer
payment or transfers of amounts out of our guaranteed interest option for up to
six months. If we delay more than 30 days in paying you such amounts, we will
pay interest of at least 3% per year from the date we receive your request.
DELAY OF VARIABLE INVESTMENT OPTION PROCEEDS. We reserve the right to defer
payment of any death benefit,
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transfer, loan or other distribution that is derived from a variable investment
option if (a) the New York Stock Exchange is closed (other than customary
weekend and holiday closings) or trading on that exchange is restricted; (b)
the SEC has declared that an emergency exists, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably practicable to
fairly determine the account value; or (c) the law permits the delay for the
protection of owners. If we need to defer calculation of values for any of the
foregoing reasons, all delayed transactions will be processed at the next
available unit values.
DELAY TO CHALLENGE COVERAGE. We may challenge the validity of your insurance
policy or any rider based on any material misstatements in an application you
have made to us. We cannot make such challenges, however, beyond certain time
limits set forth in the policy or rider. If the insured person dies within one
of these limits, we may delay payment of any proceeds until we decide whether
to challenge the policy.
CHANGES WE CAN MAKE
In addition to any of the other changes described in this prospectus, we have
the right to modify how we or Separate Account FP 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 combine two or more variable investment options or withdraw assets relating
to Incentive Life from one investment option and put them into another;
o end the registration of, or re-register, Separate Account FP under the
Investment Company Act of 1940;
o operate Separate Account FP under the direction of a "committee" or
discharge such a committee at any time;
o restrict or eliminate any voting rights or privileges of policyowners (or
other persons) that affect Separate Account FP;
o operate Separate Account FP, or one or more of the variable investment
options, in any other form the law allows. This includes any form that
allows us to make direct investments, in which case we may charge Separate
Account FP an advisory fee. We may make any legal investments we wish for
Separate Account FP. In addition, we may disapprove any change in
investment advisers or in investment policy unless a law or regulation
provides differently.
If we take any action that results in a material change in the underlying
investments of a variable investment option, we will notify you as required by
law. We may, for example, cause the variable investment option to invest in a
mutual fund other than, or in addition to, The Hudson River Trust or EQ
Advisors Trust. If you then wish to transfer the amount you have in that option
to another investment option, you may do so.
We may make any changes in the policy or its riders, require additional premium
payments, or make distributions from the policy to the extent we deem necessary
to ensure that your policy qualifies or continues to qualify as life insurance
for tax purposes. Any such change will apply uniformly to all policies that are
affected. We will give you written notice of such changes. Subject to all
applicable legal requirements, we also may make other changes in the policies
that do not reduce any net cash surrender value, death benefit, account value,
or other accrued rights or benefits.
REPORTS WE WILL SEND YOU
Shortly after the end of each year of your policy, we will send you a report
that includes information about your policy's current death benefit, account
value, cash surrender value (i.e., account value minus any current surrender
charge), policy loans, policy transactions and amounts of charges deducted. We
will send you individual notices to confirm premium payments, transfers and
certain other policy transactions.
<PAGE>
- --------------------------------------------------------------------------------
40 More information about other matters
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
Equitable Life and its affiliates are parties to various legal proceedings. In
our view, none of these proceedings would be considered material with respect
to a policyowner's interest in Separate Account FP, nor would any of these
proceedings be likely to have a material adverse effect upon the Separate
Account, our ability to meet our obligations under the policies, or the
distribution of the policies.
ILLUSTRATIONS OF POLICY BENEFITS
In order to help you understand how your policy values would vary over time
under different sets of assumptions, we will provide you with certain
illustrations upon request. These will be based on the age and insurance risk
characteristics of the insured person under your policy and such factors as the
face amount, death benefit option, premium payment amounts, and rates of return
(within limits) that you request. You can request such illustrations at any
time. We have filed an example of such an illustration as an exhibit to the
registration statement referred to below.
SEC REGISTRATION STATEMENT
We have on file with the SEC a registration statement under the Securities Act
of 1933 that relates to the Incentive Life policies. The registration statement
contains additional information that is not required to be included in this
prospectus. You may obtain this information, for a fee, from the SEC's Public
Reference Section at 450 5th Street, N.W., Washington, D.C. 20549 or, without
charge, from the SEC's web-site (www.sec.gov).
HOW WE MARKET THE POLICIES
We offer variable life insurance policies (including Incentive Life) and
variable annuity contracts through Equitable Distributors Inc. ("EDI"). The
Investment Company Act of 1940, therefore, classifies EDI as a "principal
underwriter" of those policies and contracts. EDI also serves as a principal
underwriter of The Hudson River Trust and EQ Advisors Trust. EDI is a
wholly-owned subsidiary of Equitable Life, with its address at 1290 Avenue of
the Americas, New York, NY 10104. EDI is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). In 1997 and 1998, we paid EDI a fee of $20,088,049 and
$35,582,313, respectively, for its services under a Distribution Agreement with
Equitable Life and its separate accounts.
We sell Incentive Life through licensed insurance agencies (both affiliated and
unaffiliated with Equitable Life) and their affiliated broker-dealers (who are
registered with the SEC and are members of the NASD). Such agencies and their
affiliated broker-dealers have entered into selling agreements with EDI. The
licensed insurance agents who sell our policies are appointed as agents of
Equitable Life, and are registered representatives of the agencies' affiliated
broker-dealer. Sales commissions will be paid by Equitable Life to the agency
which sells you this policy. The commissions don't cost you anything above the
charges and expenses already discussed elsewhere in this prospectus. Generally,
the agencies will receive maximum commissions of: 50% of the amount of the
premium you pay in your policy's first year up to a certain amount, plus 3% of
all other premiums you pay in your policy's first year, plus 3% of all premiums
you pay in the second through tenth years. We pay comparable commissions on the
amount of premiums you pay that we deem attributable to any face amount
increase that you request. The agency may be required to return to us any
commissions on premiums that we have refunded to a policyowner.
INSURANCE REGULATION THAT APPLIES TO EQUITABLE LIFE
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 state
where we sell policies. We submit annual reports on our operations and finances
to insurance officials in all of these states. The officials are responsible
for reviewing our reports to see that we are financially sound. Such
regulation, however, does not guarantee or provide absolute assurance of our
soundness.
<PAGE>
- --------------------------------------------------------------------------------
More information about other matters 41
- --------------------------------------------------------------------------------
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer your
policy and operate the investment options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000, and
Equitable Life has identified those of its systems critical to business
operations that were not year 2000 compliant. Equitable Life has completed the
work of modifying or replacing non-compliant systems and has certified, through
testing, that its systems are year 2000 compliant. Equitable Life has contacted
third-party vendors and service providers to seek confirmation that they are
acting to address the year 2000 issue with the goal of avoiding any material
adverse effect on services provided to policyowners and on operations of the
investment options. All third-party vendors and service providers considered
critical to Equitable Life's business have provided us confirmation of their
year 2000 compliance or a satisfactory plan for compliance. With respect to
vendors and service providers considered non-critical, we believe we are on
schedule for substantially all such vendors and service providers to be
confirmed by September 30, 1999 as year 2000 compliant or be the subject of a
satisfactory plan for compliance. If such confirmation is not received by
September 30, 1999, the vendor or service provider will be replaced, eliminated
or be the subject of contingency plans. Additionally, Equitable Life has
supplemented its existing business continuity and disaster recovery plans to
cover certain categories of contingencies that could arise as a result of year
2000 related failures.
There are many risks associated with year 2000 issues, including the risk that
Equitable Life's computer systems will not operate as intended. Additionally,
there can be no assurance that the systems of third parties will be year 2000
compliant. Any significant unresolved difficulty related to the year 2000
compliance initiatives could result in an interruption in, or a failure of,
normal business operations and, accordingly, could have a material adverse
effect on our ability to administer your policy and operate the investment
options.
To the fullest extent permitted by law, the foregoing year 2000 discussion is a
"Year 2000 Readiness Disclosure" within the meaning of The Year 2000
Information and Readiness Disclosure Act (P.L. 105-271) (1998).
<PAGE>
Directors and principal officers
- --------------------------------------------------------------------------------
42 Directors and principal officers
- --------------------------------------------------------------------------------
Set forth below is information about our directors and, to the extent they are
responsible for variable life insurance operations, our principal officers.
Unless otherwise noted, their address is 1290 Avenue of the Americas, New York,
New York 10104.
DIRECTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
FRANCOISE COLLOC'H
- ------------------------------------------------------------------------------------------------------------------------------------
AXA Director of Equitable Life since July 1992. Senior Executive Vice President, Human
23, Avenue Matignon Resources and Communications of AXA, and various positions with AXA affiliated
75008 Paris, France companies. Director of the Equitable Companies since December 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
HENRI DE CASTRIES
- ------------------------------------------------------------------------------------------------------------------------------------
AXA Director of Equitable Life since September 1993. Director (since May 1994) and
23, Avenue Matignon Chairman of the Board (since April 1998) of the Equitable Companies. Prior thereto,
75008 Paris, France Vice Chairman of the Board of the Equitable Companies (February 1996 to
April 1998). Senior Executive Vice President, Financial Services and Life
Insurance Activities of AXA since 1996. Prior thereto, Executive Vice President
Financial Services and Life Insurance Activities of AXA (1933 to 1996). Also
Director or officer of various subsidiaries and affiliates of the AXA
Group. Director of other Equitable Life affiliates. Previously held other
officerships with the AXA Group.
- ------------------------------------------------------------------------------------------------------------------------------------
JOSEPH L. DIONNE
- ------------------------------------------------------------------------------------------------------------------------------------
The McGraw-Hill Companies Director of Equitable Life since May 1982. Chairman (since April 1988) and former
1221 Avenue of the Americas Chief Executive Officer (April 1983 to April 1988) of The McGraw-Hill Companies.
New York, NY 10020 Director of the Equitable Companies (since May 1992). Director, Harris Corporation
and Ryder System, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
DENIS DUVERNE
- ------------------------------------------------------------------------------------------------------------------------------------
AXA Director of Equitable Life since February 1998. Senior Vice President International
23, Avenue Matignon (US-UK-Benelux) AXA. Director since February 1996, Alliance. Director since
75008 Paris, France February 1997, Donaldson Lufkin & Jenrette ("DLJ").
- ------------------------------------------------------------------------------------------------------------------------------------
JEAN-RENE FOURTOU
- ------------------------------------------------------------------------------------------------------------------------------------
Rhone-Poulenc S.A. Director of Equitable Life since July 1992. Director of Equitable Companies since July
25, Quai Paul Doumer 1992. Chairman and Chief Executive Officer of Rh-ne-Poulenc, S.A.; Member,
92408 Courbevoie Cedex Supervisory Board of AXA since January 1997; European Advisory Board of Bankers
France Trust Company and Consulting Council of Banque de France; Director, Societe
Generale, Schneider S.A. and Groupe Pernod-Ricard (July 1997 to present).
- ------------------------------------------------------------------------------------------------------------------------------------
NORMAN C. FRANCIS
- ------------------------------------------------------------------------------------------------------------------------------------
Xavier University of Louisiana Director of Equitable Life since March 1989. President of Xavier University of
7325 Palmetto Street Louisiana; Director, First National Bank of Commerce, New Orleans, LA, Piccadilly
New Orleans, LA 70125 Cafeterias, Inc., and Entergy Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD J. GREENE
- ------------------------------------------------------------------------------------------------------------------------------------
LeBouef, Lamb, Greene & MacRae, L.L.P. Director of Equitable Life since July 1991. Partner, LeBoeuf, Lamb, Greene & MacRae,
125 West 55th Street L.L.P. Director of the Equitable Companies since May 1992.
New York, NY 10019-4513
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Directors and principal officers 43
- --------------------------------------------------------------------------------
DIRECTORS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN T. HARTLEY
- ------------------------------------------------------------------------------------------------------------------------------------
1025 NASA Boulevard Director of Equitable Life since August 1987. Currently a Director and retired
Melbourne, FL 32919 Chairman and Chief Executive Officer of Harris Corporation (retired July 1995);
previously held other officerships with Harris Corporation. Director of the
Equitable Companies since May 1992; Director of the McGraw Hill Companies.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN H.F. HASKELL JR.
- ------------------------------------------------------------------------------------------------------------------------------------
SBC Warburg Dillon Read LLC Director of Equitable Life since July 1992; Director of the Equitable Companies since
535 Madison Avenue July 1992; Managing Director of Warburg Dillon Read LLC, and member of its Board
New York, NY 10022 of Directors; Chairman, Supervisory Board, Dillon Read (France) Gestion (until 1998);
Director, Pall Corporation (November 1998 to present), and Dillon, Read Limited).
- ------------------------------------------------------------------------------------------------------------------------------------
MARY R. (NINA) HENDERSON
- ------------------------------------------------------------------------------------------------------------------------------------
Bestfoods Grocery Director of Equitable Life since December 1996. President of Bestfoods Grocery
BESTFOODS (formerly CPC Specialty Markets Group); Vice President, BESTFOODS (formerly CPC
International Plaza International, Inc.) since 1993. Prior thereto, President of CPC Specialty Markets
700 Sylvan Avenue Group. Director of the Equitable Companies since December 1996; Director,
Englewood Cliffs, NJ 07632-9976 Hunt Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
W. EDWIN JARMAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Jarmain Group Inc. Director of Equitable Life since July 1992. President of Jarmain Group Inc. and officer
121 King Street West or director of several affiliated companies. Chairman and Director of FCA
Suite 2525 International Ltd. (until May 1998). Director of various AXA affiliated companies and
Toronto, Ontario M5H 3T9 National Mutual Holdings Limited (July 1998-Present; Alternate Director, the National
Canada Mutual Life Association of Australasia Limited (until 1998); National Mutual Asia
Limited and National Mutual Insurance Company Limited, Hong Kong (February 1997
to present). Previously held other officerships with FCA International.
Director of the Equitable Companies since July 1992.
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE T. LOWY
- ------------------------------------------------------------------------------------------------------------------------------------
Cravath, Swaine & Moore Director of Equitable Life since July 1992. Partner, Cravath, Swaine & Moore.
825 Eighth Avenue Director, Eramet.
New York, NY 10019
- ------------------------------------------------------------------------------------------------------------------------------------
DIDIER PINEAU-VALENCIENNE
- ------------------------------------------------------------------------------------------------------------------------------------
Schneider S.A. Director of Equitable Life since February 1996. Former Chairman and Chief Executive
64/70, Avenue Jean-Baptiste Clement Officer of Schneider S.A. as of February 1999, Honorary Chairman. Chairman or
92646 Boulogne-Billancourt Cedex director of numerous subsidiaries and affiliated companies of Schneider and the
France Equitable Companies. Director of the Company and Equitable Life from July 1992 to
February 1995. Member, Supervisory Board, AXA and Lagardere ERE; Director, CGIP,
Sema Group PLC and Rhone-Poulenc, SA; Member of European Advisory Board of
Bankers Trust Company, Supervisory Board of Banque Paribas (until 1998) and
Advisory Boards of Bankers Trust Company, Booz Allen & Hamilton (USA) and Banque de France.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
44 Directors and principal officers
- --------------------------------------------------------------------------------
OFFICER-DIRECTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
GEORGE J. SELLA, JR.
- ------------------------------------------------------------------------------------------------------------------------------------
P.O. Box 397 Director of Equitable Life since May 1987. Retired Chairman and Chief Executive
Newton, NJ 07860 Officer of American Cyanamid Company (retired April 1993); previously held other
officerships with American Cyanamid. Director of the Equitable Companies, since
May 1992.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVE H. WILLIAMS
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Capital Management Director of Equitable Life since March 1991. Chairman and Chief Executive Officer of
Corporation Alliance until January 1999 and Chairman or Director of numerous subsidiaries and
1345 Avenue of the Americas affiliated companies of Alliance. Senior Executive Vice President of AXA since January
New York, NY 10105 1997. Director of the Equitable Companies, since May 1992.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL HEGARTY
- ------------------------------------------------------------------------------------------------------------------------------------
Director of Equitable Life since January 1998. President since January 1998 and
Chief Operating Officer since February 1998, Equitable Life. Vice Chairman since
April 1998, Senior Executive Vice President (January 1998 to April 1998),
and Director and Chief Operating Officer (both since January 1998), the Equitable
Companies. Vice Chairman (from 1996 to 1997), Chase Manhattan Corporation. Vice
Chairman (from 1995 to 1996) and Senior Executive Vice President (from 1991 to
1995), Chemical Bank. Executive Vice President, Chief Operating Officer and
Director since March 1998, Equitable Investment Corporation ("EIC"); ACMC,
Inc. ("ACMC") (since March 1998). Director, Equitable Capital Management
Corporation ("ECMC") (since March 1998), Alliance and DLJ (both May 1998 to Present).
- ------------------------------------------------------------------------------------------------------------------------------------
EDWARD D. MILLER
- ------------------------------------------------------------------------------------------------------------------------------------
Director of Equitable Life since August 1997. Chairman of the Board since January
1998, Chief Executive Officer since August 1997, President (August 1997 to
January 1998), Equitable Life. Director, President and Chief Executive Officer,
all since August 1997, the Equitable Companies. Senior Executive Vice
President and Member of the Executive Committee, AXA; Senior Vice Chairman,
Chase Manhattan Corporation (March 1996 to April 1997). President (January 1994
to March 1996) and Vice Chairman (December 1991 to January 1994), Chemical
Bank. Director, Alliance (since August 1997), DLJ (since November 1997), ECMC
(since March 1998), ACMC, Inc. (since March 1998), and AXA Canada (since
September 1998). Director, Chairman, President and Chief Executive Officer
since March 1998, EIC. Director, KeySpan Energy.
- ------------------------------------------------------------------------------------------------------------------------------------
STANLEY B. TULIN
- ------------------------------------------------------------------------------------------------------------------------------------
Director and Vice Chairman of the Board since February 1998, and Chief Financial
Officer since May 1996, Equitable Life. Senior Executive Vice President until
February 1998, and Chief Financial Officer since May 1997, the Equitable
Companies. Vice President until 1998, EQ ADVISORS TRUST. Director, Alliance (since
July 1997), and DLJ (since June 1997). Prior thereto, Chairman, Insurance
Consulting and Actuarial Practice, Coopers & Lybrand, L.L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Directors and principal officers 45
- --------------------------------------------------------------------------------
OTHER OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
LEON B. BILLIS
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President (since February 1998) and Chief Information Officer (since
November 1994), Equitable Life. Previously held other officerships with Equitable Life;
Director, J.M.R. Realty Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
HARVEY BLITZ
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, Equitable Life. Senior Vice President, the Equitable Companies
Director, The Equitable of Colorado, Inc., Vice President and Chief Financial Officer
since March 1997, EQ ADVISORS TRUST. Director and Chairman, Frontier Trust
Company ("Frontier"). Executive Vice President since November 1996 and Director,
EQ Financial Consultants, Inc. ("EQF"). Director until May 1996, Equitable
Distributors, Inc. ("EDI"). Director and Senior Vice President, EquiSource. Director and
Officer of various Equitable Life affiliates. Previously held other officerships with
Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
KEVIN R. BYRNE
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Treasurer, Equitable Life and the Equitable
Companies. Treasurer, EIC (since June 1997), EquiSource and Frontier. President
and Chief Executive Officer (since September 1997), and prior thereto, Vice
President and Treasurer, Equitable Casualty Insurance Company ("Casualty").
Vice President and Treasurer, EQ ADVISORS TRUST (since March 1997). Director,
Chairman, President and Chief Executive Officer, Equitable JV Holdings (since
August 1997). Director (since July 1997), and Senior Vice President and Chief
Financial Officer (since April 1998), ACMC and ECMC. Previously held other
officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
JUDY A. FAUCETT
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, Equitable Life, (since September 1996) and Actuary (September
1996 to December 1998). Partner and Senior Actuarial Consultant, Coopers &
Lybrand L.L.P. (January 1989 to August 1996).
- ------------------------------------------------------------------------------------------------------------------------------------
ALVIN H. FENICHEL
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Controller, Equitable Life and the Equitable
Companies. Senior Vice President and Chief Financial Officer, The Equitable of
Colorado, Inc., since March 1997. Previously held other officerships with
Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
PAUL J. FLORA
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Auditor, Equitable Life. Vice President and Auditor, the
Equitable Companies.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. GARBER
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President and General Counsel, Equitable Life and the Equitable
Companies. Previously held other officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
46 Directors and principal officers
- --------------------------------------------------------------------------------
OTHER OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MARK A. HUG
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President since April 1997, Equitable Life. Prior thereto, Vice President,
Aetna.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. KAPLAN
- ------------------------------------------------------------------------------------------------------------------------------------
Vice President and Chief Compliance Officer and Associate General Counsel,
Equitable Life. Previously held other officerships with Equitable Life.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL S. MARTIN
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President (since September 1998) and Chief Marketing Officer (since
December 1997). Prior thereto, Senior Vice President and Chief Marketing Officer,
Equitable Life. Chairman and Chief Executive Officer, EQF. Vice President, EQ
ADVISORS TRUST (until April 1998) and THE HUDSON RIVER TRUST. Director,
Equitable Underwriting and Sales Agency (Bahamas), Ltd. and EquiSource; Director
and Executive Vice President (since December 1998), Colorado, prior thereto, Director
and Senior Vice President. Previously held other officerships with Equitable Life and
its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
DOUGLAS MENKES
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President and Corporate Actuary since June 1997, Equitable Life. Prior
thereto, Consulting Actuary, Milliman & Robertson, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
PETER D. NORIS
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President and Chief Investment Officer, Equitable Life. Executive Vice
President since May 1995 and Chief Investment Officer since July 1995, The Equitable
Companies. Trustee, THE HUDSON RIVER TRUST, and Chairman, President and
Trustee since March 1997, EQ ADVISORS TRUST. Director, Alliance, and Equitable
Real Estate (until June 1997). Executive Vice President, EQF, since November 1996.
Director, EREIM Managers Corp. (since July 1997), and EREIM LP Corp. (since
October 1997). Prior to May 1995, Vice President/Manager, Insurance Companies
Investment Strategies Group, Salomon Brothers, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
ANTHONY C. PASQUALE
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, Equitable Life. Director, Chairman and Chief Operating Officer,
Casualty, (since September 1997). Director, Equitable Agri-Business, Inc. (until
June 1997). Previously held other officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Directors and principal officers 47
- --------------------------------------------------------------------------------
OTHER OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address Business Experience Within Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PAULINE SHERMAN
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President (since February 1999); Vice President, Secretary and
Associate General Counsel, Equitable Life and the Equitable Companies, since
September 1995. Previously held other officerships with Equitable Life.
- ------------------------------------------------------------------------------------------------------------------------------------
RICHARD V. SILVER
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President (since February 1995) and Deputy General Counsel (since
June 1996), Equitable Life. Senior Vice President and Associate General Counsel
(since September 1996), The Equitable Companies. Director, EQF. Senior Vice
President and General Counsel, EIC (June 1997 to March 1998). Previously held
other officerships with Equitable Life and its affiliates.
- ------------------------------------------------------------------------------------------------------------------------------------
JOSE S. SUQUET
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Executive Vice President (since February 1998), Chief Distribution
Officer (since December 1997) and Chief Agency Officer (August 1994 to December
1997), Equitable Life. Prior thereto, Agency Manager. Executive Vice President
since May 1996, the Equitable Companies. Vice President since March 1998, THE
HUDSON RIVER TRUST. Chairman (since December 1997), EDI.
- ------------------------------------------------------------------------------------------------------------------------------------
R. LEE WILSON
- ------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President (since May 1998) and Deputy Chief Financial Officer (since
September 1998), Equitable Life. Prior thereto, Executive Vice President, Chase
Manhattan Bank.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
8
Financial statements of Separate Account FP and Equitable Life
- --------------------------------------------------------------------------------
48 Financial statements of Separate Account FP and Equitable Life
- --------------------------------------------------------------------------------
The financial statements of Separate Account FP as of December 31, 1998 and for
each of the three years in the period ended December 31, 1998 and the financial
statements of Equitable Life as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing. The financial statements of
Equitable Life have relevance for the policies only to the extent that they
bear upon the ability of Equitable Life to meet its obligations under the
policies.
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants.................................................................................. FSA-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998......................................................... FSA-3
Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996................................... FSA-4
Statements of Changes in Net Assets for the Years Ended December 31, 1998, 1997 and 1996........................ FSA-7
Notes to Financial Statements................................................................................... FSA-10
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants.................................................................................. F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997......................................................... F-2
Consolidated Statements of Earnings, Years Ended December 31, 1998, 1997 and 1996............................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1998, 1997 and 1996................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1998, 1997 and 1996............................. F-5
Notes to Consolidated Financial Statements...................................................................... F-6
</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 Alliance Money Market Fund,
Alliance High Yield Fund, Alliance Common Stock Fund, Alliance Aggressive Stock
Fund, Alliance Small Cap Growth Fund, (collectively "Hudson River Trust funds")
and the EQ/Putnam Growth & Income Value Fund, MFS Research Fund, Morgan Stanley
Emerging Markets Equity Fund and MFS Emerging Growth Companies Fund
(collectively "EQ Advisors Trust funds"), 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, 1998 and the results of each of their operations and
changes in each of their net assets for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of shares owned in The
Hudson River Trust and in The EQ Advisors Trust at December 31, 1998 with the
transfer agent, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FSA-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
MONEY HIGH COMMON AGGRESSIVE ALLIANCE
MARKET YIELD STOCK STOCK SMALL CAP
FUND FUND FUND FUND GROWTH FUND
--------------- -------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts -- at market value (Notes 2 and 6)
Cost: $ 252,036,846............... $253,573,296
191,596,765............... $170,697,910
2,256,517,409............... $2,945,826,613
945,225,569............... $971,940,783
40,047,285............... $48,828,240
24,727,882...............
49,044,186...............
12,317,395...............
15,594,112...............
Receivable for Trust shares sold....... -- -- -- 15,756,667 12,471,839
Receivable for policy-related
transactions........................ 17,848,216 -- 3,228,813 -- --
--------------- -------------- ----------------- -------------- --------------
Total Assets........................... 271,421,512 170,697,910 2,949,055,426 987,697,450 61,300,079
--------------- -------------- ----------------- -------------- --------------
LIABILITIES
Payable for Trust shares purchased..... 16,331,370 35,027 5,828,987 -- --
Payable for policy-related --
transactions........................ 289,889 -- 16,503,396 12,640,148
Amount retained by Equitable Life
in Separate Account
FP (Note 4)......................... 414,349 136,603 699,865 415,973 188,682
--------------- -------------- ----------------- -------------- --------------
Total Liabilities...................... 16,745,719 461,519 6,528,852 16,919,369 12,828,830
--------------- -------------- ----------------- -------------- --------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS..................... $254,675,793 $170,236,391 $2,942,526,574 $970,778,081 $48,471,249
=============== ============== ================= ============== ==============
<CAPTION>
-----------------------------------------------------------------------------------------
MFS MORGAN
EMERGING STANLEY EQ/PUTNAM
MFS GROWTH EMERGING GROWTH &
RESEARCH COMPANIES MARKETS INCOME
FUND FUND EQUITY FUND VALUE FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts -- at market value (Notes 2 and 6)
Cost: $ 252,036,846..................
191,596,765..................
2,256,517,409..................
945,225,569..................
40,047,285..................
24,727,882.................. $28,040,945
49,044,186.................. $56,040,636
12,317,395.................. $9,374,762
15,594,112.................. $16,754,714
Receivable for Trust shares sold.......... -- 1,181,194 -- --
Receivable for policy-related
transactions........................... 63,970 -- -- --
----------- ------------- ------------- -------------
Total Assets.............................. 28,104,915 57,221,557 9,374,762 16,754,714
------------ ------------- ------------- -------------
LIABILITIES
Payable for Trust shares purchased........ 82,934 -- 18,854 3,033
Payable for policy-related
transactions........................... -- 1,224,733 7,369 8,426
Amount retained by Equitable Life
in Separate Account
FP (Note 4)............................ 60,594 31,895 2,334,195 106,949
----------- ------------- ------------- -------------
Total Liabilities......................... 143,528 1,256,628 2,360,418 118,408
----------- ------------- ------------- -------------
NET ASSETS ATTRIBUTABLE
TO POLICYOWNERS........................ $27,961,387 $55,964,929 $7,014,344 $16,636,306
=========== ============= ============= =============
</TABLE>
- -------------------------
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate
Account FP.
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>
-------------------------------------------------
ALLIANCE MONEY MARKET
FUND
-----------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts............................... $10,719,684 $9,754,675 $9,126,793
Expenses (Note 3):
Mortality and expense risk charges...................... 1,204,220 1,101,168 1,025,149
--------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS).................................. 9,515,464 8,653,507 8,101,644
--------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments..................... (161,314) (513,800) (110,954)
Realized gain distribution from the Trusts.............. 7,750 13,435 --
--------------- --------------- ---------------
NET REALIZED GAIN (LOSS)...................................... (153,564) (500,365) (110,954)
--------------- --------------- ---------------
Unrealized appreciation (depreciation) on investments:
Beginning of period..................................... 804,349 24,023 89,976
End of period........................................... 1,536,450 804,349 24,023
--------------- --------------- ---------------
Change in unrealized appreciation (depreciation)
during the period...................................... 732,101 780,326 (65,953)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................ 578,537 279,961 (176,907)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................. $10,094,001 $8,933,468 $7,924,737
=============== =============== ===============
<CAPTION>
-----------------------------------------------------
ALLIANCE HIGH YIELD
FUND
--------------------------------------------------- -
1998 1997 1996
------------------ ---------------- ----------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts................................ $ 18,449,747 $12,918,934 $ 8,696,039
Expenses (Note 3):
Mortality and expense risk charges....................... 1,007,106 789,982 518,429
------------------ ---------------- ----------------
NET INVESTMENT INCOME (LOSS)................................... 17,442,641 12,128,952 8,177,610
------------------ ---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments...................... (2,344,392) 936,554 939,559
Realized gain distribution from the Trusts............... 3,396,523 6,365,633 6,119,053
------------------ ---------------- ----------------
NET REALIZED GAIN (LOSS)....................................... 1,052,131 7,302,187 7,058,612
------------------ ---------------- ----------------
Unrealized appreciation (depreciation) on investments:
Beginning of period...................................... 8,622,836 5,664,824 3,823,981
End of period............................................ (20,898,854) 8,622,836 5,664,824
------------------ ---------------- ----------------
Change in unrealized appreciation (depreciation)
during the period........................................ (29,521,690) 2,958,012 1,840,843
------------------ ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS.............................................. (28,469,559) 10,260,199 8,899,455
------------------ ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................... $(11,026,918) $22,389,151 $17,077,065
================== ================ ================
<CAPTION>
----------------------------------------------------------
ALLIANCE COMMON STOCK
FUND
-------------------------------------------------------
1998 1997 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts................................. $ 15,939,680 $ 10,668,337 $ 11,773,551
Expenses (Note 3):
Mortality and expense risk charges........................ 14,600,706 11,435,936 8,267,795
----------------- ------------------ -----------------
NET INVESTMENT INCOME (LOSS).................................... 1,338,974 (767,599) 3,505,756
----------------- ------------------ -----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments....................... 169,109,310 53,841,049 30,128,838
Realized gain distribution from the Trusts................ 353,834,250 164,814,473 157,423,606
----------------- ------------------ -----------------
NET REALIZED GAIN (LOSS)........................................ 522,943,560 218,655,522 187,552,444
----------------- ------------------ -----------------
Unrealized appreciation (depreciation) on investments:
Beginning of period....................................... 567,231,009 294,432,897 181,824,279
End of period............................................. 689,309,204 567,231,009 294,432,897
----------------- ------------------ -----------------
Change in unrealized appreciation (depreciation)
during the period......................................... 122,078,195 272,798,112 112,608,618
----------------- ------------------ -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................... 645,021,755 491,453,634 300,161,062
----------------- ------------------ -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................................... $646,360,729 $490,686,035 $303,666,818
================= ================== =================
</TABLE>
- -------------------------
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
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>
-----------------------------------------------------
ALLIANCE AGGRESSIVE STOCK
FUND
-----------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts........................................... $ 4,461,389 $ 1,311,613 $ 1,661,263
Expenses (Note 3):
Mortality and expense risk charges.................................. 5,581,296 5,299,127 4,086,388
----------------- ----------------- -----------------
NET INVESTMENT INCOME (LOSS).............................................. (1,119,907) (3,987,514) (2,425,125)
----------------- ----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments................................. (39,688,312) 28,217,939 30,549,608
Realized gain distribution from the Trusts.......................... 46,528,461 79,729,154 133,080,595
----------------- ----------------- -----------------
NET REALIZED GAIN (LOSS).................................................. 6,840,149 107,947,093 163,630,203
----------------- ----------------- -----------------
Unrealized appreciation (depreciation) on investments:
Beginning of period................................................. 32,695,620 46,617,235 80,271,118
End of period....................................................... 26,715,214 32,695,620 46,617,235
----------------- ----------------- -----------------
Change in unrealized appreciation (depreciation)
during the period................................................... (5,980,406) (13,921,615)) (33,653,883)
----------------- ----------------- -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS......................................................... 859,743 94,025,478 129,976,320
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ (260,164) $ 90,037,964 $127,551,195
================= ================= =================
<CAPTION>
---------------------------- -------------------------
ALLIANCE SMALL
CAP GROWTH MFS RESEARCH
FUND FUND
---------------------------- -------------------------
1998* 1997* 1998 1997*
------------- ------------- --------------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts........................................... $ 4,062 $ 4,189 $ 71,137 $ 20,442
Expenses (Note 3):
Mortality and expense risk charges.................................. 215,285 41,540 86,044 13,127
----------- ------------- --------------- -----------
NET INVESTMENT INCOME (LOSS).............................................. (211,223) (37,351) (14,907) 7,315
----------- ------------- --------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments................................. (7,585,521) (609,208) 494,412 6,989
Realized gain distribution from the Trusts.......................... -- 545,833 -- 81,156
----------- ------------- --------------- -----------
NET REALIZED GAIN (LOSS).................................................. (7,585,521) (63,375) 494,412 88,145
----------- ------------- --------------- -----------
Unrealized appreciation (depreciation) on investments:
Beginning of period................................................. 771,812 -- 249,382 --
End of period....................................................... 8,780,955 771,812 3,313,063 249,382
----------- ------------- --------------- -----------
Change in unrealized appreciation (depreciation)
during the period................................................... 8,009,143 771,812 3,063,681 249,382
----------- ------------- --------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS......................................................... 423,622 708,437 3,558,093 337,527
----------- ------------- --------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 212,399 $ 671,086 $3,543,186 $344,842
=========== ============= =============== ===========
</TABLE>
- -------------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-5
<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>
---------------------------------------------------------------------
MFS EMERGING MORGAN STANLEY EQ/PUTNAM
GROWTH COMPANIES EMERGING MARKETS EQUITY GROWTH & INCOME
FUND FUND VALUE FUND
---------------------------------------------------------------------
1998 1997* 1998 1997** 1998 1997*
---------------------------------------------------------- ---------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts............ $ 969 $ 24,358 $ 37,240 $ 16,623 $ 143,999 $ 33,273
Expenses (Note 3):
Mortality and expense risk charges... 157,484 18,835 23,921 2,862 56,995 9,655
------------ ---------- --------- ----------- ----------- ----------
NET INVESTMENT INCOME (LOSS).............. (156,515) 5,523 13,319 13,761 87,004 23,618
------------ ---------- --------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 2):
Realized gain (loss) on investments.. 4,270,964 161,034 (637,290) (14,566) 209,398 1,078
Realized gain distribution from the
Trusts -- 296,998 -- -- 130,047 27,226
------------ ---------- --------- ----------- ----------- ----------
NET REALIZED GAIN (LOSS).................. 4,270,964 458,032 (637,290) (14,566) 339,445 28,304
----------- ---------- --------- ----------- ----------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period................ 171,320 -- (1,079,388) -- 269,561 --
End of period...................... 6,996,177 171,320 (2,942,633) (1,079,388) 1,160,602 269,561
----------- ---------- --------- ----------- ----------- ----------
Change in unrealized appreciation
(depreciation) during the period..... 6,824,857 171,320 (1,863,245) (1,079,388) 891,041 269,561
----------- ---------- --------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.................. 11,095,821 629,352 (2,500,535) (1,093,954) 1,230,486 297,865
------------ ---------- --------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. $10,939,306 $634,875 $(2,487,216)$(1,080,193)$1,317,490 $321,483
============ ======== =========== =========== =========== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997
** Commencement of Operations on August 20, 1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-6
<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>
--------------------------------------------------------
ALLIANCE MONEY MARKET
FUND
--------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)........................... $ 9,515,464 $ 8,653,507 $ 8,101,644
Net realized gain (loss)............................... (153,564) (500,365) (110,954)
Change in unrealized appreciation
(depreciation) on investments....................... 732,101 780,326 (65,953)
----------------- ------------------ ---------------
Net increase (decrease) in net assets
from operations..................................... 10,094,001 8,933,468 7,924,737
----------------- ------------------ ---------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3).................................. 229,608,273 234,059,930 101,890,108
Benefits and other policy-related
transactions (Note 3)............................... (41,370,215) (40,687,124) (38,404,209)
Net transfers among funds and
guaranteed interest account......................... (128,607,686) (259,049,840) (36,607,946)
---------------- ------------------ ---------------
Net increase (decrease) in net assets
from policy-related transactions.................... 59,630,372 (65,677,034) 26,877,953
---------------- ------------------ ---------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)........................... (128,382) (49,726) (63,127)
----------------- ------------------ ---------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS........................... 69,595,991 (56,793,292) 34,739,563
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD.................................... 185,079,802 241,873,094 207,133,531
--------------- ------------------ ---------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD.......................................... $ 254,675,793 $ 185,079,802 $241,873,094
================= ================== ================
<CAPTION>
-----------------------------------------------------
ALLIANCE HIGH YIELD
FUND
-----------------------------------------------------
1998 1997 1996
--------------- ----------------- ----------------- -
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)......................... $ 17,442,641 $ 12,128,952 $ 8,177,610
Net realized gain (loss)............................. 1,052,131 7,302,187 7,058,612
Change in unrealized appreciation
(depreciation) on investments..................... (29,521,690) 2,958,012 1,840,843
------------------ ----------------- ---------------
Net increase (decrease) in net assets
from operations................................... (11,026,918) 22,389,151 17,077,065
------------------ ----------------- ---------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)................................ 36,502,918 26,933,221 19,454,716
Benefits and other policy-related (20,288,710) (14,530,462) (16,165,764)
transactions (Note 3).............................
Net transfers among funds and
guaranteed interest account....................... 2,677,159 26,385,799 9,301,980
------------------ ----------------- ---------------
Net increase (decrease) in net assets
from policy-related transactions.................. 18,891,177 38,788,558 12,590,932
------------------ ----------------- ---------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)......................... (6,237) (189,179) (209,120)
------------------ ----------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS......................... 7,858,022 60,988,530 29,458,877
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD.................................. 162,378,369 101,389,839 71,930,962
------------------ ----------------- ---------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD........................................ $170,236,391 $162,378,369 $101,389,839
================== ================= ===============
<CAPTION>
----------------------------------------------------------
ALLIANCE COMMON STOCK
FUND
----------------------------------------------------------
1998 1997 1996
----------------- -------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)......................... $ 1,338,974 $ (767,599) $ 3,505,756
Net realized gain (loss)............................. 522,943,560 218,655,522 187,552,444
Change in unrealized appreciation
(depreciation) on investments..................... 122,078,195 272,798,112 112,608,618
-------------------- -------------------- -------------------
Net increase (decrease) in net assets
from operations................................... 646,360,729 490,686,035 303,666,818
-------------------- -------------------- -------------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)................................ 322,874,015 282,279,826 271,193,481
Benefits and other policy-related
transactions (Note 3)............................. (250,079,870) (199,662,183) (154,302,728)
Net transfers among funds and
guaranteed interest account....................... 24,136,275 56,849,823 4,064,266
-------------------- -------------------- -------------------
Net increase (decrease) in net assets
from policy-related transactions.................. 96,930,420 139,467,466 120,955,019
-------------------- -------------------- -------------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)......................... (1,609,215) (86,740) (429,232)
-------------------- -------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS......................... 741,681,934 630,066,761 424,192,605
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD.................................. 2,200,844,640 1,570,777,879 1,146,585,274
-------------------- -------------------- -------------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD........................................ $2,942,526,574 $2,200,844,640 $1,570,777,879
==================== ==================== ===================
</TABLE>
- -------------------------
See Notes to Financial Statements.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-7
<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>
--------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK
FUND
-------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ----------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss)............................. $ (1,119,907) $ (3,987,514) $ (2,425,125)
Net realized gain (loss)................................. 6,840,149 107,947,093 163,630,203
Change in unrealized appreciation
(depreciation) on investments........................ (5,980,406) (13,921,615) (33,653,883)
------------- -------------- ---------------
Net increase (decrease) in net assets
from operations...................................... (260,164) 90,037,964 127,551,195
------------- -------------- ---------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3).................................... 172,792,283 179,662,167 167,830,465
Benefits and other policy-related
transactions (Note 3)................................ (115,442,947) (107,529,554) (85,246,883)
Net transfers among funds and
guaranteed interest account.......................... (43,660,488) 1,712,877 28,481,572
------------- -------------- ---------------
Net increase (decrease) in net assets
from policy-related transactions..................... 13,688,848 73,845,490 111,065,154
------------- -------------- ---------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)............................. 308,967 (442,155) (205,349)
------------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS............................. 13,737,651 163,441,299 238,411,000
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD...................................... 957,040,430 793,599,131 555,188,131
------------- -------------- ---------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS, END OF PERIOD....... $970,778,081 $957,040,430 $793,599,131
============== ============== ===============
<CAPTION>
--------------------------------------------------------------------------
ALLIANCE SMALL
CAP GROWTH MFS RESEARCH
FUND FUND
--------------------------------- ----------------------------------------
1998* 1997* 1998 1997*
------------- ------------------- ------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss)........................ $ (211,223) $ (37,351) $ (14,907) $ 7,315
Net realized gain (loss)............................ (7,585,521) (63,375) 494,412 88,145
Change in unrealized appreciation
(depreciation) on investments................... 8,009,143 771,812 3,063,681 249,382
------------- ------------ ------------ -----------
Net increase (decrease) in net assets
from operations................................. 212,399 671,086 3,543,186 344,842
------------- ------------ ------------ -----------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)............................... 14,863,783 2,947,848 6,795,257 1,177,137
Benefits and other policy-related
transactions (Note 3)........................... (3,897,615) (599,875) (1,705,211) (162,042)
Net transfers among funds and
guaranteed interest account..................... 15,043,596 19,670,856 12,108,388 6,389,251
------------- ------------ ------------ -----------
Net increase (decrease) in net assets
from policy-related transactions................ 26,009,764 22,018,829 17,198,434 7,404,346
------------- ------------ ------------ -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4)........................ (116,777) (324,052) (208,262) (321,159)
------------- ------------ ------------ -----------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS........................ 26,105,386 22,365,863 20,533,358 7,428,029
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD................................. 22,365,863 -- 7,428,029 --
------------- ------------ ------------ -----------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS, END OF PERIOD.. $48,471,249 $22,365,863 $27,961,387 $7,428,029
============= ============ ============= ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
MFS EMERGING MORGAN STANLEY EQ/PUTNAM
GROWTH COMPANIES EMERGING MARKETS EQUITY GROWTH & INCOME VALUE
FUND FUND FUND
-------------------------------------------------------------------------
1998 1997* 1998 1997** 1998 1997*
------------ ----------- ----------- ------------------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss)..........$ (156,515)$ 5,523 $ 13,319 $ 13,761 $ 87,004 $ 23,618
Net realized gain (loss).............. 4,270,964 458,032 (637,290) (14,566) 339,445 28,304
Change in unrealized appreciation
(depreciation) on investments....... 6,824,857 171,320 (1,863,245) (1,079,388) 891,041 269,561
----------- ----------- ----------- ----------- ------------ ------------
Net increase (decrease) in net
assets
from operations..................... 10,939,306 634,875 (2,487,216) (1,080,193) 1,317,490 321,483
----------- ----------- ----------- ----------- ------------ ------------
FROM POLICY-RELATED TRANSACTIONS:
Net premiums (Note 3)................. 11,533,783 1,598,358 2,442,975 323,739 5,099,897 1,149,748
Benefits and other policy-related
transactions (Note 3)............... (2,705,605) (294,924) (488,932) (7,501) (1,485,166) (154,351)
Net transfers among funds and
guaranteed interest account......... 25,975,152 8,886,415 4,158,460 2,483,527 6,086,532 4,539,465
----------- ----------- ----------- ----------- ------------ ------------
Net increase (decrease) in net assets
from policy-related transactions.... 34,803,330 10,189,849 6,112,503 2,799,765 9,701,263 5,534,862
----------- ----------- ----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT FP (Note 4).......... (153,261) (449,170) 861,681 807,804 (46,809) (191,983)
----------- ----------- ----------- ----------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
ATTRIBUTABLE TO POLICYOWNERS.......... 45,589,375 10,375,554 4,486,968 2,527,376 10,971,944 5,664,362
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
BEGINNING OF PERIOD................... 10,375,554 -- 2,527,376 -- 5,664,362 --
----------- ----------- ----------- ----------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO POLICYOWNERS,
END OF PERIOD.........................$55,964,929 $10,375,554 $ 7,014,344 $ 2,527,376 $16,636,306 $5,664,362
=========== =========== =========== =========== ============ ============
</TABLE>
- -------------------
See Notes to Financial Statements.
* Commencement of Operations on May 1, 1997.
** Commencement of Operations on on August 20,1997.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
Effective January 1, 1997 Equitable Variable Life Insurance Company
("Equitable Variable Life" ) was merged into The Equitable Life Assurance
Society of the United States ("Equitable Life"). 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.
The merger had no effect on the net assets of the Separate Account
attributable to contractowners. Alliance Capital Management L.P., an
indirect, majority-owned subsidiary of Equitable Life, manages The Hudson
River Trust ("HR Trust") and is investment adviser for all of the investment
funds of HR Trust. EQ Financial Consultants, Inc. ("EQFC"), and Equitable
Distributors Inc. ("EDI") are wholly owned subsidiaries of Equitable Life.
EQFC manages the EQ Advisors Trust ("EQ Trust") and has overall
responsibility for general management and administration of EQ Trust.
Equitable Life Separate Account FP ("the Account") is organized as a unit
investment trust, a type of investment company, and is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
The Account consists of 24 investments funds ("Funds") of which 9 are
reported herein: the Alliance Money Market Fund, the Alliance High Yield
Fund, the Alliance Common Stock Fund, the Alliance Aggressive Stock Fund,
the Alliance Small Cap Growth Fund, the MFS Research Fund, the MFS Emerging
Growth Companies Fund, the Morgan Stanley Emerging Markets Equity Fund, the
EQ/Putnam Growth & Income Value Fund. The assets in each fund are invested
in shares of a corresponding portfolio ("Portfolio") of a mutual fund, Class
1B shares of HR Trust or EQ Trust (collectively, the "Trusts"). Class 1B
shares are offered by the Trust at net asset value and are subject to fees
for investment management and advisory services and other Trust expenses.
Class 1B shares are subject to distribution fees imposed under a
distribution plan (herein the "Rule 12b-1 Plans") adopted in 1997 pursuant
to Rule 12b-1 under the 1940 Act, as amended. The Rule 12b-1 Plans provide
that the Trusts, on behalf of each Fund, may charge annually up to 0.25% of
the average daily net assets of a Fund attributable to its Class 1B shares
in respect of activities primarily intended to result in the sale of the
Class 1B shares. These fees are reflected in the net asset value of the
shares. The Trusts are open-ended, diversified management investment
companies that invest separate account assets of insurance companies. Each
Portfolio has separate investment objectives.
EQFC and EDI earns fees from both Trusts under distribution agreements held
with the Trusts. EQFC also earns fees under an investment management
agreement with the EQ Trust. Alliance earns fees under an investment
advisory agreement with the HR Trust.
The Account supports the operations of various Equitable life insurance
products. These products are sold through both Equitable's Agent
Distribution Channel and Equitable's Independent Broker Dealer Distribution
Channel. These financial statement footnotes discuss the products, charges
and investment return applicable to those life insurance products (Incentive
Life Plus & Survivorship 2000) which are sold through Equitable's
Independent Broker Dealer Distribution Channel.
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.
Receivable/payable for policy-related transactions represent amount due
to/from General Account predominately related to premiums, surrenders and
death benefits.
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 account of Equitable Life's General Account. Net transfers to
(from) the guaranteed interest account of the General Account and other
Separate Accounts of $56,300,263, $165,714,430 and $(7,511,567) for the
years ended 1998, 1997 and 1996, 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.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments are made in shares of the Trusts and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trusts using the market or fair value of the underlying
assets of the Portfolio less liabilities.
Investment transactions are recorded on the trade date. Dividends are
recorded by HR Trust as income at the end of each quarter and by EQ Trust in
the fourth quarter on the ex-dividend date. Dividend and capital gain
distributions are automatically reinvested on the ex-dividend 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 are
distributed by the Trust at the end of each year.
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, charges the daily net assets of the Account. These
charges apply to all products supported by the Account. The products sold
through Equitable's Independent Broker Dealer Distribution Channel have
charges currently for Incentive Life Plus of .60%, and for Survivorship
2000 of .90%. The products sold through Equitable Life's Agent Distribution
Channel have charges ranging from 0.60% to 1.80% depending on the features
of those products.
Before amounts are remitted to the Account, Equitable Life deducts a charge
for taxes and a premium sales charge from premiums. For one product offered
to investors in Equitable's Agent Distribution Channel, the entire premium
is allocated to the account, but before additional premiums are allocated to
the account an administrative charge is deducted.
The amounts attributable to various life products in the Account, including
Incentive Life Plus and Survivorship 2000 policyowners' accounts, are
assessed monthly by Equitable Life for cost of insurance and administrative
charges. These charges are withdrawn from the policyowner accounts 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.
Included in the Withdrawals and Administrative Charges line of the Statement
of Changes in Net Assets are certain administrative charges which are
deducted from the policyowners account value.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT FP+
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
4. Amounts Retained by Equitable Life in Separate Account FP
The amount retained by Equitable Life (surplus) in the Account arises
principally from (1) contributions from Equitable Life, (2) mortality and
expense risk charges and administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Policies. Amounts retained by Equitable Life are not subject
to charges for mortality and expense charges and administrative charges.
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 1998 1997 1996
--------------- ---- ---- ----
Alliance Money Market $ (1,591,380) $ -- $ --
Alliance High Yield (1,839,368) -- --
Alliance Common Stock (17,381,053) -- (185,000)
Alliance Aggressive Stock (6,122,856) -- (125,000)
Alliance Small Cap Growth (1,675,446) 1,200,000 --
MFS Research (2,558,541) 2,000,000 --
MFS Emerging Growth Companies (2,732,997) 2,000,000 --
Morgan Stanley Emerging Markets Equity (21,425) 4,000,000 --
EQ/Putnam Growth & Income Value (1,391,562) 1,200,000 --
5. Distribution and Servicing Agreements
Equitable Life has entered into Distribution and Servicing Agreements with
EQFC, an affiliate of Equitable Life, and EDI, whereby registered
representatives of EQFC, 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. Investment Returns
As of December 31, 1998 no units have been sold for products distributed
through Equitable's Independent Broker Dealer Distribution Channel, and
consequently investment returns were not presented.
+ Formerly known as Equitable Variable Life Insurance Company Separate Account
FP.
FSA-12
<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 comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of The Equitable Life Assurance Society of the United States and its
subsidiaries ("Equitable Life") at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly owned
life insurance subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("AXA"), a French
holding company for an international group of insurance and related
financial services companies, is the Holding Company's largest
shareholder, owning approximately 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance segment offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and
small groups. It also administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations. This segment includes Separate Accounts for
individual insurance and annuity products.
The Investment Services segment includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
reasonably expected to be sufficient to support such business, including
provision for payment of claims, certain expenses and taxes, and for
continuation of dividend scales payable in 1991, assuming the experience
underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account. The excess of Closed Block
liabilities over Closed Block assets represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review continues to involve numerous estimates
and subjective judgments regarding the expected performance of
Discontinued Operations Investment Assets. There can be no assurance the
losses provided for will not differ from the losses ultimately realized.
To the extent actual results or future projections of the discontinued
operations differ from management's current best estimates and
assumptions underlying the allowance for future losses, the difference
would be reflected in the consolidated statements of earnings in
discontinued operations. In particular, to the extent income, sales
proceeds and holding periods for equity real estate differ from
management's previous assumptions, periodic adjustments to the allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of
January 1, 1996. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 to other assets to be disposed of resulted
in a charge for the cumulative effect of an accounting change of $23.1
million, net of a Federal income tax benefit of $12.4 million, due to
the writedown to fair value of building improvements relating to
facilities vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
F-9
<PAGE>
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("DAC") related to universal life and investment-type
products and participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 25 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996 a loss recognition study of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
F-11
<PAGE>
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its Pension Par
and DI reserves have been calculated on a reasonable basis and are
adequate, there can be no assurance reserves will be sufficient to
provide for future liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $115.1
million and $183.4 million at December 31, 1998 and 1997, respectively.
Gross interest income on restructured mortgage loans on real estate that
would have been recorded in accordance with the original terms of such
loans amounted to $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated
depreciation on real estate was $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater, is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note which was paid in 1998. The Company recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. and
Cursitor Holdings Limited (collectively, "Cursitor") for approximately
$159.0 million. The purchase price consisted of $94.3 million in cash,
1.8 million of Alliance's publicly traded units ("Alliance Units"), 6%
notes aggregating $21.5 million payable ratably over four years, and
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. The excess of the purchase price,
including acquisition costs and minority interest, over the fair value
of Cursitor's net assets acquired resulted in the recognition of
intangible assets consisting of costs assigned to contracts acquired and
goodwill of approximately $122.8 million and $38.3 million,
respectively. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. On
June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's acquisition of Cursitor by $120.9
million. This charge reflected Alliance's view that Cursitor's
continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the facility,
the interest rate, at the option of Alliance, is a floating rate
generally based upon a defined prime rate, a rate related to the London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and medical benefits will be limited to 200%
of 1993 costs for all participants.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. Equitable Life
has implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1998 and 1997.
F-30
<PAGE>
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance and
certain other defendants affiliated with Alliance, including the Holding
Company, alleging violations of Federal securities laws, fraud and
breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings
have been brought on behalf of various alleged classes of claimants and
certain of these claimants seek damages of unspecified amounts. While
the ultimate outcome of such matters cannot be predicted with certainty,
in the opinion of management no such matter is likely to have a material
adverse effect on the Company's consolidated financial position or
results of operations.
16) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. The Company's ownership interest will be further
reduced upon the issuance of common stock after the vesting of
forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
<PAGE>
Appendix I: Investment performance record
- --------------------------------------------------------------------------------
Appendix I: Investment performance record A-1
- --------------------------------------------------------------------------------
The tables below show performance information for the variable investment
options. The performance shown for each option equals the performance of the
Portfolio corresponding to that option, reduced by the current rate of the
policies' mortality and expense risk charge (.60% annual rate). You can find
more information about the performance of the Portfolios in The Hudson River
Trust and EQ Advisors Trust prospectuses attached at the end of this
prospectus. The performance figures on which the tables are based are after
deduction of all fees and expenses paid by the Trusts or any of the Portfolios.
The tables below, however, do not take into account the following additional
charges that we will deduct under your policy: (1) the sales charge that we
deduct from each premium payment you make; (2) the monthly cost of insurance
charge; (3) the surrender charge; (4) any charge for optional rider benefits
you may select or (5) the policies' monthly administrative charge (currently
$20 for your policy's first 12 months and $7 per month thereafter, for issue
ages 18 and older). For more information about these charges, see "Charges and
expenses you will pay" beginning on page 6 of this prospectus. If we reflected
these charges, the performance shown below would be reduced. We have not done
so, however, because the actual impact of these charges on a particular policy
varies considerably based on such factors as the insurance risk characteristics
of the insured person; the face amount and other options you select for your
policy; the amount and timing of your premium payments; and whether you make
withdrawals, take policy loans, or surrender your policy. In order to better
understand how the charges we have omitted from the below tables will affect
your policy's value, you should refer to your Illustrations of Policy Benefits
that your registered representative will provide. You can request Equitable
Life or your registered representative to provide you with such illustrations
at any time, whether before or after you purchase a policy.
In a few cases, the return information shown in the first table below includes
a period of time prior to when Separate Account FP first offered a
corresponding variable investment option under any form of variable life
insurance policy. Therefore, the second table below provides additional
performance information from the date that those investment options actually
received initial funding.
<PAGE>
- --------------------------------------------------------------------------------
A-2 Appendix I: Investment performance record
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN AFTER DEDUCTION OF MORTALITY AND EXPENSE RISK
CHARGE FOR PERIODS ENDING DECEMBER 31, 1998*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SINCE PORTFOLIO
INCEPTION
VARIABLE INVESTMENT OPTION 1 YR. 3 YRS. 5 YRS. 10 YRS. (DATE**)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Money Market 4.44% 4.47% 4.28% 4.69% 6.19% (7/13/81)
Alliance High Yield (5.96)% 10.41% 9.06% 10.22% 9.66% (1/2/87)
Alliance Common Stock 28.29% 26.52% 20.88% 17.63% 15.37% (1/13/76)
Alliance Aggressive Stock (0.56)% 9.80% 10.50% 17.87% 16.75% (1/27/86)
Alliance Small Cap Growth (5.09)% - - - 11.30% (5/1/97)
BT Equity 500 Index 24.38% - - - 24.38% (12/31/97)
BT Small Company Index (2.90)% - - - (2.90)% (12/31/97)
BT International Equity Index 19.37% - - - 19.37% (12/31/97)
JFM Core Bond 8.37% - - - 8.37% (12/31/97)
Lazard Large Cap Value 19.34% - - - 19.34% (12/31/97)
Lazard Small Cap Value (7.72)% - - - (7.72)% (12/31/97)
MFS Research 23.36% - - - 23.70% (5/1/97)
MFS Emerging Growth Companies 33.71% - - - 34.05% (5/1/97)
Morgan Stanley Emerging Markets Equity (27.46)% - - - (33.12)% (8/20/97)
EQ/Putnam Growth & Income Value 12.14% - - - 16.92% (5/1/97)
EQ/Putnam Investors Growth 35.47% - - - 36.56% (5/1/97)
EQ/Putnam International Equity 18.76% - - - 16.82% (5/1/97)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* No performance information is shown for EQ/Alliance Premier Growth, Capital
Guardian U.S. Equity, Capital Guardian Research, Capital Guardian
International, EQ/Evergreen, EQ/Evergreen Foundation or MFS Growth with
Income, as those Portfolios had not commenced operations prior to December
31, 1998.
** The inception date shown is the date that the relevant Portfolio (or its
predecessor) received its initial funding.
<PAGE>
- --------------------------------------------------------------------------------
Appendix I: Investment performance record A-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RATES OF RETURN FOR PERIODS
ENDING DECEMBER 31, 1998 SINCE VARIABLE
VARIABLE INVESTMENT OPTION INVESTMENT OPTION INCEPTION (DATE)
- --------------------------------------------------------------------------------
Alliance Money Market 4.96% (1/27/86)
Alliance Common Stock 16.85% (1/27/86)
- --------------------------------------------------------------------------------
Unlike the rate of return tables above, the following yield information does not
include capital gains and losses that the Portfolios corresponding to the
indicated variable investment options may have experienced.
- --------------------------------------------------------------------------------
ANNUALIZED YIELD FOR PERIODS
VARIABLE INVESTMENT OPTION ENDING DECEMBER 31, 1998
- --------------------------------------------------------------------------------
7 days 30 days
- --------------------------------------------------------------------------------
Alliance Money Market 3.80% -
Alliance High Yield - 13.53%
- --------------------------------------------------------------------------------
The information in the tables above is not a guarantee, a prediction, or
necessarily an indication of future performance.
<PAGE>
Appendix II: Our Data on market performance
- --------------------------------------------------------------------------------
Appendix II: Our Data on market performance B-1
- --------------------------------------------------------------------------------
In reports or other communications to policyowners or in advertising material,
we may describe general economic and market conditions affecting our variable
investment options, and the Portfolios and may compare the performance or
ranking of those options and the Portfolios with:
o those 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;
o other appropriate indices of investment securities and averages for peer
universes of mutual funds; or
o data developed by us derived from such indices or averages.
We also may furnish to present or prospective policyowners advertisements or
other communications that include evaluations of a variable investment option
or Portfolio by nationally recognized financial publications. Examples of such
publications are:
- --------------------------------------------------------------------------------
Barron's Money Management Letter
Morningstar's Variable Annuities/Life Investment Dealers Digest
Business Week National Underwriter
Forbes Pension & Investments
Fortune USA Today
Institutional Investor Investor's Daily
Money The New York Times
Kiplinger's Personal Finance The Wall Street Journal
Financial Planning The Los Angeles Times
Investment Adviser The Chicago Tribune
Investment Management Weekly
- --------------------------------------------------------------------------------
Lipper Analytical Services, Inc. (Lipper) compiles performance data for peer
universes of Portfolios with similar investment objectives in its Lipper
Variable Insurance Products Performance Analysis Service (Lipper Survey).
Morningstar, Inc. compiles similar data in the Morningstar Variable
Annuity/Life Report (Morningstar Report).
The Lipper Survey records performance data as reported to it by over 800 mutual
funds underlying variable annuity and life insurance products. It divides these
actively managed portfolios into 25 categories by portfolio objectives. The
Lipper Survey contains two different universes, which reflect different types
of fees in performance data:
o 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; and
o The "Mutual Fund" universe reports performance net only of investment
management fees and direct operating expenses, and therefore reflects only
charges that relate to the underlying mutual fund.
The Morningstar Report consists of nearly 700 variable life and annuity
portfolios, all of which report their data net of investment management fees,
direct operating expenses and separate account level charges.
LONG-TERM MARKET TRENDS
The following chart presents historical return trends for various types of
securities. The information presented does not directly relate to the
performance of our variable investment options or the Trusts. Nevertheless, it
may help you gain 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 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.
However, common stocks have also experienced dramatic changes in value over
short periods of time. One of our variable investment options that invests
primarily in common stocks may, therefore, be a desirable selection for owners
who are willing to accept such risks. If, on the other hand, you wish to limit
your short-term risk, you may find it preferable to allocate a smaller
percentage of net premiums to those options that invest primarily in common
stock. All investments in securities, whether equity or debt, involve varying
degrees of risk. They also offer varying degrees of potential reward.
<PAGE>
- --------------------------------------------------------------------------------
B-2 Appendix II: Our Data on market performance
- --------------------------------------------------------------------------------
The chart below illustrates the average annual compound rates of return over
selected time periods between December 31, 1926 and December 31, 1998 for the
types of securities indicated in the chart. These rates of return assume the
reinvestment of dividends, capital gains and interest. The Consumer Price Index
is also shown as a measure of inflation for comparison purposes. The investment
return information presented is an historical record of unmanaged categories of
securities. In addition, the rates of return shown do not reflect either (1)
investment management fees and expenses, or (2) costs and charges associated
with ownership of a variable life insurance policy.
The rates of return illustrated do not represent returns of our variable
investment options or the Portfolios and do not constitute a representation
that the performance of those options or the Portfolios will correspond to
rates of return such as those illustrated in the chart.
AVERAGE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON GOVERNMENT CORPORATE TERM GOV'T U.S. TREASURY CONSUMER
ENDING DECEMBER 31, 1998 STOCKS BONDS BONDS BONDS BILLS PRICE INDEX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 28.58% 13.06% 10.76% 10.21% 4.86% 1.80%
3 Years 28.27 9.07 8.25 6.84 5.11 2.27
5 years 24.06 9.52 8.74 6.20 4.96 2.41
10 years 19.19 11.66 10.85 8.74 5.29 3.14
20 years 17.75 11.14 10.86 9.85 7.17 4.53
30 years 12.67 9.09 9.14 8.71 6.76 5.24
40 years 12.00 7.20 7.43 7.39 5.94 4.44
50 years 13.56 5.89 6.20 6.21 5.07 3.92
60 years 12.49 5.43 5.62 5.50 4.26 4.19
Since 1926 11.21 5.29 5.78 5.32 3.78 3.15
Inflation Adjusted Since 1926 7.82 2.08 2.55 2.11 0.62 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Ibbotson, Roger G. and Rex A. Sinquefield, STOCKS, BONDS, BILLS, AND
INFLATION (SBBI), 1982, updated in STOCKS, BONDS, BILLS, AND INFLATION 1999
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 1969-1998, 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
1969-1998; 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.
Consumer Price Index - Measured by the Consumer Price Index for all Urban
Consumers (CPI-U), not seasonally adjusted.
<PAGE>
Appendix III: An index of key words and phrases
- --------------------------------------------------------------------------------
Appendix III: An index of key words and phrases C-1
- --------------------------------------------------------------------------------
This index should help you locate more information on the terms used in this
prospectus.
PAGE
account value 19
Administrative Office 5
age 33
Allocation Date 13
alternative death benefit 16
amount at risk 37
anniversary 33
assign; assignment 31
automatic transfer service 20
basis 27
beneficiary 17
business day 32
Cash Surrender Value 23
Code 26
collateral 23
cost of insurance charge 37
cost of insurance rates 37
customer loyalty credit 38
day 32
death benefit guarantee 11
default 10
dollar cost averaging service 21
enhanced death benefit guarantee 12
EQ Advisors Trust 14
EQ Financial Consultants 14
Equitable Distributors 40
Equitable Life 4
Equitable Access Account 18
face amount 15
grace period 10
guarantee premium 12
guaranteed interest option 15
Guaranteed Interest Account 15
Hudson River Trust 14
insured person 15
Investment Funds 14
investment option 13
issue date 33
lapse 10
loan, loan interest 23
modified endowment contract 10
PAGE
month, year 33
monthly deduction 6, 9
net cash surrender value 25
no-lapse guarantee 11
Option A, B 15
our 2
owner 2
paid up 26
paid up death benefit guarantee 12
partial withdrawal 24
payment option 17
planned periodic premium 10
policy cover
Portfolio cover
premium charge 6
premium payments 10
prospectus cover
rebalancing 22
receive 32
restore, restoration 11
rider 17
SEC cover
Separate Account FP 35
state 2
subaccount 35
Substitution 14
Survivorship Incentive Life cover
surviving insured person 15
surrender 25
surrender charge 7
target premium 7
telephone transfer 20
transfers 20
Trust(s) 14
units 19
unit values 19
us 2
variable investment option 14
we 2
withdrawal 24
you, your 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. This representation applies to all policies sold
pursuant to this Registration Statement, including those sold on the terms
specifically described in the prospectuses contained herein, or any variations
therein, based on supplements, data pages or riders to any policies or
prospectuses, or otherwise.
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. 373-17663 on March 1, 1999.
Supplement (Accounting Benefit Rider) dated May 1, 1999 consisting of 2 pages,
previously filed with this Registration Statement, File No. 333-17663, on
April 30, 1999.
Supplement (corporate Incentive Life) dated May 1, 1999 consisting of 3 pages,
previously filed with this Registration Statement, File No. 333-17663, on
April 30, 1999.
Supplement (in-force) dated May 1, 1999 consisting of 6 pages, previously filed
with this Registration Statement, File No. 333-17663, on April 30, 1999.
The Prospectus (Incentive Life Plus) dated May 1, 1999 (retail channel)
consisting of 275 pages, previously filed with this Registration Statement, File
No. 333-17663, on April 30, 1999.
The Prospectus (Incentive Life Plus) dated May 1, 1999 (wholesale channel)
consisting of 170 pages, previously filed with this Registration Statement, File
No. 333-17663, on April 30, 1999.
The Prospectus (Incentive Life) dated May 1, 1999 (retail channel) consisting of
224 pages, previously filed with this Registration Statement, File No.
333-17663, on April 30, 1999.
The Prospectus (Incentive Life) dated August 1, 1999 (core version--wholesale
channel) consisting of 127 pages.
The Prospectus (Incentive Life) dated August 1, 1999 (First Union version--
wholesale channel) consisting of 127 pages.
Representation regarding reasonableness of aggregate policy fees and charges.
Undertaking to file reports, previously filed with this Registration Statement
File No. 333-17663 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. 333-17663 on December
11, 1996.
The signatures.
Written Consents of the following persons:
Opinion and Consent of William Schor, Vice President and Associate General
Counsel (See exhibit 2(a)(iv)).
Barbara Fraser, F.S.A., M.A.A.A., Vice President of Equitable (See exhibit
2(b)(vi)), previously filed with this Registration Statement, File No.
333-17663, on April 30, 1999.
Independent Public Accountants (See exhibit 6).
The following exhibits: Exhibits required by Article IX, paragraph A of Form
N-8B-2:
1-A(1)(a)(i) Certified resolution re Authority to Market
Variable Life Insurance and Establish Separate
Accounts, previously filed with this
Registration Statement File No. 333-17663 on
December 11, 1996.
II-1
<PAGE>
<TABLE>
<S> <C> <C>
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 this
Registration Statement File No. 333-17663 on December 11, 1996.
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
(94-300) (Incentive Life Plus) (Equitable Variable), previously
filed with this Registration Statement File No. 333-17663
on December 11, 1996.
+ 1-A(5)(a)(ii) Flexible Premium Variable Life Insurance Policy
(94-300) (Incentive Life Plus) (Equitable), previously filed with this Registration
Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(a)(iii) Flexible Premium Variable Life Insurance Policy
(95-300) (Corporate Incentive Life) (Equitable Variable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(a)(iv) Flexible Premium Variable Life Insurance Policy
(95-300) (Corporate Incentive Life) (Equitable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(a)(v) Flexible Premium Variable Life Insurance Policy
(85-300) (Equitable Variable), previously filed with this Registration Statement File
No. 333-17663 on December 11, 1996.
1-A(5)(a)(vi) Flexible Premium Variable Life Insurance Policy (99-300), previously filed with this
Registration Statement File No. 333-17663 on March 1, 1999.
1-A(5)(b) Name Change Endorsement (S.97-1), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(c) Option to Purchase Additional Insurance Rider
(R94-204) (Equitable Variable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(d) Option to Purchase Additional Insurance Rider
(R94-204) (Equitable), previously filed with
this Registration Statement File No. 333-17663
on December 11, 1996.
+ 1-A(5)(e) Substitution of Insured Rider (R94-212) (Equitable Variable),
previously filed with this Registration Statement File No. 333-17663
on December 11, 1996.
+ 1-A(5)(f) Substitution of Insured Rider (R94-212) (Equitable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(g) Renewable Term Insurance Rider on the Insured
(R94-215) (Equitable Variable), previously filed with this Registration Statement File
No. 333-17663 on December 11, 1996.
+ 1-A(5)(h) Renewable Term Insurance Rider on the Insured
(R94-215) (Equitable), previously filed with
this Registration Statement File No. 333-17663
on December 11, 1996.
+ 1-A(5)(i) Disability Rider - Waiver of Monthly Deductions
(R94-216) (Equitable Variable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(j) Disability Rider - Waiver of Monthly Deductions
(R94-216) (Equitable), previously filed with this Registration
Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(k) Disability Rider - Waiver of Premiums (R94-216A) (Equitable Variable), previously
filed with this Registration Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(l) Disability Rider - Waiver of Premiums (R94-216A) (Equitable), previously filed with
this Registration Statement File No. 333-17663 on December 11, 1996.
</TABLE>
- -----------------------
+State variations not included
II-2
<PAGE>
<TABLE>
<S> <C> <C>
+ 1-A(5)(m) Yearly Renewable Term Insurance Rider on the Insured
(R94-220) (Equitable Variable), previously filed with this Registration
Statement File No. 333-17663 on December 11, 1996.
+ 1-A(5)(n) Yearly Renewable Term Insurance Rider on the Insured
(R94-220) (Equitable), previously filed with this Registration
Statement File No. 333-17663 on December 11, 1996.
1-A(5)(o) Accelerated Death Benefit Rider (R94-102) (Equitable Variable), previously filed
with this Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(p) Accelerated Death Benefit Rider (R94-102) (Equitable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(q) Designated Insured Option Rider (R91-107) (Equitable Variable), previously filed
with this Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(r) Designated Insured Option Rider (R91-107) (Equitable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(s) Accounting Benefit Rider (S.94-118) (Equitable Variable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(t) Accounting Benefit Rider (S.94-118) (Equitable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(u) Limitation on Amount of Insurance Rider (R85-406)
(Equitable Variable), previously filed with this Registration Statement
File No. 333-17663 on December 11, 1996.
1-A(5)(v) Exchange Privilege Rider (R85-405) (for use with
Policy 85-300) (Equitable Variable), previously filed with this Registration
Statement File No. 333-17663 on December 11, 1996.
1-A(5)(w) Disability Rider - Waiver of Monthly Deductions (R85-408)
(for use with Policy 85-300) (Equitable Variable), previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
1-A(5)(x) Pro Rata Surrender Charge Endorsement (S.87-289)
(for use with Policy 85-300) (Equitable Variable), previously filed
with this Registration Statement File No. 333-17663
on December 11, 1996.
1-A(5)(y) Asset Allocation Endorsement (S.89-301) (for use
with Policy 85-300) (Equitable Variable),
previously filed with this Registration
Statement File No. 333-17663 on December 11,
1996.
1-A(5)(z) Investment Options Rider and Guaranteed Interest Division Transfer Rider
(R.89-303)(for use with Policy No. 85-300) (Equitable Variable),
previously filed with this Registration Statement File No. 333-17663
on December 11, 1996.
1-A(5)(z)(ii) Face Amount Increase Endorsement (S.99-30), previously filed with this
Registration Statement File No. 333-17663 on March 1, 1999.
1-A(5)(z)(iii) Table of Guaranteed Payments Endorsement (S.99-33), previously filed with this
Registration Statement File No. 333-17663 on March 1, 1999.
1-A(5)(z)(iv) Form of Paid Up Death Benefit Guarantee Endorsement (S.99-32), previously filed with this
Registration Statement File No. 333-17663 on March 1, 1999.
1-A(5)(z)(v) Form of Enhanced Death Benefit Guarantee Rider (R99-100), previously filed with this
Registration Statement File No. 333-17663 on March 1, 1999.
1-A(6)(a) Declaration and Charter of Equitable, as amended January 1, 1997, previously filed with this
Registration Statement File No. 333-17663 on April 30, 1997.
1-A(6)(b) By-Laws of Equitable, as amended November 21, 1996, previously filed with this
Registration Statement File No. 333-17663 on April 30, 1997.
1-A(7) Inapplicable.
</TABLE>
- -----------------------
+State variations not included
II-3
<PAGE>
<TABLE>
<S> <C>
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 this Registration Statement
File No. 333-17663 on December 11, 1996.
1-A(8)(i) Schedule of Commissions, previously filed with this Registration
Statement File No. 333-17663 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 this Registration Statement File No. 333-17663
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).
1-A(10)(a) Application EV4-200Y (Equitable Variable), previously filed
with this Registration Statement File No. 333-17663
on December 11, 1996.
1-A(10)(b) Application EV4-200Y (Equitable), previously filed with
this Registration Statement File No. 333-17663
on December 11, 1996.
2(a)(i) Opinion and Consent of Mary P. Breen, Vice President and Associate General Counsel
of Equitable, previously filed with this Registration Statement File No. 333-17663
on December 11, 1996.
2(a)(ii) Opinion and Consent of Mary P. Breen, Vice President and Associate General Counsel
of Equitable, previously filed with this Registration Statement File No. 333-17663
on April 30, 1997.
2(a)(iii) Opinion and Consent of William Schor, Vice President and Associate General Counsel of
of Equitable, previously filed with this Registration Statement, File No. 333-17663,
filed April 30, 1999.
2(a)(iv) Opinion and Consent of William Schor, Vice President and Associate
General Counsel of Equitable.
2(b)(i) Opinion and Consent of Barbara Fraser, F.S.A.,
M.A.A.A., Vice President of Equitable, previously filed with this
Registration Statement File No. 333-17663 on December 11, 1996.
2(b)(ii) Consent of Barbara Fraser, F.S.A., M.A.A.A., Vice President of
Equitable relating to Exhibit 2(b)(i), previously filed with this
Registration Statement File No. 333-17663 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 this
Registration Statement File No. 333-17663 on December 11, 1996.
2(b)(iv) Opinion and Consent of Barbara Fraser, F.S.A.,
M.A.A.A., Vice President of Equitable, previously filed with this
Registration Statement File No. 333-17663 on April 30, 1997.
2(b)(v) Opinion and Consent of Barbara Fraser, F.S.A.,
M.A.A.A., Vice President of Equitable, previously filed with this Registration
Statement File No. 333-17663 on May 1, 1998.
2(b)(vi) Opinion and Consent of Barbara Fraser, F.S.A., M.A.A.A., Vice President of Equitable,
previously filed with this Registration Statement, File No. 333-17663, on April 30, 1999.
3 Inapplicable.
4 Inapplicable.
6 Consent of Independent Public Accountants.
7 Powers-of-Attorney, previously filed with this Registration Statement,
File No. 333-17663, on April 30, 1999.
II-4
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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 this Registration Statement File No. 333-17663
on December 11, 1996.
9(a) Illustration of Policy Benefits - Incentive Life, previously filed with this Registration
Statement, File No. 333-17663, on April 30, 1999.
9(b) Illustration of Policy Benefits - Incentive Life Plus, previously filed with this Registration
Statement, File No. 333-17663, on April 30, 1999.
</TABLE>
II-5
<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 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, in the City and
State of New York, on the 26th day of July, 1999.
SEPARATE ACCOUNT FP OF THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES
(REGISTRANT)
[SEAL] By: THE EQUITABLE LIFE
ASSURANCE SOCIETY OF
THE UNITED STATES,
(DEPOSITOR)
By: /s/ Mark A. Hug
------------------------------
Mark A. Hug
Senior Vice President
Attest: /s/ Linda Galasso
------------------------
(Linda Galasso)
Assistant Secretary
July 26, 1999
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Depositor
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 26th day of July, 1999.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
(DEPOSITOR)
By: /s/ Mark A. Hug
--------------------------------
Mark A. Hug
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:
*Edward D. Miller Chairman of the Board and
Chief Executive Officer
*Michael Hegarty President and Chief Operating Officer
PRINCIPAL FINANCIAL OFFICER:
*Stanley B. Tulin Vice Chairman of the Board
and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Alvin H. Fenichel
- --------------------------
Alvin H. Fenichel Senior Vice President and Controller
July 26, 1999
*DIRECTORS:
Francoise Colloc'h Donald J. Greene George T. Lowy
Henri de Castries John T. Hartley Edward D. Miller
Joseph L. Dionne John H.F. Haskell, Jr. Didier Pineau-Valencienne
Denis Duverne Michael Hegarty George J. Sella, Jr.
Jean-Rene Fourtou Mary R. (Nina) Henderson Peter J. Tobin
Norman C. Francis W. Edwin Jarmain Stanley B. Tulin
Dave H. Williams
*By: /s/ Mark A. Hug
-----------------------
(Mark A. Hug)
Attorney-in-Fact
July 26, 1999
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TAG VALUE
- ----------- ---------
<S> <C> <C>
2(a)(iv) Opinion and Consent of William Schor, Vice
President and Associate General Counsel
of Equitable. EX-99.2aiv
6 Consent of Independent Public Accountants. EX-99.6
</TABLE>
II-8
William Schor
Vice President
and Associate General Counsel
(212) 314-3815
Fax: (212) 707-1882
(EQUITABLE -- MEMBER OF THE GLOBAL AXA GROUP LOGO)
LAW DEPARTMENT
July 22, 1999
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. 33-17663 ("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") funding Incentive
Life Plus (policy form No. 94-300), Corporate Incentive Life (policy form No.
95-300), and Incentive Life (policy form No. 99-300), individual flexible
premium variable life insurance policies ("Policies") issued by The Equitable
Life Assurance Society of the United States. 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 Prospectuses and the prospectus
supplements 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/ William Schor
-----------------
William Schor
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10104
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the two Prospectuses in this Post-Effective
Amendment No. 5 to the Registration Statement No. 333-17663 on Form S-6 of (1)
our report dated February 8, 1999 relating to the financial statements of The
Equitable Life Assurance Society of the United States Separate Account FP for
the year ended December 31, 1998, and (2) our report dated February 8, 1999
relating to the consolidated financial statements of The Equitable Life
Assurance Society of the United States for the year ended December 31, 1998,
which reports appear in such Prospectuses. We also consent to the reference, to
us under the heading "Financial Statements of Separate Account FP and Equitable
Life" in each Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
July 23, 1999
