<PAGE>
File Nos. 33-79170, 811-8524
Filed under Rule 497(c)
<PAGE>
- --------------------------------------------------------------------------------
[LOGO of Variable Annuity
Equi-Select(R)]
- --------------------------------------------------------------------------------
Prospectus
May 1, 1998
Equitable Life Insurance Company
of Iowa Separate Account A
May 1, 1998
Equi-Select Series Trust
May 1, 1998
The GCG Trust
April 30, 1998
Warburg Pincus Trust
May 1, 1998
The GCG Trust
<PAGE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
Home Office: Administered at: Mailing Address:
909 Locust Street Customer Service Center P.O. Box 9271
Des Moines, Iowa 50309 Wilmington, DE 19801 Des Moines, Iowa 50306-
(800) 344-6864 9271
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE AND
FIXED ANNUITY CONTRACTS
ISSUED BY
EQUITABLE LIFE INSURANCE COMPANY OF IOWA SEPARATE ACCOUNT A
AND
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
The Individual Flexible Purchase Payment Deferred Variable and Fixed Annuity
Contracts (the "Contracts") described in this Prospectus provide for
accumulation of Contract Values on a fixed and variable basis and payment of
monthly annuity payments on a fixed basis. The Contracts are designed for use
by individuals in retirement plans on a Qualified or Non-Qualified basis.
At the Owner's direction, Purchase Payments for the Contracts will be
allocated to a segregated investment account of Equitable Life Insurance
Company of Iowa (the "Company") which account has been designated Equitable
Life Insurance Company of Iowa Separate Account A (the "Separate Account") or
to the Company's Fixed Account. Under certain circumstances, however, Purchase
Payments may initially be allocated to the Money Market Subaccount of the
Separate Account. The Separate Account invests in shares of Equi-Select Series
Trust, Warburg Pincus Trust and The GCG Trust (individually a "Trust," and
collectively, "the Trusts"). The Separate Account may invest in other
Investment Options. Equi-Select Series Trust is a series fund with nine
Portfolios currently available: Advantage Portfolio, International Fixed
Income Portfolio, Money Market Portfolio, Mortgage-Backed Securities
Portfolio, OTC Portfolio, Research Portfolio, Total Return Portfolio, Growth &
Income Portfolio and Value + Growth Portfolio. Upon obtaining approval of
regulatory authorities, the nine currently available Portfolios of the Equi-
Select Series Trust will be replaced by similar Portfolios of the GCG Trust.
Warburg Pincus Trust is a series fund with four portfolios, one of which is
currently available in connection with the Contracts: International Equity
Portfolio. The GCG Trust is a series fund with sixteen operational series,
three of which are currently available in connection with the Contracts: Fully
Managed Series, Rising Dividends Series and Small Cap Series.
Shares of certain Portfolios of the Investment Options may not be available
for sale in all states. The Prospectuses of the Investment Options, which must
accompany this Prospectus, may contain Portfolios not currently available in
connection with the Contracts.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information (the "SAI") which is
available at no charge. The SAI has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. The Table of
Contents of the SAI can be found on the last page of this Prospectus. For the
SAI, call (800) 344-6864 or write to the Company at the address listed above.
The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by
reference, and other information regarding the Contracts and the Separate
Account.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED THE
VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
INQUIRIES:
Any inquiries can be made by telephone or in writing to Equitable Life
Insurance Company of Iowa at (800) 344-6864 or P.O. Box 9271, Des Moines, Iowa
50306-9271.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus and the SAI are dated May 1, 1998.
This Prospectus should be kept for future reference.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................................ 1
HIGHLIGHTS................................................................. 3
FEE TABLE.................................................................. 5
CONDENSED FINANCIAL INFORMATION............................................ 9
THE COMPANY................................................................ 10
THE SEPARATE ACCOUNT....................................................... 11
INVESTMENT OPTIONS......................................................... 11
Proposed Trust Consolidation.............................................. 11
Equi-Select Series Trust.................................................. 12
Warburg Pincus Trust...................................................... 13
The GCG Trust............................................................. 14
Voting Rights............................................................. 15
Substitution of Securities................................................ 15
CHARGES AND DEDUCTIONS..................................................... 17
Deduction for Withdrawal Charge (Sales Load).............................. 17
Reduction or Elimination of the Withdrawal Charge......................... 18
Deduction for Mortality and Expense Risk Charge........................... 18
Deduction for Administrative Charge....................................... 18
Deduction for Annual Contract Maintenance Charge.......................... 19
Deduction for Premium Taxes............................................... 19
Deduction for Income Taxes................................................ 19
Deduction for Expenses of the Investment Options.......................... 19
Deduction for Transfer Fee................................................ 19
THE CONTRACTS.............................................................. 20
Ownership................................................................. 20
Annuitant................................................................. 20
Assignment................................................................ 20
Beneficiary............................................................... 20
PURCHASE PAYMENTS AND CONTRACT VALUE....................................... 21
Purchase Payments......................................................... 21
Allocation of Purchase Payments........................................... 21
Dollar Cost Averaging..................................................... 22
Automatic Portfolio Rebalancing........................................... 22
Contract Value............................................................ 22
Accumulation Unit......................................................... 23
TRANSFERS.................................................................. 23
WITHDRAWALS................................................................ 24
Automatic Withdrawals..................................................... 25
Texas Optional Retirement Program......................................... 25
Suspension of Payments or Transfers....................................... 25
CONTRACT PROCEEDS.......................................................... 26
Maturity Proceeds......................................................... 26
Death Proceeds............................................................ 26
Death of the Annuitant.................................................... 27
Death of Owner............................................................ 27
Trust Beneficiary......................................................... 27
Fixed Payment Plans....................................................... 27
Plan A. Interest......................................................... 28
Plan B. Fixed Period..................................................... 28
Plan C. Life Income...................................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTOR................................................................ 28
ADMINISTRATION............................................................. 29
YEAR 2000.................................................................. 29
PERFORMANCE INFORMATION.................................................... 29
Money Market Portfolio.................................................... 29
Other Portfolios.......................................................... 29
Comparisons............................................................... 30
TAX STATUS................................................................. 32
General................................................................... 32
Diversification........................................................... 32
Owner Control............................................................. 33
Multiple Contracts........................................................ 33
Contracts Owned by Other than Natural Persons............................. 33
Tax Treatment of Assignments, Transfers or Exchanges...................... 33
Income Tax Withholding.................................................... 34
Tax Treatment of Withdrawals--Non-Qualified Contracts..................... 34
Qualified Plans........................................................... 34
Tax Treatment of Withdrawals--Qualified Contracts......................... 37
Tax-Sheltered Annuities--Withdrawal Limitations........................... 38
FINANCIAL STATEMENTS....................................................... 38
LEGAL PROCEEDINGS.......................................................... 38
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............... 39
</TABLE>
ii
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD -- The period during which Purchase Payments may be made
prior to the Maturity Date.
ACCUMULATION UNIT -- A unit of measure used to calculate the Contract Value
in a Subaccount of the Separate Account prior to the Maturity Date.
AGE -- The Annuitant's age on his or her last birthday.
ANNUITANT -- The natural person on whose life Annuity Payments are based.
ANNUITY PAYMENTS -- The series of payments after the Maturity Date under the
Payment Plan selected.
BENEFICIARY -- The person the Owner has chosen to receive the Proceeds on
the Annuitant's death as shown on the Company's records. There may be
different classes of Beneficiaries, such as primary and contingent. These
classes set the order of payment. There may be more than one Beneficiary in a
class.
COMPANY -- Equitable Life Insurance Company of Iowa.
CONTRACT ANNIVERSARY -- An anniversary of the Issue Date of the Contract.
CONTRACT YEAR -- One year from the Issue Date and from each Contract
Anniversary.
FIXED ACCOUNT -- The Company's general investment account which contains all
the assets of the Company with the exception of the Separate Account and other
segregated asset accounts.
INVESTMENT OPTION -- An investment entity the Company may make available
from time to time.
ISSUE DATE/DATE OF ISSUE -- The effective date of the Contract.
MATURITY DATE -- The date on which Annuity Payments begin.
NON-QUALIFIED CONTRACTS -- Contracts issued under non-qualified plans which
do not receive favorable tax treatment under Sections 401, 403(b), 408, 408A
or 457 of the Internal Revenue Code of 1986, as amended (the "Code").
OWNER -- The person(s) who owns the Contract. The Owner may be someone other
than the Annuitant. There may be Joint Owners.
PORTFOLIO -- A segment of an Investment Option which constitutes a separate
and distinct class of shares, which may also be referred to as a Series.
PROCEEDS -- Proceeds are the amounts payable under the Contract.
PURCHASE PAYMENT -- An amount paid to the Company to provide benefits under
the Contract. A Purchase Payment does not include transfers between the
Separate Account and the Fixed Account or among Subaccounts.
PURCHASE PAYMENT ANNIVERSARY -- The anniversary of a Purchase Payment.
QUALIFIED CONTRACTS -- Contracts issued under qualified plans which receive
favorable tax treatment under Sections 401, 403(b), 408, 408A or 457 of the
Code.
SEPARATE ACCOUNT -- A separate investment account of the Company designated
as Equitable Life Insurance Company of Iowa Separate Account A, into which
Purchase Payments or Contract Values may be allocated.
SUBACCOUNT -- A segment of the Separate Account representing an investment
in an Investment Option.
1
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VALUATION DATE -- The Separate Account will be valued each day that the New
York Stock Exchange and the Company's Customer Service Center both are open for
business.
VALUATION PERIOD -- The period beginning at the close of business of the New
York Stock Exchange on each Valuation Date and ending at the close of business
for the next succeeding Valuation Date.
2
<PAGE>
HIGHLIGHTS
At the Owner's direction, Purchase Payments for the Contracts will be
allocated to a segregated investment account of Equitable Life Insurance
Company of Iowa (the "Company") which account has been designated Equitable
Life Insurance Company of Iowa Separate Account A (the "Separate Account") or
to the Company's Fixed Account. Under certain circumstances, however, Purchase
Payments may initially be allocated to the Money Market Subaccount of the
Separate Account (see below). The Separate Account invests in shares of Equi-
Select Series Trust (see "Equi-Select Series Trust"), Warburg Pincus Trust
(see "Warburg Pincus Trust") and The GCG Trust (see "The GCG Trust"). The
Separate Account may invest in other Investment Options. Owners bear the
investment risk for all amounts allocated to the Separate Account.
Within twenty (20) days of the date of receipt of the Contract by the Owner
(or within ten (10) days of the date of receipt with respect to the
circumstances described in (a) and (b) below or in states where required or,
within thirty (30) days in the case of a Contract issued in the state of
California to an individual who is sixty (60) years of age or older), it may
be returned by delivering or mailing it to the Company at its Customer Service
Center. When the Contract is received at the Customer Service Center, the
Company will refund the Contract Value computed at the end of the Valuation
Period during which the Contract is received by the Company except in the
following circumstances: (a) where the Contract is purchased pursuant to an
Individual Retirement Annuity; (b) in those states which require the Company
to refund Purchase Payments, less withdrawals; or (c) in the case of Contracts
(including Contracts purchased pursuant to an Individual Retirement Annuity)
which are deemed by certain states to be replacing an existing annuity or
insurance contract and which require the Company to refund Purchase Payments,
less withdrawals. With respect to the circumstances described in (a), (b) and
(c) above, the Company will refund the greater of Purchase Payments, less any
withdrawals, or the Contract Value, and will allocate initial purchase
payments to the Money Market Subaccount until the expiration of fifteen days
from the Issue Date (or twenty-five days in the case of Contracts described
under (c) above). Upon the expiration of the fifteen day period (or twenty-
five day period with respect to Contracts described under (c)), the Subaccount
value of the Money Market Subaccount will be allocated to the Separate Account
or Fixed Account in accordance with the election made by the Owner in the
Application. In Pennsylvania, when the Contract is purchased pursuant to an
Individual Retirement Annuity and is not deemed to be replacing an existing
annuity or insurance contract, the Owner may return the Contract within twenty
(20) days of receipt. Further, in Pennsylvania when the Contract is received
at the Customer Service Center during the first seven days, the Company will
refund the greater of Purchase Payments, less withdrawals or the Contract
Value, thereafter (days 8-20), the Company will refund the Contract Value
computed at the end of the Valuation Period during which the Contract is
received by the Company. In Oregon, when the Contract is purchased pursuant to
an Individual Retirement Annuity, the Owner may return the Contract within
twenty (20) days of receipt. Further, when the Contract is received at the
Customer Service Center during the first ten days, the Company will refund the
greater of the initial Purchase Payment, less any withdrawals or the Contract
Value as of the date of cancellation. Thereafter (days 11-20), the Company
will refund the Contract Value as of the date of cancellation. The initial
Purchase Payment will be allocated to the Money Market Sub-Account as
described above.
A Withdrawal Charge (sales load) may be deducted in the event of a
withdrawal of all or a portion of the Contract Value. The Withdrawal Charge
percentages are based upon the number of Purchase Payment Anniversaries that
Purchase Payments have remained in the Contract before being withdrawn:
TABLE OF WITHDRAWAL CHARGES
<TABLE>
<CAPTION>
PURCHASE PAYMENT ANNIVERSARY WITHDRAWAL CHARGE
- ---------------------------- -----------------
<S> <C>
1......................................... 8% of the Purchase Payment withdrawn
2......................................... 7% of the Purchase Payment withdrawn
3......................................... 6% of the Purchase Payment withdrawn
4......................................... 5% of the Purchase Payment withdrawn
5......................................... 4% of the Purchase Payment withdrawn
6......................................... 3% of the Purchase Payment withdrawn
7......................................... 2% of the Purchase Payment withdrawn
8......................................... 1% of the Purchase Payment withdrawn
9 and after............................... 0% of the Purchase Payment withdrawn
</TABLE>
3
<PAGE>
At any time, the Owner may make a withdrawal, without the imposition of a
Withdrawal Charge, of an amount equal to the sum of: 1) earnings (Contract
Value less unliquidated Purchase Payments not withdrawn); 2) Purchase Payments
in the Contract for more than eight years and 3) an amount which is equal to
10% of the Purchase Payments in the Contract for less than eight years, fixed
at the time of the first withdrawal in the Contract Year, plus 10% of the
Purchase Payments made after the first withdrawal in the Contract Year but
before the next Contract Anniversary, less any withdrawals in the same
Contract Year of Purchase Payments less than eight years old.
There is a Mortality and Expense Risk Charge which is equal, on an annual
basis, to 1.25% of the average daily net asset value of the Separate Account.
This charge compensates the Company for assuming the mortality and expense
risks under the Contracts. (See "Charges and Deductions -- Deduction for
Mortality and Expense Risk Charge.")
There is an Administrative Charge which is equal, on an annual basis, to
.15% of the average daily net asset value of the Separate Account. This charge
compensates the Company for costs associated with the administration of the
Contracts and the Separate Account. (See "Charges and Deductions -- Deduction
for Administrative Charge.")
There is an Annual Contract Maintenance Charge of $30 each Contract Year
prior to the Maturity Date. (See "Charges and Deductions -- Deduction for
Annual Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. Premium taxes generally range
from 0% to 4%. (See "Charges and Deductions -- Deduction for Premium Taxes.")
Under certain circumstances, a Transfer Fee may be assessed when an Owner
transfers Contract Values from one Subaccount to another Subaccount or to or
from the Fixed Account. (See "Charges and Deductions -- Deduction for Transfer
Fee.")
There is a ten percent (10%) federal income tax penalty applied to the
income portion of any distribution from Non-Qualified Contracts. However, the
penalty is not imposed on amounts received: (a) after the taxpayer reaches age
59 1/2; (b) after the death of the Owner; (c) if the taxpayer is totally
disabled (for this purpose disability is as defined in Section 72(m)(7) of the
Code); (d) in a series of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy) of the taxpayer and
his or her Beneficiary; (e) under an immediate annuity; or (f) which are
allocable to purchase payments made prior to August 14, 1982. The Contract
provides that upon the death of the Annuitant prior to the Maturity Date, the
Death Proceeds will be paid to the named Beneficiary. Such payments made upon
the death of the Annuitant who is not the Owner of the Contract do not qualify
for the death of Owner exception described above, and will be subject to the
ten percent (10%) distribution penalty unless the Beneficiary is at least 59
1/2 or one of the other exceptions to the penalty applies. For federal income
tax purposes, withdrawals are deemed to be on a last-in, first-out basis.
Separate tax withdrawal penalties and restrictions apply to Qualified
Contracts. (See "Tax Status -- Tax Treatment of Withdrawals -- Qualified
Contracts.") For a further discussion of the taxation of the Contracts, see
"Tax Status."
For Contracts purchased in connection with 403(b) plans, withdrawals of
amounts attributable to contributions made pursuant to a salary reduction
agreement (as defined in Section 403(b)(11) of the Code) are limited to
circumstances only when the Owner attains age 59 1/2, separates from service,
dies, becomes disabled (within the meaning of Section 72(m)(7) of the Code) or
in the case of hardship. Withdrawals for hardship are restricted to the
portion of the Owner's Contract Value which represents contributions made by
the Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989, and apply only to: (1) salary
reduction contributions made after December 31, 1988; (2) income attributable
to such contributions; and (3) income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Tax penalties may also apply. (See
"Tax Status -- Tax Treatment of Withdrawals -- Qualified Contracts.") Owners
should consult their own tax counsel or other tax adviser regarding any
distributions. (See "Tax Status -- Tax Sheltered Annuities -- Withdrawal
Limitations.")
4
<PAGE>
See "Tax Status -- Diversification" for a discussion of owner control of the
underlying investments in a variable annuity contract.
Because of certain exemptive and exclusionary provisions, interests in the
Fixed Account are not registered under the Securities Act of 1933 and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the Fixed Account nor
any interests therein are subject to the provisions of these Acts and the
Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in the Prospectus relating to the
Fixed Account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA SEPARATE ACCOUNT A
FEE TABLE
OWNER TRANSACTION EXPENSES
Withdrawal Charge (see Note 2 below)
(as a percentage of Purchase Payments withdrawn)
<TABLE>
<CAPTION>
PURCHASE PAYMENT ANNIVERSARY CHARGE
---------------------------- ------
<S> <C>
1................................................................. 8%
2................................................................. 7%
3................................................................. 6%
4................................................................. 5%
5................................................................. 4%
6................................................................. 3%
7................................................................. 2%
8................................................................. 1%
9+................................................................ 0%
</TABLE>
<TABLE>
<S> <C>
Transfer Fee (See Note 3 below)....... No charge for first 12 transfers in a
Contract Year; thereafter the fee is the
lesser of 2% of the Contract Value
transferred or $25.
Annual Contract Maintenance Charge.... $30 per Contract per year
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge.................................... 1.25%
Administrative Charge................................................ .15%
----
Total Separate Account Annual Expenses............................... 1.40%
</TABLE>
EQUI-SELECT SERIES TRUST'S ANNUAL EXPENSES (prior to Trust Consolidation)
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
OTHER TOTAL ANNUAL
EXPENSES AFTER EXPENSES AFTER
PORTFOLIOS CURRENTLY MANAGEMENT EXPENSE EXPENSE
AVAILABLE FEES(/1/) REIMBURSEMENT(/2/) REIMBURSEMENT(/2/)
- -------------------- ---------- ------------------ ------------------
<S> <C> <C> <C>
Advantage Portfolio.......... .50 % .30% .80 %
International Fixed Income
Portfolio................... .85 % .98% 1.83 %
Money Market Portfolio....... .375% .30% .675%
Mortgage-Backed Securities
Portfolio................... .75 % .50% 1.25 %
OTC Portfolio................ .80 % .19% .99 %
Research Portfolio........... .80 % .16% .96 %
Total Return Portfolio....... .80 % .17% .97 %
Growth & Income Portfolio.... .95 % .17% 1.12 %
Value + Growth Portfolio..... .95 % .25% 1.20 %
</TABLE>
5
<PAGE>
THE GCG TRUST ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Series or on the
combined average daily net assets of the indicated groups of Series)
<TABLE>
<CAPTION>
TOTAL ANNUAL
SERIES CURRENTLY AVAILABLE MANAGEMENT FEES(/1/) OTHER EXPENSES(/3/) EXPENSES
- -------------------------- -------------------- ------------------- ------------
<S> <C> <C> <C>
Fully Managed Series.... 0.99% 0.01% 1.00%
Rising Dividend Series.. 0.99% 0.01% 1.00%
Small Cap Series........ 0.99% 0.01% 1.00%
</TABLE>
<TABLE>
<CAPTION>
SERIES ADDED TO
THE GCG TRUST AND/OR OTHER EXPENSES TOTAL EXPENSES
AVAILABLE AFTER AFTER EXPENSE AFTER EXPENSE
TRUST CONSOLIDATION(/4/) MANAGEMENT FEES(/1/) REIMBURSEMENT(/2/)(/5/) REIMBURSEMENT(/5/)
- ------------------------ -------------------- ----------------------- ------------------
<S> <C> <C> <C>
Mid-Cap Growth Se-
ries(/6/)(/7/)......... 0.96% 0.01% 0.97%
Research Series(/6/).... 0.96% 0.00% 0.96%
Total return Se-
ries(/6/).............. 0.96% 0.01% 0.97%
Growth & Income and
Value + Growth Se-
ries(/8/).............. 1.10% 0.01% 1.11%
Global Fixed Income Se-
ries(/9/).............. 1.60% 0.00% 1.60%
Limited Maturity
Bond(/10/) and Liquid
Asset Series(/11/)... 0.60% 0.01% 0.61%
</TABLE>
WARBURG PINCUS TRUST'S ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
OTHER
EXPENSES
AFTER EXPENSE TOTAL OPERATING
MANAGEMENT FEES REIMBURSEMENT EXPENSES
--------------- ------------- ---------------
<S> <C> <C> <C>
International Equity Portfo-
lio(/12/)...................... 1.00% 0.36% 1.36%
</TABLE>
(1) Fees decline as combined assets increase (see Trust Prospectuses for
details)
(2) Directed Services, Inc. ("DSI"), the manager of the Equi-Select Series
Trust has agreed to reimburse expenses to maintain total expenses at the
levels shown for the Advantage Portfolio, the Money Market Portfolio and
the Mortgage-Backed Securities Portfolio. Without this agreement, Other
Expenses and Total Expenses would be 0.61%, 0.335% and 0.74% and 1.11%,
0.71% and 1.49%, respectively, for the Advantage Portfolio, the Money
Market Portfolio and the Mortgage-Back Securities Portfolio, respectively.
This agreement is voluntary and may be terminated at any time.
(3) Other expenses generally consist of independent trustees' fees and
expenses and certain expenses associated with investing in international
markets.
(4) See Proposed Trust Consolidation for details. Upon Trust Consolidation,
the Equi-Select Series Trust will cease to exist and new GCG Trust Series
will be substituted for the Equi-Select Series Trust Portfolios.
(5) DSI, the manager of The GCG Trust ("GCG"), has agreed voluntarily to
reimburse expenses and waive management fees, if necessary, to maintain
total expenses at the levels shown for the Research and the Global Fixed
Income Series. This agreement will remain in place through December 31,
1999, and after that time may be terminated at any time. Without this
agreement and based on current estimates, Total Expenses would be 0.98%
and 1.65%, for the Research and the Global Fixed Income Series,
respectively.
(6) After Trust Consolidation (See Proposed Trust Consolidation), the assets
of the Mid-Cap Growth Series (formerly the OTC Portfolio), the Research
Series and the Total Return Series will be combined to determine the
actual fee payable to DSI.
(7) The OTC Portfolio prior to Trust Consolidation.
(8) After Trust Consolidation (see Proposed Trust Consolidation), the assets
of the Growth & Income, the Value + Growth and certain other series of GCG
will be combined to determine the actual fee payable to DSI.
(9) The International Fixed Income Portfolio prior to Trust Consolidation.
(10) The Mortgage-Backed Securities Portfolio and the Advantage Portfolio
prior to Trust Consolidation.
(11) The Money Market Portfolio prior to Trust Consolidation.
(12) Total Operating Expenses are based on actual expenses for the fiscal year
ended December 31, 1997. Other expenses for the Portfolio were reduced by
.01% for the fiscal year ended December 31, 1997 as a result of certain
arrangements that served to offset portions of the Portfolio's transfer
agent expenses. After reflecting these arrangements, "Total Operating
Expenses (after fee waivers)" for the Portfolio were 1.35% for the fiscal
year ended December 31, 1997.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
(a) if the Contract is fully surrendered at the end of each time period
or if Payment Plan A -- Option 2 is elected;
6
<PAGE>
(b) if the Contract is not surrendered;
SUBACCOUNTS INVESTING IN:
<TABLE>
<CAPTION>
TIME PERIODS
-----------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUI-SELECT SERIES TRUST
Advantage Portfolio........... a) $103.28 a) $125.65 a) $158.58 a) $262.02
b) $ 23.28 b) $ 71.65 b) $122.58 b) $262.02
International Fixed Income
Portfolio.................... a) $111.27 a) $149.54 a) $198.22 a) $340.06
b) $ 31.27 b) $ 95.54 b) $162.22 b) $340.06
Money Market Portfolio........ a) $102.02 a) $121.87 a) $152.24 a) $249.21
b) $ 22.02 b) $ 67.87 b) $116.24 b) $249.21
Mortgage-Backed Securities
Portfolio.................... a) $107.78 a) $139.16 a) $181.08 a) $306.75
b) $ 27.78 b) $ 85.16 b) $145.08 b) $306.75
OTC Portfolio................. a) $105.18 a) $131.38 a) $168.14 a) $281.17
b) $ 25.18 b) $ 77.38 b) $132.14 b) $281.17
Research Portfolio............ a) $104.88 a) $130.48 a) $166.64 a) $278.18
b) $ 24.88 b) $ 76.48 b) $130.64 b) $278.18
Total Return Portfolio........ a) $104.98 a) $130.78 a) $167.14 a) $279.18
b) $ 24.98 b) $ 76.78 b) $131.14 b) $279.18
Growth & Income Portfolio..... a) $106.48 a) $135.28 a) $174.63 a) $294.05
b) $ 26.48 b) $ 81.28 b) $138.63 b) $294.05
Value + Growth Portfolio...... a) $107.28 a) $137.67 a) $178.61 a) $301.89
b) $ 27.28 b) $ 83.67 b) $142.61 b) $301.89
THE GCG TRUST
Fully Managed Series.......... a) $105.18 a) $131.38 a) $168.14 a) $281.17
b) $ 25.18 b) $ 77.38 b) $132.14 b) $281.17
Rising Dividends Series....... a) $105.18 a) $131.38 a) $168.14 a) $281.17
b) $ 25.18 b) $ 77.38 b) $132.14 b) $281.17
Small Cap Series.............. a) $105.18 a) $131.38 a) $168.14 a) $281.17
b) $ 25.18 b) $ 77.38 b) $132.14 b) $281.17
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WARBURG PINCUS TRUST
International Equity Portfo-
lio.......................... a) $108.88 a) $142.44 a) $186.50 a) $317.36
b) $ 28.88 b) $ 88.44 b) $150.50 b) $317.36
GCG SERIES ADDED UPON TRUST
CONSOLIDATION
Limited Maturity Bond Se-
ries*........................ a) $101.37 a) $119.89 a) $148.92 a) $242.48
b) $ 21.37 b) $ 65.89 b) $112.92 b) $242.48
Global Fixed Income Series**.. a) $111.27 a) $149.54 a) $198.22 a) $340.06
b) $ 31.27 b) $ 95.54 b) $162.22 b) $340.06
Liquid Asset Series***........ a) $101.37 a) $119.89 a) $148.92 a) $242.48
b) $ 21.37 b) $ 65.89 b) $112.92 b) $242.48
Mid-Cap Growth Series****..... a) $104.98 a) $130.78 a) $167.14 a) $279.18
b) $ 24.98 b) $ 76.78 b) $131.14 b) $279.18
Research Series............... a) $104.88 a) $130.48 a) $166.64 a) $278.18
b) $ 24.88 b) $ 76.48 b) $130.64 b) $278.18
Total Return Series........... a) $104.98 a) $130.78 a) $167.14 a) $279.18
b) $ 24.98 b) $ 76.78 b) $131.14 b) $279.18
Growth & Income Series........ a) $106.28 a) $134.68 a) $173.64 a) $292.08
b) $ 26.28 b) $ 80.68 b) $137.64 b) $292.08
Value + Growth Portfolio...... a) $106.28 a) $134.68 a) $173.64 a) $292.08
b) $ 26.28 b) $ 80.68 b) $137.64 b) $292.08
</TABLE>
7
<PAGE>
* The Advantage Portfolio and the Mortgage-Backed Securities Portfolio prior
to Trust Consolidation
** The International Fixed Income Portfolio prior to Trust Consolidation
*** The Money Market Portfolio prior to Trust Consolidation
**** The OTC Portfolio prior to Trust Consolidation
NOTES TO FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to assist the Owner in understanding the
various costs and expenses that an Owner will incur directly or
indirectly. For additional information, see "Charges and Deductions" in
this Prospectus and the Prospectuses for Equi-Select Series Trust,
Warburg Pincus Trust and The GCG Trust.
2. At any time, the Owner may make a withdrawal without the imposition of a
Withdrawal Charge, of an amount equal to the sum: 1) earnings (Contract
Value less unliquidated Purchase Payments not withdrawn); 2) Purchase
Payments in the Contract for more than eight years; and 3) an amount which
is equal to 10% of the Purchase Payments in the Contract for less than
eight years, fixed at the time of the first withdrawal in the Contract
Year, plus 10% of the Purchase Payment made after the first withdrawal in
the Contract Year but before the next Contract Anniversary, less any
withdrawals in the same Contract Year of Purchase Payments less than eight
years old.
3. If the Owner is participating in the Automatic Portfolio Rebalancing
program or Dollar Cost Averaging program such transfers are currently not
taken into account in determining the number of transfers for the year or
in determining any Transfer Fee. (See "Charges and Deductions --
Deduction for Transfer Fee," "Purchase Payments and Contract Value --
Dollar Cost Averaging" and "Purchase Payments and Contract Value --
Automatic Portfolio Rebalancing.")
4. Premium taxes are not reflected. Premium taxes may apply. (See "Charges
and Deductions -- Deduction for Premium Taxes.")
5. The Examples assume an estimated $31,000 Contract Value so that the
Annual Contract Maintenance Charge per $1,000 of net asset value in the
Separate Account is $0.97. Such charge would be higher for smaller
Contract Values and lower for higher Contract Values.
6. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
The financial statements of Equitable Life Insurance Company of Iowa and
Equitable Life Insurance Company of Iowa Separate Account A may be found in
the Statement of Additional Information.
The table below gives per unit information about the financial history of
the Advantage, International Fixed Income, Money Market, Mortgage-Backed
Securities, OTC, Research and Total Return Subaccounts invested in Equi-Select
Series Trust from commencement of operations (October 7, 1994) to December 31,
1997. The table below gives per unit information about the financial history
of the Growth & Income and Value + Growth Subaccounts invested in Equi-Select
Series Trust from commencement of operations (April 1, 1996) to December 31,
1997. The table below also gives per unit information about the financial
history of the Fully Managed, Rising Dividends and Small Cap Subaccounts
invested in The GCG Trust from commencement of operations (February 3, 1997)
to December 31, 1997. No other Subaccounts invested in The GCG Trust during
1997. The table below also gives per unit information about the financial
history of the International Equity Subaccount invested in Warburg Pincus
Trust from commencement of operations (April 1, 1996) to December 31, 1997.
This information should be read in conjunction with the financial statements
and related notes of the Separate Account included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
PERIOD ENDED PERIOD ENDED YEAR ENDED OF OPERATIONS TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
EQUI-SELECT SERIES TRUST
ADVANTAGE SUBACCOUNT
Unit value at
beginning of period.. $11.36 $10.86 $10.08 $10.00
Unit value at end of
period............... $11.84 $11.36 $10.86 $10.08
No. of units
outstanding at end of
period............... 1,505,743 1,322,512 344,775 45,516
INTERNATIONAL FIXED
INCOME SUBACCOUNT
Unit value at
beginning of period.. $11.96 $11.55 $10.06 $10.00
Unit value at end of
period............... $11.87 $11.96 $11.55 $10.06
No. of units
outstanding at end of
period............... 1,003,152 705,870 311,689 5,098
MONEY MARKET SUBACCOUNT
Unit value at
beginning of period.. $10.80 $10.45 $10.07 $10.00
Unit value at end of
period............... $11.19 $10.80 $10.45 $10.07
No. of units
outstanding at end of
period............... 3,178,723 1,772,486 548,767 34,322
MORTGAGE-BACKED
SECURITIES SUBACCOUNT
Unit value at
beginning of period.. $11.64 $11.42 $ 9.99 $10.00
Unit value at end of
period............... $12.38 $11.64 $11.42 $ 9.99
No. of units
outstanding at end of
period............... 1,427,178 930,828 380,031 2,886
OTC SUBACCOUNT
Unit value at
beginning of period.. $15.70 $13.21 $10.35 $10.00
Unit value at end of
period............... $18.52 $15.70 $13.21 $10.35
No. of units
outstanding at end of
period............... 4,824,991 2,602,724 759,597 63,781
RESEARCH SUBACCOUNT
Unit value at
beginning of period.. $15.93 $13.10 $ 9.72 $10.00
Unit value at end of
period............... $18.87 $15.93 $13.10 $ 9.72
No. of units
outstanding at end of
period............... 10,840,733 4,845,240 1,255,752 69,177
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
PERIOD ENDED PERIOD ENDED YEAR ENDED OF OPERATIONS TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
TOTAL RETURN SUBACCOUNT
Unit value at
beginning of period.. $13.51 $12.05 $ 9.81 $10.00
Unit value at end of
period............... $16.10 $13.51 $12.05 $ 9.81
No. of units
outstanding at end of
period............... 9,244,077 4,354,338 1,312,565 33,106
GROWTH & INCOME
SUBACCOUNT
Unit value at
beginning of period.. $12.49 $10.00
Unit value at end of
period............... $15.41 $12.49
No. of units
outstanding at end of
period............... 5,699,245 2,228,888
VALUE + GROWTH
SUBACCOUNT
Unit value at
beginning of period.. $11.42 $10.00
Unit value at end of
period............... $13.03 $11.42
No. of units
outstanding at end of
period............... 4,326,368 1,238,349
THE GCG TRUST
FULLY MANAGED SUBACCOUNT
Unit value at
beginning of period.. $17.40
Unit value at end of
period............... $19.66
No. of units
outstanding at end of
period............... 430,012
RISING DIVIDENDS
SUBACCOUNT
Unit value at
beginning of period.. $16.36
Unit value at end of
period............... $20.09
No. of units
outstanding at end of
period............... 1,561,703
SMALL CAP SUBACCOUNT
Unit value at
beginning of period.. $11.98
Unit value at end of
period............... $12.88
No. of units
outstanding at end of
period............... 885,024
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY
SUBACCOUNT
Unit value at
beginning of period.. $10.28 $10.00
Unit value at end of
period............... $9.90 $10.28
No. of units
outstanding at end of
period............... 3,908,832 2,026,704
</TABLE>
THE COMPANY
Equitable Life Insurance Company of Iowa (the "Company") was founded in Iowa
in 1867 and is the oldest life insurance company west of the Mississippi. The
Company is currently licensed to do business in the District of Columbia and
all states except New Hampshire and New York. The Company is a wholly owned
subsidiary of Equitable of Iowa Companies, Inc. ("Equitable of Iowa"), a
Delaware corporation, which in turn is a wholly owned subsidiary of ING Groep,
N.V. ("ING"). On October 24, 1997, ING acquired all interest in Equitable of
Iowa and its subsidiaries. ING, based in The Netherlands, is a global
financial services holding company with over $307 billion in assets.
10
<PAGE>
THE SEPARATE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Iowa insurance law on January 24, 1994.
This segregated asset account has been designated Equitable Life Insurance
Company of Iowa Separate Account A (the "Separate Account"). The Company has
caused the Separate Account to be registered with the Securities and Exchange
Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940.
The assets of the Separate Account are the property of the Company. However,
the assets of the Separate Account equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Separate Account without regard
to other income, gains or losses of the Company. The Company's obligations
arising under the Contracts are general obligations.
The Separate Account meets the definition of a "separate account" under
federal securities laws.
The Separate Account is divided into Subaccounts, with the assets of each
Subaccount invested in one Portfolio of Equi-Select Series Trust, Warburg
Pincus Trust or The GCG Trust. The Separate Account may invest in other
Investment Options. There is no assurance that the investment objectives of
any of the Portfolios will be met. Owners bear the complete investment risk
for Purchase Payments allocated to a Subaccount. Contract Values will
fluctuate in accordance with the investment performance of the Subaccounts to
which Purchase Payments are allocated, and in accordance with the imposition
of the fees and charges assessed under the Contracts.
INVESTMENT OPTIONS
PROPOSED TRUST CONSOLIDATION
In an effort to consolidate the operations of The GCG Trust and the Equi-
Select Series Trust ("Trust Consolidation"), the affiliated insurance
companies of Equitable of Iowa filed an application with the Securities and
Exchange Commission requesting permission via an order to substitute shares of
each Series of the Equi-Select Series Trust with shares of similar Series of
The GCG Trust (the "Substitution"). The table below identifies the ESS Trust
Portfolios currently available under the Contract and The GCG Trust Series
Substituted for each. The Substitution of shares will reduce operating
expenses and will create larger economies of scale from which a further
reduction of expenses is anticipated. Contract Owners will benefit directly
from any reduction of Trust expenses. CONTRACT OWNERS WILL NOT BEAR ANY
EXPENSE ASSOCIATED WITH THE SUBSTITUTION.
<TABLE>
<CAPTION>
THE EQUI-
SELECT SERIES TRUST REPLACED PORTFOLIO THE GCG TRUST SUBSTITUTED PORTFOLIO
-------------------------------------- -----------------------------------
<S> <C>
Money Market Portfolio Liquid Asset Series
Mortgage-Backed Securities Portfolio Limited Maturity Bond Series
International Fixed Income Portfolio Global Fixed Income Series
OTC Portfolio Mid-Cap Growth Series
Research Portfolio Research Series
Total Return Portfolio Total Return Series
Advantage Portfolio Limited Maturity Bond Series
Value + Growth Portfolio Value + Growth Series
Growth & Income Portfolio Growth & Income Series
</TABLE>
Upon obtaining the requested order for Substitution, from the Securities and
Exchange Commission, and subject to any required prior approval by applicable
insurance authorities, the Substitution will be effected by simultaneously
placing an order for each Investment Option to redeem the shares of the Series
(which may also be referred to as a Portfolio) of the Equi-Select Series Trust
and an order for each Investment Option to purchase shares of the designated
respective Series of The GCG Trust. After the Trust Consolidation has
occurred, the Customer Service Center will send affected Contract Owners a
notice within 5 days.
11
<PAGE>
EQUI-SELECT SERIES TRUST
Equi-Select Series Trust has been established to act as one of the funding
vehicles for the Contracts offered. The Trust is an open-end management
investment company. Since January 1, 1998, the Equi-Select Series Trust has
been managed by DSI which is a wholly owned subsidiary of Equitable of Iowa.
From its inception through December 31, 1997, the Equi-Select Series Trust was
managed by Equitable Investment Services, Inc., an affiliate of DSI. DSI has
retained Sub-Advisers for the Portfolios to make investment decisions and
place orders. The Sub-Advisers for the Portfolios are: Baring International
Investment Limited with respect to the International Fixed Income Portfolio;
Massachusetts Financial Services Company with respect to the OTC, Research and
Total Return Portfolios and Robertson, Stephens & Company Investment
Management, L.P. with respect to the Growth & Income and Value + Growth
Portfolios. Additionally, ING Investment Management, LLC ("IIMLLC") an
affiliate of DSI, performs the sub-advisory role for the Advantage, Money-
Market and Mortgage-Backed Portfolio. See "Management of the Trust" in the
Equi-Select Series Trust Prospectus, which accompanies this Prospectus, for
additional information concerning DSI, IIMLLC and the Sub-Advisers, including
a description of advisory and sub-advisory fees.
The Equi-Select Series Trust is intended to meet differing investment
objectives with its currently available separate Portfolios.
The investment objectives of the currently available Portfolios are as
follows:
ADVANTAGE PORTFOLIO. The Advantage Portfolio seeks current income with a
very low degree of share-price fluctuation. The Portfolio invests primarily in
ultra short-term investment grade debt obligations. The Portfolio is designed
for investors who seek higher yields than money market funds generally offer
and who are willing to accept some modest principal fluctuation in order to
achieve that objective. Because its share price will vary, the Portfolio is
not an appropriate investment for those whose primary objective is absolute
principal stability. The Portfolio's investments include a combination of
high-quality money market instruments, as well as securities with longer
maturities and securities of lower quality. Under normal market conditions, it
is anticipated that the Portfolio will maintain an average effective maturity
of one year or less. At the time of Trust Consolidation, shares of the
Advantage Portfolio will be replaced by shares of the Limited Maturity Bond
Series of The GCG Trust.
INTERNATIONAL FIXED INCOME PORTFOLIO. The International Fixed Income
Portfolio seeks to provide high total return. The Portfolio will seek to
achieve its objective by investing in both domestic and foreign debt
securities and related foreign currency transactions. The total return will be
sought through a combination of current income, capital gains and gains in
currency positions. Under normal market conditions, the Portfolio will invest
primarily in: (i) obligations issued or guaranteed by foreign national
governments, their agencies, instrumentalities, or political subdivisions;
(ii) U.S. government securities; and (iii) debt securities issued or
guaranteed by supranational organizations, considered to be government
securities. Under normal conditions, the Portfolio's Sub-Adviser expects that
the Portfolio generally will be invested in at least six different countries,
including the U.S., although the Portfolio may at times invest all of its
assets in a single country. The Portfolio may invest a significant portion of
its assets in foreign securities. Investing in foreign securities generally
involves risks not ordinarily associated with investing in securities of
domestic issuers. Purchasers are cautioned to read the "Appendix -- Foreign
Investments" in the Trust Prospectus for a discussion of the risks involved in
foreign investing. At the time of Trust Consolidation, shares of the
International Fixed Income Portfolio will be replaced by shares of the Global
Fixed Income Series of The GCG Trust.
MONEY MARKET PORTFOLIO. The Money Market Portfolio seeks to obtain maximum
current income, consistent with the preservation of capital and the
maintenance of liquidity. The Portfolio will seek to achieve this objective by
investing exclusively in certain U.S. dollar-denominated money market
instruments having remaining maturities of 397 days or less. An investment in
the Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government. At the time of Trust Consolidation, shares of the Money Market
Portfolio will be replaced by shares of the Liquid Asset Series of The GCG
Trust.
12
<PAGE>
MORTGAGE-BACKED SECURITIES PORTFOLIO. The Mortgage-Backed Securities
Portfolio seeks to obtain a high current return, consistent with safety of
principal, primarily through investments in mortgage-backed securities.
Mortgage-backed securities represent interests in, or are secured by and
payable from, pools of mortgage loans, including collateralized mortgage
obligations. At the time of Trust Consolidation, shares of the Mortgage-Backed
Securities Portfolio will be replaced by shares of the Limited Maturity Bond
Series of The GCG Trust.
OTC PORTFOLIO. The primary investment objective of the OTC Portfolio is to
seek to obtain long-term growth of capital. The Portfolio seeks to achieve its
objective by investing at least 65% of its total assets, under normal
circumstances, in securities principally traded on the over-the-counter (OTC)
securities market. At the time of Trust Consolidation, shares of the OTC
Portfolio will be replaced by shares of the Mid-Cap Growth Series of The GCG
Trust.
RESEARCH PORTFOLIO. The Research Portfolio seeks to provide long-term growth
of capital and future income by investing a substantial portion of its assets
in the common stocks or securities convertible into common stocks of companies
believed to possess better than average prospects for long-term growth. A
smaller proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. The portfolio securities of the
Research Portfolio are selected by the investment research analysts in the
Equity Research Group of the Sub-Adviser. The Portfolio's assets are allocated
to industry groups (e.g. within the health care sector, the managed care, drug
and medical supply industries). The allocation by sector and industry is
determined by the analysts acting together as a group. At the time of Trust
Consolidation, shares of the Research Portfolio will be replaced by shares of
the Research Series of The GCG Trust.
TOTAL RETURN PORTFOLIO. The Total Return Portfolio primarily seeks to obtain
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, the Portfolio believes that there should also
be a reasonable opportunity for growth of capital and income, since many
securities offering a better than average yield may also possess growth
potential. Generally, at least 40% of the Portfolio's assets are invested in
equity securities. At the time of Trust Consolidation, shares of the Total
Return Portfolio will be replaced by shares of the Total Return Series of The
GCG Trust.
GROWTH & INCOME PORTFOLIO. The Growth & Income Portfolio seeks long-term
total return. The Portfolio will pursue this objective primarily by investing
in equity and debt securities, focusing on small- and mid-cap companies that
offer the potential for capital appreciation, current income or both. The
Portfolio will normally invest the majority of its assets in common and
preferred stocks, convertible securities, bonds and notes. At the time of
Trust Consolidation, shares of the Growth & Income Portfolio will be replaced
by shares of the Growth & Income Series of The GCG Trust.
VALUE + GROWTH PORTFOLIO. The Value + Growth Portfolio seeks capital
appreciation. The Portfolio invests primarily in growth companies with
favorable relationships between price/earnings ratios and growth rates, in
sectors offering the potential for above-average returns. At the time of Trust
Consolidation, shares of the Value + Growth Portfolio will be replaced by
shares of the Value + Growth Series of The GCG Trust.
WARBURG PINCUS TRUST
Warburg Pincus Trust is an open-end management investment company. Warburg,
Pincus Asset Management, Inc. ("Warburg") is the investment adviser to each of
the Trust's five Portfolios, one of which -- the International Equity
Portfolio -- is being offered herein. Warburg is indirectly controlled by
Warburg, Pincus & Co. ("WP & Co."), a New York general partnership. Lionel I.
Pincus, the managing partner of WP & Co., may be deemed a controlling person
of both WP & Co. and Warburg.
The investment objective of the International Equity Portfolio is as
follows:
13
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the
International Equity Portfolio is to seek long-term capital appreciation by
investing primarily in a broadly diversified portfolio of equity securities of
companies, wherever organized, that in the judgment of Warburg have their
principal business activities and interests outside the United States. The
Portfolio will ordinarily invest substantially all of its assets -- but no
less than 65% of its total assets -- in common stocks, warrants and securities
convertible into or exchangeable for common stocks. Generally the Portfolio
will hold no less than 65% of its total assets in at least three countries
other than the United States.
THE GCG TRUST
The GCG Trust ("GCG") is an open-end management investment company, more
commonly referred to as a mutual fund. DSI ("Manager") serves as the manager
to GCG. The Manager is a wholly owned subsidiary of Equitable of Iowa and an
affiliate of the Company. GCG and the Manager have retained portfolio managers
(individually, a "Portfolio Manager") for each of the Series of GCG. The
Portfolio Manager to the Fully Managed Series is T. Rowe Price Associates,
Inc.; the Portfolio Manager to the Rising Dividends Series is Kayne Anderson
Investment Management, LLC.; and the Portfolio Manager to the Small Cap Series
is Fred Alger Management, Inc.
The investment objectives of the currently available Series are as follows:
FULLY MANAGED SERIES. The Fully Managed Series seeks, over the long term, a
high total investment return, consistent with the preservation of capital and
prudent investment risk. The Series seeks to achieve this objective by
investing primarily in common stocks. The Series may also invest in fixed
income securities and money market instruments to preserve its principal value
during uncertain or declining market conditions.
RISING DIVIDENDS SERIES. The Rising Dividends Series seeks capital
appreciation. The Series seeks to achieve this objective by investing in
equity securities of high quality companies that meet the following four
criteria: consistent dividend increases; substantial dividend increases;
reinvested profits; and a balance sheet with low leverage.
SMALL CAP SERIES. The Small Cap Series seeks to achieve long-term capital
appreciation by investing in equity securities of companies that, at the time
of purchase, have total market capitalization within the range of companies
included in the Russell 2000 Growth Index or the S&P Small Cap 600 Index. Many
of the securities in which the Series invests may be those of new companies in
a developmental stage or more seasoned companies believed by the Portfolio
Manager to be entering a new stage of growth.
The investment objectives of the added Series after Trust Consolidation are
as follows:
LIMITED MATURITY BOND SERIES. The Limited Maturity Bond Series seeks the
highest current income consistent with low risk to principal and liquidity.
The Series also seeks to enhance its total return through capital appreciation
when market factors indicate that capital appreciation may be available
without significant risk to principal. The Series seeks to achieve this
objective by investing primarily in a diversified portfolio of limited
maturity debt securities. No individual security at the time of purchase will
have a remaining maturity longer than seven years and the dollar-weighted
average maturity of the Series will not exceed five years. The Portfolio
Manager to the Limited Maturity Bond Series is ING Investment Management, LLC.
GLOBAL FIXED INCOME SERIES. The Global Fixed Income Series seeks high total
return. The Series seeks to achieve this objective through investment in both
domestic and foreign debt securities and related foreign currency
transactions. The total return will be sought through a combination of current
income, capital gains and gains in currency positions. The Portfolio Manager
to the Global Fixed Income Series is Baring International Investment Limited.
LIQUID ASSET SERIES. The Liquid Asset Series seeks a high level of current
income consistent with the preservation of capital and liquidity. The Series
seeks to achieve this objective by investing in obligations of the U.S.
Government and its agencies; bank obligations; commercial paper and short-term
corporate debt securities. The Portfolio Manager to the Liquid Asset Series is
ING Investment Management, LLC.
14
<PAGE>
MID-CAP GROWTH SERIES. The Mid-Cap Growth Series seeks long-term growth of
capital by investing primarily in securities of companies that are traded
principally on the over-the-counter ("OTC") market. The Portfolio Manager to
the Mid-Cap Growth Series is Massachusetts Financial Services Company.
RESEARCH SERIES. The Research Series seeks long-term growth of capital and
future income. The Series seeks to achieve these objectives by investing
primarily in common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-term
growth. The Portfolio Manager to the Research Series is Massachusetts
Financial Services Company.
TOTAL RETURN SERIES. The Total Return Series seeks above average income
consistent with prudent employment of capital. The Series seeks to achieve its
objective by investing primarily in equity securities. The Portfolio Manager
to the Total Return Series is Massachusetts Financial Services Company.
GROWTH & INCOME SERIES. The Growth & Income Series seeks long-term total
return by investing primarily in equity and debt securities, focusing on
small- and mid-cap companies that offer potential appreciation, current
income, or both. The Portfolio Manager to the Growth & Income Series is
Robertson, Stephens & Company Investment Management, L.P.
VALUE + GROWTH SERIES. The Value + Growth Series seeks capital appreciation.
The Series will pursue this objective primarily by investing in mid-cap growth
companies with favorable relationships between price/earnings ratios and
growth rates. Mid-cap companies are those with market capitalizations ranging
from $750 million to $2.0 billion. The Portfolio Manager to the Value + Growth
Series is Robertson, Stephens & Company Investment Management, L.P.
While a brief summary of the investment objectives of the Portfolios of
Equi-Select Series Trust and Warburg Pincus Trust and the Series of The GCG
Trust are set forth above, more comprehensive information, including a
discussion of potential risks, is found in the current Prospectuses for each
of the Investment Options, which are included with this Prospectus. Additional
Prospectuses and the Statements of Additional Information can be obtained by
calling the Customer Service Center or writing the Company's Home Office.
Purchasers should read the Prospectuses for the Investment Options carefully
before investing.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote
the shares of the Investment Options held in the Separate Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Separate Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. The Investment Options do not hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company prior to a shareholder meeting of an
Investment Option. Voting instructions will be solicited by written
communication prior to the meeting.
SUBSTITUTION OF SECURITIES
If the shares of the Investment Options (or any Portfolio within an
Investment Option or any other Investment Option), are no longer available for
investment by the Separate Account or, if in the judgment of the Company,
further investment in the shares should become inappropriate in view of the
purpose of the Contracts, the Company may substitute shares of another
Investment Option (or Portfolio) for shares already purchased or to be
purchased in the future by Purchase Payments under the Contracts. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under the requirements it may impose.
Shares of the Investment Options are issued and redeemed in connection with
investments in and payments under certain variable annuity contracts and (with
respect to certain of the Investment Options) variable life
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insurance policies of various life insurance companies which may or may not be
affiliated. In addition, Warburg Pincus Trust and GCG offer their shares to
tax-qualified pension and retirement plans ("Qualified Plans"). We do not
foresee any disadvantage to Owners arising out of the fact that the Investment
Options offer their shares for products offered by life insurance companies
which are not affiliated (or with respect to Warburg Pincus Trust and GCG,
that they offer their shares to Qualified Plans). Nevertheless, the Boards of
Trustees of the Investment Options, DSI, we and other insurance companies
participating in the Investment Options intend to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response thereto. If such a
conflict were to occur, one or more insurance company separate accounts (or
Qualified Plans) might withdraw its investments in an Investment Option. An
irreconcilable conflict might result in the withdrawal of a substantial amount
of a Portfolio's assets which could adversely affect such Portfolio's net
asset value per share.
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CHARGES AND DEDUCTIONS
Various charges and deductions are made from the Contract Value and the
Separate Account. These charges and deductions are set forth below. In the
event that there are any profits from fees and charges deducted under the
Contract, including but not limited to, mortality and expense risk charges,
such profits could be used to finance the distribution of the Contracts.
DEDUCTION FOR WITHDRAWAL CHARGE (SALES LOAD)
If all or a portion of the Contract Value (see "Withdrawals") is withdrawn,
a Withdrawal Charge (sales load) will be calculated at the time of each
withdrawal and will be deducted from the Contract Value. This charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. The Withdrawal Charge percentages are
based upon the number of Purchase Payment Anniversaries that Purchase Payments
have remained in the Contract before being withdrawn as shown in the Table of
Withdrawal Charges below:
TABLE OF WITHDRAWAL CHARGES
<TABLE>
<CAPTION>
PURCHASE PAYMENT ANNIVERSARY WITHDRAWAL CHARGE
- ---------------------------- -----------------
<S> <C>
1......................................... 8% of the Purchase Payment withdrawn
2......................................... 7% of the Purchase Payment withdrawn
3......................................... 6% of the Purchase Payment withdrawn
4......................................... 5% of the Purchase Payment withdrawn
5......................................... 4% of the Purchase Payment withdrawn
6......................................... 3% of the Purchase Payment withdrawn
7......................................... 2% of the Purchase Payment withdrawn
8......................................... 1% of the Purchase Payment withdrawn
9 and after............................... 0% of the Purchase Payment withdrawn
</TABLE>
At any time, the Owner may make a withdrawal, without the imposition of a
Withdrawal Charge, of an amount equal to the sum of: 1) earnings (Contract
Value less unliquidated Purchase Payments not withdrawn); 2) Purchase Payments
in the Contract for more than eight years; and 3) an amount which is equal to
10% of the Purchase Payments in the Contract for less than eight years, fixed
at the time of the first withdrawal in the Contract Year, plus 10% of the
Purchase Payments made after the first withdrawal in the Contract Year but
before the next Contract Anniversary, less any withdrawals in the same
Contract Year of Purchase Payments less than eight years old. See
"Withdrawals" for a discussion of how Contract Value is deemed withdrawn for
purposes of the Withdrawal Charge.
Commissions will be paid to broker-dealers who sell the Contracts. Broker-
dealers will be paid commissions, up to an amount currently equal to 7.75% of
Purchase Payments, for promotional or distribution expenses associated with
the marketing of the Contracts. The Company may, by agreement with the broker-
dealer, pay commissions as a combination of a certain percentage amount at the
time of sale and a trail commission (which when combined could exceed 7.75% of
Purchase Payments). In addition, under certain circumstances, the Company may
pay certain sellers production bonuses which will take into account, among
other things, the total Purchase Payments which have been made under Contracts
associated with the broker-dealer. Additional payments or allowances may be
made for other services not directly related to the sale of the Contracts.
No Withdrawal Charge is deducted if Plan A -- Option 1; Plan B or Plan C is
elected. (See "Contract Proceeds -- Fixed Payment Plans.")
In addition, in certain states, an endorsement to the Contract is issued
which permits the Owner to make a total or partial withdrawal without the
imposition of a Withdrawal Charge if the Annuitant is hospitalized and/or
confined to an eligible nursing home for 30 consecutive days.
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REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
The amount of the Withdrawal Charge on the Contracts may be reduced or
eliminated when sales of the Contracts are made to individuals or to a group
of individuals in a manner that results in savings of sales expenses. The
entitlement to reduction of the Withdrawal Charge will be determined by the
Company after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less
than for a smaller group because of the ability to implement large
numbers of Contracts with fewer sales contacts.
2. The total amount of Purchase Payments to be received will be considered.
Per Contract sales expenses are likely to be less on larger Purchase
Payments than on smaller ones.
3. Any prior or existing relationship with the Company will be considered.
Per Contract sales expenses are likely to be less when there is a prior
existing relationship because of the likelihood of implementing the
Contract with fewer sales contacts.
4. There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that there will be a reduction in sales expenses, the Company may provide for
a reduction or elimination of the Withdrawal Charge.
The Company and its affiliates may offer an exchange program ("Exchange
Program") to their fixed annuity contract owners whereby a contract owner can
exchange his or her fixed annuity contract for a Contract offered by this
Prospectus. Pursuant to the Exchange Program, the Withdrawal Charge may be
reduced or eliminated so that a contract owner would not incur any additional
or higher Withdrawal Charge as a result of the exchange.
The Withdrawal Charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will reductions or elimination of the Withdrawal Charge be permitted
where reductions or elimination will be unfairly discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
The Company deducts on each Valuation Date a Mortality and Expense Risk
Charge which is equal, on an annual basis, to 1.25% of the average daily net
asset value of the Separate Account. The mortality risks assumed by the
Company arise from its contractual obligation to make annuity payments after
the Annuity Date for the life of the Annuitant and to waive the Withdrawal
Charge in the event of the death of the Annuitant. Also, there is a mortality
risk borne by the Company with respect to the guaranteed death benefit (see
"Contract Proceeds --Death Proceeds"). The expense risk assumed by the Company
is that all actual expenses involved in administering the Contracts, including
Contract maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees and the costs of
other services may exceed the amount recovered from the Annual Contract
Maintenance Charge and the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and
cannot be increased.
DEDUCTION FOR ADMINISTRATIVE CHARGE
The Company deducts on each Valuation Date an Administrative Charge which is
equal, on an annual basis, to .15% of the average daily net asset value of the
Separate Account. This charge, together with the Annual Contract Maintenance
Charge (see below), is to reimburse the Company for the expenses it incurs in
the
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<PAGE>
establishment and maintenance of the Contracts and the Separate Account. These
expenses include but are not limited to: preparation of the Contracts,
confirmations, annual reports and statements, maintenance of Owner records,
maintenance of Separate Account records, administrative personnel costs,
mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Owner servicing and all
accounting, valuation, regulatory and reporting requirements. Since this
charge is an asset-based charge, the amount of the charge attributable to a
particular Contract may have no relationship to the administrative costs
actually incurred by that Contract.
DEDUCTION FOR ANNUAL CONTRACT MAINTENANCE CHARGE
The Company deducts an Annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary prior to the Maturity Date. This
charge is to reimburse the Company for its administrative expenses (see
above). This charge is deducted by subtracting values from the Fixed Account
and/or cancelling Accumulation Units from each applicable Subaccount in the
ratio that the value of each account bears to the total Contract Value. If a
total withdrawal is made on other than a Contract Anniversary, the Annual
Contract Maintenance Charge will be deducted at the time of withdrawal. If the
Maturity Date is not a Contract Anniversary, the Annual Contract Maintenance
Charge will be deducted from the Maturity Proceeds.
DEDUCTION FOR PREMIUM TAXES
The Contract provides that any premium or other taxes paid to any government
entity relating to the Contract will be deducted from the Purchase Payment or
Contract Value when incurred. Some states assess premium taxes at the time
Purchase Payments are made; others assess premium taxes at the time Annuity
Payments begin. Premium taxes generally range from 0% to 4%. The Contract also
provides that the Company may, at its sole discretion, pay taxes when due and
deduct that amount from the Contract Value at a later date. Payment at an
earlier date does not waive any right the Company may have to deduct amounts
at a later date. The Company currently intends to advance any premium taxes
due at the time Purchase Payments are made and then deduct such premium taxes
from an Owner's Contract Value at the time Annuity Payments begin or upon
withdrawal if the Company is unable to obtain a refund. The Company will, in
its sole discretion, determine when taxes have resulted from:
(1)the investment experience of the Separate Account;
(2)receipt by the Company of the Purchase Payments; or
(3)commencement of Annuity Payments.
DEDUCTION FOR INCOME TAXES
While the Company is not currently maintaining a provision for federal
income taxes with respect to the Separate Account, the Company has reserved
the right to establish a provision for income taxes if it determines, in its
sole discretion, that it will incur a tax as a result of the operation of the
Separate Account. The Company will deduct for any income taxes incurred by it
as a result of the operation of the Separate Account whether or not there was
a provision for taxes and whether or not it was sufficient. The Company will
deduct any withholding taxes required by applicable law.
DEDUCTION FOR EXPENSES OF THE INVESTMENT OPTIONS
There are other deductions from and expenses paid out of the assets of the
Investment Options, including operating expenses and amounts paid to the
investment advisers as Management Fees, which are described in the
accompanying Prospectuses for the Investment Options.
DEDUCTION FOR TRANSFER FEE
Prior to the Maturity Date, the Owner may transfer all or part of the
Owner's interest in a Subaccount or the Fixed Account (subject to Fixed
Account provisions) without the imposition of any fee or charge if there
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<PAGE>
have been no more than 12 transfers made in the Contract Year. If more than 12
transfers have been made in the Contract Year, the Company will deduct a
Transfer Fee which is equal to the lesser of 2% of the Contract Value
transferred or an amount not greater than $25. (The current amount is $25.)
Currently, all transfers made on any one day are considered a single transfer.
If the Owner is participating in the Automatic Portfolio Rebalancing program
or the Dollar Cost Averaging program such transfers currently are not counted
toward the number of transfers for the year and are not taken into account in
determining any Transfer Fee. However, the Company reserves the right to treat
multiple transfers in a single day, Automatic Portfolio Rebalancing transfers
and Dollar Cost Averaging transfers as standard transfers when determining
annual transfers and imposing the Transfer Fee. (See "Purchase Payments and
Contract Value -- Dollar Cost Averaging" and "Purchase Payments and Contract
Value -- Automatic Portfolio Rebalancing.")
THE CONTRACTS
OWNERSHIP
The Owner exercises all the rights under the Contract. The maximum issue Age
is 85 years old for Owners and Annuitants The Owner may name a new Owner. Any
change in Ownership must be sent to the Company's Customer Service Center on a
form acceptable to the Company. The change will go into effect when it is
signed, subject to any payments or actions taken by the Company before it
records it. The Company is not responsible for any tax consequences occurring
as a result of ownership changes. For Non-Qualified Contracts, in accordance
with Code Section 72(u), a deferred annuity contract held by a corporation or
other entity that is not a natural person is not treated as an annuity
contract for tax purposes. Income on the contract is treated as ordinary
income received by the owner during the taxable year. However, for purposes of
Code Section 72(u), an annuity contract held by a trust or other entity as
agent for a natural person is considered held by a natural person and treated
as an annuity contract for tax purposes. Tax advice should be sought prior to
purchasing a Contract which is to be owned by a trust or other non-natural
person.
ANNUITANT
The Annuitant is the natural person on whose life Annuity Payments are
based. The Annuitant is irrevocably named at the time the Contract is issued.
ASSIGNMENT
During the Annuitant's life, the Owner can assign some or all of the Owner's
rights under the Contract to someone else.
A signed copy of the assignment must be sent to the Company on a form
acceptable to the Company. An assignment of the Contract is not binding on the
Company until the assignment, or a copy, is recorded at the Customer Service
Center, subject to any payments or actions taken by the Company before the
recording. The Company is not responsible for the validity or effect of any
assignment, including any tax consequences.
The consent of any Irrevocable Beneficiaries is required before assignment
of Proceeds can happen.
If the Contract is issued pursuant to a retirement plan which receives
favorable tax treatment under the provisions of Sections 401, 403(b), 408,
408A or 457 of the Code, it may not be assigned, pledged or otherwise
transferred except as may be allowed under applicable law.
BENEFICIARY
The Owner can name any Beneficiary to be an Irrevocable Beneficiary. The
interest of an Irrevocable Beneficiary cannot be changed without his or her
consent. Otherwise, the Owner can change Beneficiaries as explained below.
Unless the Owner states otherwise, all rights of a Beneficiary, including an
Irrevocable Beneficiary, will end if he or she dies before the Annuitant. If
any Beneficiary dies before the Annuitant, that Beneficiary's interest
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will pass to any other Beneficiaries according to their respective interests.
If all Beneficiaries die before the Annuitant, upon the Annuitant's death the
Company will pay the Death Proceeds to the Owner, if living, otherwise to the
Owner's estate or legal successors.
The Owner can change the Beneficiary at any time during the Annuitant's
life. To do so, the Owner must send a written request to the Company's
Customer Service Center. The request must be on a form acceptable to the
Company. The change will go into effect when signed, subject to any payments
or actions taken by the Company before it records the change.
A change cancels all prior Beneficiary designations; except, however, a
change will not cancel any Irrevocable Beneficiary without his or her consent.
The interest of the Beneficiary will be subject to:
(1) any assignment of the Contract, accepted and recorded by the Company
prior to the Annuitant's death; and
(2) any Payment Plan in effect on the date of the Annuitant's death.
Death Proceeds will be paid as though the Beneficiary died before the
Annuitant if:
(1) the Beneficiary dies at the same time as the Annuitant; or
(2) the Beneficiary dies within 24 hours of the Annuitant's death.
PURCHASE PAYMENTS AND CONTRACT VALUE
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Issue Date. There is no Contract
until the initial Purchase Payment is paid. If any check presented as payment
of any part of the initial Purchase Payment for a Contract is not honored, the
Contract is void.
The minimum Purchase Payment for Non-Qualified Contracts is an aggregate of
$5,000 the first year and the minimum subsequent Purchase Payment is $100.
Under certain circumstances the Company may waive and/or modify the minimum
subsequent Purchase Payment requirement for Non-Qualified Contracts in the
case of large groups who submit Purchase Payments through Company approved
billing procedures. For Qualified Contracts, the minimum Purchase Payment is
$100 per month if payroll deduction is used; otherwise it is an aggregate of
$2,000 per year. Prior Company approval must be obtained for subsequent
Purchase Payments in excess of $500,000 or for total Purchase Payments in
excess of $1 million. The Company reserves the right to accept or decline any
application or Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
The initial Purchase Payment is allocated to the Fixed Account or the
Subaccount(s) of the Separate Account as elected by the Owner. Unless
otherwise changed by the Owner, subsequent Purchase Payments are allocated in
the same manner as the initial Purchase Payment. (In Oregon, Washington and
New Jersey, after the second Contract Year, subsequent Purchase Payments may
not be allocated to the Fixed Account.) Under certain circumstances, the
initial Purchase Payment, which has been designated by prospective purchasers
to be allocated to the Fixed Account or Subaccounts other than the Money
Market Subaccount, may initially be allocated to the Money Market Subaccount
during the free look period. (See "Highlights.") For each Subaccount, Purchase
Payments are converted into Accumulation Units. The number of Accumulation
Units credited to the Contract is determined by dividing the Purchase Payment
allocated to the Subaccount by the value of the Accumulation Unit for the
Subaccount. Purchase Payments allocated to the Fixed Account are credited in
dollars.
If the application for a Contract is in good order, the Company will apply
the Purchase Payment to the Separate Account and credit the Contract with
Accumulation Units and/or to the Fixed Account and credit the Contract with
dollars within two business days of receipt. If the application for a Contract
is not in good order,
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the Company will attempt to get it in good order or the Company will return
the application and the Purchase Payment within five (5) business days. The
Company will not retain a Purchase Payment for more than five (5) business
days while processing an incomplete application unless it has been so
authorized by the purchaser.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, permits an Owner to
systematically transfer each month amounts from any one Subaccount or the
Fixed Account (subject to Fixed Account provisions) to any Subaccount(s). By
allocating amounts on a regularly scheduled basis as opposed to allocating the
total amount at one particular time, an Owner may be less susceptible to the
impact of market fluctuations. The minimum amount which may be transferred is
$100. The minimum duration of participation in any Dollar Cost Averaging
program is currently five (5) months. An Owner must have a minimum of the
amount required in the Subaccount or the Fixed Account to complete the Owner's
designated program in order to participate in the Dollar Cost Averaging
program.
All Dollar Cost Averaging transfers will be made on the 15th of each month
or another monthly date mutually agreed upon (or the next Valuation Date if
the 15th of the month is not a Valuation Date). If the Owner is participating
in the Dollar Cost Averaging program, such transfers currently are not taken
into account in determining any Transfer Fee. The Company reserves the right
to treat Dollar Cost Averaging transfers as standard transfers when
determining the number of transfers in a year and imposing any applicable
Transfer Fees. An Owner participating in the Dollar Cost Averaging program may
not make automatic withdrawals of his or her Contract Value or participate in
the Automatic Portfolio Rebalancing program. (See "Withdrawals -- Automatic
Withdrawals" and "Purchase Payments and Contract Value -- Automatic Portfolio
Rebalancing" below.)
AUTOMATIC PORTFOLIO REBALANCING
Owners may participate in the Automatic Portfolio Rebalancing program
pursuant to which Owners authorize the Company to automatically transfer all
or a portion of their Contract Value on a periodic basis to maintain a
particular percentage allocation among the Portfolios, as selected by the
Owner. The Contract Value allocated to each Portfolio will increase or
decrease at different rates depending on the investment experience of the
Portfolio and Automatic Portfolio Rebalancing automatically reallocates the
Contract Value in the Portfolios to the allocation chosen by the Owner. The
allocations must be in full percentage points.
An Owner may select that rebalancing occur on a quarterly, semiannual or
annual basis and currently all Portfolios are available investment options
under Automatic Portfolio Rebalancing. The Fixed Account is excluded from
rebalancing. Currently, the Company offers Automatic Portfolio Rebalancing to
Owners with a Contract Value of greater than $25,000, but reserves the right
to offer the program on Contracts with a lesser amount. The Company reserves
the right to modify, suspend or terminate this service at any time.
All Automatic Portfolio Rebalancing transfers will be made on the 15th of
the month that rebalancing is requested or another monthly date mutually
agreed upon (or the next Valuation Date, if the 15th of the month is not a
Valuation Date). If the Owner is participating in the Automatic Portfolio
Rebalancing program, such transfers currently are not taken into account in
determining any Transfer Fee. The Company reserves the right to treat
Automatic Portfolio Rebalancing transfers as standard transfers when
determining the number of transfers in a year and imposing any applicable
Transfer Fees. An Owner participating in the Automatic Portfolio Rebalancing
program may not make automatic withdrawals of his or her Contract Value or
participate in the Dollar Cost Averaging program. (See "Purchase Payments and
Contract Value -- Dollar Cost Averaging" above and "Withdrawals -- Automatic
Withdrawals.")
CONTRACT VALUE
The Contract Value, at any time, is the sum of:
(1) the Fixed Account Value; and
(2) the Separate Account Value.
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The Separate Account value on any Valuation Date means the sum of the
Owner's interests in the Subaccounts of the Separate Account. The value of the
Owner's interest in a Subaccount is determined by multiplying the number of
Accumulation Units attributable to that Subaccount by the Accumulation Unit
value for the Subaccount. Any withdrawals or transfers will result in the
cancellation of Accumulation Units in a Subaccount. The Separate Account
values will vary with the performance of the Subaccounts of the Separate
Account, any Purchase Payments paid, partial withdrawals and charges assessed.
ACCUMULATION UNIT
A Purchase Payment when allocated to the Separate Account is converted into
Accumulation Units for the selected Subaccount. The number of Accumulation
Units in a Subaccount credited to the Contract is determined by dividing the
Purchase Payment allocated to that Subaccount by the Accumulation Unit value
for that Subaccount as of the Valuation Period during which the Purchase
Payment is allocated to the Subaccount. The Accumulation Unit value for each
Subaccount was arbitrarily set initially at $10. Subsequent Accumulation Unit
values are determined by subtracting (2) from (1) and dividing the result by
(3) where:
(1) is the net result of:
(a) the assets of the Subaccount attributable to Accumulation Units;
plus or minus
(b) the cumulative charge or credit for taxes reserved, which resulted
from the operation or maintenance of the Subaccount.
(2) is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Charge; and
(3) is the number of Accumulation Units outstanding at the end of the
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period
to Valuation Period.
TRANSFERS
Prior to the Maturity Date, the Owner may transfer all or part of the
Owner's interest in a Subaccount or the Fixed Account without the imposition
of any fee or charge if there have been no more than 12 transfers for the
Contract Year. All transfers are subject to the following:
(1) if more than 12 free transfers have been made in any Contract Year, the
Company will deduct a Transfer Fee for each subsequent transfer. (The
Transfer Fee is the lesser of 2% of the Contract Value transferred or
$25.) The Transfer Fee will be deducted from the amount which is
transferred. Transfers from a Dollar Cost Averaging program or
Automatic Portfolio Rebalancing program are currently not counted
toward the number of annual transfers and are not taken into account in
determining any applicable Transfer Fees. Currently, all transfers in a
single day are treated as a single transfer. The Company reserves the
right to treat Dollar Cost Averaging transfers, Automatic Portfolio
Rebalancing transfers and multiple transfers in a single day as
standard transfers in determining the number of annual transfers and
the imposition of any applicable Transfer Fees.
(2) the minimum amount which can be transferred is $100 or the Owner's
entire interest in the Subaccount or the Fixed Account, if less. The
minimum amount which must remain in a Subaccount or Fixed Account after
a transfer is $100 or the Subaccount or Fixed Account must be
liquidated.
(3) for any Contract Year, transfers of Purchase Payments and any
attributable earnings from the Fixed Account to a Subaccount are
limited to ten percent (10%) of the Purchase Payment and ten percent
(10%) of its attributable earnings. If a Purchase Payment was received
at least eight (8) years prior to the request for transfer, all of the
Purchase Payment and the earnings attributable to it may be transferred
to a Subaccount. (In New Jersey, no amounts may be transferred to the
Fixed Account after the second Contract Year.)
(4) any transfer direction must clearly specify:
(a)the amount which is to be transferred; and
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(b)the Fixed Account or Subaccounts which are to be affected.
(5) transfers will be made as of the Valuation Period next following the
Valuation Period during which a written request for a transfer is
received by the Company.
(6) the Company reserves the right, at any time, and without prior notice
to any party, to terminate, suspend, or modify the transfer privilege
described above, subject to applicable state law and regulation.
An Owner may elect to make transfers by telephone. To elect this option the
Owner must do so in writing to the Company. If there are Joint Owners, unless
the Company is informed to the contrary, instructions will be accepted from
either one of the Joint Owners. The Company will use reasonable procedures to
confirm that instructions communicated by telephone are genuine. If it does
not, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The Company may tape record all telephone
instructions.
WITHDRAWALS
Prior to the Maturity Date, the Owner may, upon written request received by
the Company, make a total or partial withdrawal of the Contract Withdrawal
Value. (For Contracts issued in Idaho, no partial withdrawal may be made for
30 days after the Issue Date.) The Contract terminates if a total withdrawal
is made. The Contract Withdrawal Value is:
(1) the Contract Value for the Valuation Period next following the
Valuation Period during which a written request for a withdrawal is
received by the Company; less
(2) any applicable taxes not previously deducted; less
(3) the Withdrawal Charge, if any (see "Charges and Deductions -- Deduction
for Withdrawal Charge (Sales Load)"); less
(4) the Annual Contract Maintenance Charge, if any.
A withdrawal will result in the cancellation of Accumulation Units for each
applicable Subaccount of the Separate Account or a reduction in the Fixed
Account Value. Unless otherwise instructed, a partial withdrawal will be
deducted pro rata among each Subaccount and the Fixed Account based on the
ratio of the value of each Subaccount or Fixed Account to the Contract Value.
The Company will pay the amount of any withdrawal from the Subaccounts within
seven (7) calendar days of receipt of a request, unless the "Suspension of
Payments or Transfers" provision is in effect (see "Suspension of Payments or
Transfers" below).
For purposes of determining any applicable Withdrawal Charges or any other
charges under the Contract, Contract Value is removed in the following order:
1) earnings (Contract Value less Purchase Payments not withdrawn); 2) Purchase
Payments in the Contract for more than eight years (these Purchase Payments
are liquidated on a first in, first out basis); 3) additional free amount
(which is equal to 10% of the Purchase Payments in the Contract for less than
eight years, fixed at the time of the first withdrawal in the Contract Year,
plus 10% of the Purchase Payments made after the first withdrawal in the
Contract Year but before the next Contract Anniversary, less any withdrawals
in the same Contract Year of Purchase Payments less than eight years old); and
4) Purchase Payments in the Contract for less than eight years (these Purchase
Payments are removed on a first in, first out basis).
Each partial withdrawal must be for an amount which is not less than $100 or
the Owner's entire interest in the Subaccount or the Fixed Account, if less.
The minimum Contract Value which must remain in a Subaccount or the Fixed
Account after a partial withdrawal is $100.
Certain tax withdrawal penalties and restrictions may apply to withdrawals
from the Contracts. (See "Tax Status.") For Contracts purchased in connection
with 403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Owner: (1)
attains age 59 1/2; (2) separates from service; (3) dies; (4)
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becomes disabled (within the meaning of Section 72(m)(7) of the Code); or (5)
in the case of hardship. However, withdrawals for hardship are restricted to
the portion of the Owner's Contract Value which represents contributions made
by the Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989 and apply only to salary
reduction contributions made after December 31, 1988, to income attributable
to such contributions and to income attributable to amounts held as of
December 31, 1988. The limitations on withdrawals do not affect rollovers or
transfers between certain Qualified Plans. Owners should consult their own tax
counsel or other tax adviser regarding any distributions.
AUTOMATIC WITHDRAWALS
Subject to any conditions and fees the Company may impose, an Owner may
elect to withdraw a designated amount in equal periodic installments
("automatic withdrawals"). The Company reserves the right to charge a fee for
automatic withdrawals. Currently, however, there are no charges for automatic
withdrawals.
Automatic withdrawals are made on the 15th of each month, or any other
monthly date mutually agreed upon (or the next following Valuation Date if the
monthly date is not a Valuation Date). Certain withdrawal penalties may apply
to withdrawals from the Contracts (see "Tax Status -- Tax Treatment of
Withdrawals -- Qualified Contracts" and "Tax Treatment of Withdrawals -- Non-
Qualified Contracts"). Automatic withdrawals are taken pro rata from Contract
Value. Automatic withdrawals are not allowed simultaneously with the Dollar
Cost Averaging program or Automatic Portfolio Rebalancing program. (See
"Purchase Payments and Contract Value -- Dollar Cost Averaging" and "Purchase
Payments and Contract Value -- Automatic Portfolio Rebalancing.")
TEXAS OPTIONAL RETIREMENT PROGRAM
A Contract issued to a participant in the Texas Optional Retirement Program
("ORP") will contain an ORP endorsement that will amend the Contract as
follows: A) If for any reason a second year of ORP participation is
not begun, the total amount of the State of Texas' first-year contribution
will be returned to the appropriate institute of higher education upon its
request. B) No benefits will be payable, through surrender of the Contract or
otherwise, until the participant dies, accepts retirement, terminates
employment in all Texas institutions of higher education or attains the age of
70 1/2. The value of the Contract may, however, be transferred to other
contracts or carriers during the period of ORP participation. A participant in
the ORP is required to obtain a certificate of termination from the
participant's employer before the value of a Contract can be withdrawn.
SUSPENSION OF PAYMENTS OR TRANSFERS
The Company reserves the right to suspend or postpone payments (in Illinois,
for a period not exceeding six months) for withdrawals or transfers for any
period when:
(1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists as a result of which disposal of securities held in
the Separate Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate Account's
net assets;
(4) when the Company's Customer Service Center is closed; or
(5) during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners; provided that
applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2)
and (3) exist.
The Company reserves the right to defer payment for a withdrawal or transfer
from the Fixed Account for the period permitted by law but not for more than
six months after written election is received by the Company.
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CONTRACT PROCEEDS
MATURITY PROCEEDS
The Owner selects a Maturity Date at the Issue Date and may elect a new
Maturity Date at any time by making a written request to the Company at its
Customer Service Center at least seven days prior to the Maturity Date.
On the Maturity Date, the Company will pay the Maturity Proceeds of the
Contract to the Annuitant, if living, subject to the terms of the Contract. If
Payment Plan A, Option 1; Plan B; or Plan C are elected, the Maturity Proceeds
will be the Contract Value less any applicable taxes not previously deducted.
(See "Fixed Payment Plans" below.) If the Maturity Proceeds are paid in cash
or by any other method not listed above, the Maturity Proceeds equal the
Contract Value less:
(1) any applicable taxes not previously deducted; less
(2) the Withdrawal Charge, if any; less
(3) the Annual Contract Maintenance Charge, if any.
The election of a Payment Plan must be made in writing at least seven (7)
days prior to the Maturity Date. If no election is made, an automatic option
of monthly income for a minimum of 120 months and as long thereafter as the
Annuitant lives will be applied.
DEATH PROCEEDS
For issue ages less than 67, the death proceeds will be the greater of:
(1) Purchase Payments (less any withdrawals and taxes);
(2) Contract Value on the date of settlement (less taxes); or
(3) The highest Contract Value (adjusted for subsequent premium withdrawals
and taxes) on any Contract Anniversary beginning with the 8th Contract
Anniversary and continuing through to the last anniversary prior to
attained age 76.
For issue ages 67 through 75, the death proceeds will be the greater of:
(1) Purchase Payments (less withdrawals and taxes);
(2) Contract Value on the date of settlement (less taxes); or
(3) The Contract Value (less subsequent withdrawals and taxes) on the 8th
Contract Anniversary.
For issue ages 76 and above, the death proceeds will be the Contract Value
on the date of settlement, less any applicable taxes not previously deducted.
The Death Proceeds will be determined and paid as of the Valuation Period
next following the Valuation Period during which both due proof of death
satisfactory to the Company and an election for the payment method from all
Beneficiaries are received at the Company.
The Beneficiary can elect to have a single lump sum payment or choose one of
the Payment Plans. If a single sum payment is requested, the amount will be
paid within seven (7) days, unless the Suspension of Payments or Transfers
provision is in effect.
Payment to the Beneficiary, other than in a single sum, may only be elected
during the 60-day period beginning with the date of receipt of due proof of
death on a form acceptable to the Company.
The entire Death Proceeds must be paid within five (5) years of the date of
death unless:
(1) the Beneficiary elects to have the Death Proceeds:
(a) payable under a Payment Plan over the life of the Beneficiary or
over a period not extending beyond the life expectancy of the
Beneficiary; and
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(b) payable beginning within one year of the date of death; or
(2) if the Beneficiary is the Owner's Spouse, the Beneficiary may elect to
become the Owner of the Contract and the Contract will continue in
effect.
DEATH OF THE ANNUITANT
(1) If the Annuitant dies prior to the Maturity Date, the Company will pay
the Death Proceeds as provided above.
(2) If the Annuitant dies after the Maturity Date but before all of the
Proceeds payable under the Contract have been distributed, the Company
will pay the remaining Proceeds to the Beneficiary(ies) according to
the terms of the supplementary contract.
DEATH OF OWNER
(1)If any Owner of this Contract dies before the Maturity Date, the
following applies:
(a) If the new Owner is the deceased Owner's spouse, this Contract will
continue and, if the deceased Owner was also the Annuitant, the
deceased Owner's spouse will also be the Annuitant.
(b) If the new Owner is someone other than the deceased Owner's spouse,
the entire interest in the Contract must be distributed to the new
Owner:
(i) within 5 years of the deceased Owner's death
or
(ii) over the life of the new Owner or over a period not extending
beyond the life expectancy of the new Owner, as long as payments begin
within one year of the deceased Owner's death.
If the deceased Owner was the Annuitant, the new Owner will be the
joint Owner, if any, or if there is no joint Owner, the Beneficiary.
If the deceased Owner was not the Annuitant, the new Owner will be the
joint Owner, if any, or if there is no joint Owner, the contingent
Owner named under the Contract. If there is no surviving joint or
contingent Owner, the new Owner will be the deceased Owner's estate.
If the new Owner under (b) above dies after the deceased Owner but
before the entire interest has been distributed, any remaining
distributions will be to the new Owner's estate.
(2) If the deceased Owner was also the Annuitant, the Death of Owner
provision shall apply in lieu of any provision providing payment under
the Contract when the Annuitant dies before the Maturity Date.
(3) If any Owner dies on or after the Maturity Date, but before all
Proceeds payable under this Contract have been distributed, we will
continue payments to the Annuitant (or, if the deceased Owner was the
Annuitant, to the Beneficiary) under the payment method in effect at
the time of the deceased Owner's death.
(4) For purposes of this section, if any Owner of this Contract is not an
individual, the death or change of any Annuitant shall be treated as
the death of an Owner.
TRUST BENEFICIARY
If a trust is named as a Beneficiary but we lack proof of the existence of
the trust at the time proceeds are to be paid to the Beneficiary, that
Beneficiary's interest will pass to any other Beneficiaries according to their
respective interests (or to the Annuitant's estate or the Annuitant's legal
successors, if there are no other Beneficiaries) unless proof of the existence
of such trust is provided within six months of the Annuitant's death.
FIXED PAYMENT PLANS
After the first Contract Year, the Proceeds may be applied under one or more
of the Payment Plans described below. Payment Plans not specified in the
Contract are available only if they are approved both by the
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Company and the Owner. The Owner chooses a Payment Plan during the Annuitant's
lifetime. This choice can be changed during the life of the Annuitant prior to
the Maturity Date. If the Owner has not chosen a plan prior to the Annuitant's
death, the automatic option of monthly income for a minimum of 120 months and
as long thereafter as the Payee lives will be applied.
The Owner chooses a plan by sending a written request to the Customer
Service Center. The Company will send the Owner the proper forms to complete.
The request, when recorded at the Company's Customer Service Center, will be
in effect from the date it was signed, subject to any payments or actions
taken by the Company before the recording. Any change must be requested at
least seven (7) days prior to the Maturity Date. If, for any reason, the
person named to receive payments (the Payee) is changed, the change will go
into effect when the request is recorded at the Company's Customer Service
Center, subject to any payments or actions taken by the Company before the
recording.
No Withdrawal Charge is deducted if Plan A-Option 1; Plan B or Plan C is
elected.
A plan is available only if the periodic payment is $100 or more. If the
Payee is other than a natural person (such as a corporation), a plan will be
available only with the Company's consent.
A supplementary contract will be issued in exchange for the Contract when
payment is made under a Payment Plan. The effective date of a Payment Plan
shall be a date upon which the Company and the Owner mutually agree.
The minimum interest rate for plans A and B is 3.0% a year, compounded
yearly. The minimum rates for Plan C were based on the 1983a Annuity Table at
3.0% interest, compounded yearly. The Company may pay a higher rate at its
discretion.
PLAN A. INTEREST
OPTION 1 -- The Contract Value less any applicable taxes not previously
deducted may be left on deposit with the Company for five (5) years. Fixed
payments will be made monthly, quarterly, semi-annually, or annually. The
Company does not allow a monthly payment if the Contract Value applied under
this option is less than $100,000. The Proceeds may not be withdrawn until the
end of the five (5) year period.
OPTION 2 -- The Contract Withdrawal Value may be left on deposit with the
Company for a specified period. Interest will be paid annually. All or part of
the Proceeds may be withdrawn at any time.
PLAN B. FIXED PERIOD
The Contract Value less any applicable taxes not previously deducted will be
paid until the Proceeds, plus interest, are paid in full. Payments may be paid
annually or monthly. The payment period cannot be more than thirty (30) years
nor less than five (5) years. The Contract provides for a table of minimum
annual payments. They are based on the Age of the Annuitant or the
Beneficiary.
PLAN C. LIFE INCOME
The Contract Value less any applicable taxes not previously deducted will be
paid in monthly or annual payments for as long as the Annuitant or
Beneficiary, whichever is appropriate, lives. The Company has the right to
require proof satisfactory to it of the Age and sex of such person and proof
of continuing survival of such person. A minimum number of payments may be
guaranteed, if desired. The Contract provides for a table of minimum annual
payments. They are based on the Age of the Annuitant or the Beneficiary.
DISTRIBUTOR
Equitable of Iowa Securities Network, Inc. ("Securities Network"), 909
Locust Street, Des Moines, Iowa 50309, acts as the distributor of the
Contracts. Securities Network is also a wholly owned subsidiary of Equitable
of Iowa. The Contracts are offered on a continuous basis.
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ADMINISTRATION
While the Company has primary responsibility for all administration of the
Contracts, it has retained Golden American Life Insurance Company, P.O. Box
8794, Wilmington, Delaware to perform certain administrative services. Such
administrative services include issuance of the Contracts and maintenance of
Owners' records.
YEAR 2000
Based on a study of its computer software and hardware, Equitable of Iowa,
the Company's parent, has determined the Company's exposure to the Year 2000
change of the century date issue. Equitable of Iowa has developed a plan to
modify its information technology to be ready for the Year 2000. Efforts began
in 1997 to modify its systems. The project is expected to be substantially
completed during the second quarter of 1999. The projected cost for the Year
2000 project is approximately $4,000,000 to $6,000,000. During 1997, the
Company incurred costs for the Year 2000 project of $1,027,000. While
additional testing will be conducted on its systems through the Year 2000, the
Company does not expect this project to have a significant effect on its
operations.
To mitigate the effect of outside influences and other dependencies relative
to the Year 2000, the Company will be contacting significant customers,
suppliers and other third parties. To the extent these third parties would be
unable to transact business in the year 2000 and thereafter, the Company's
operations could be adversely affected.
PERFORMANCE INFORMATION
The Company may advertise and disclose historic performance data for the
Subaccounts, including yields, standard annual total returns, and other
nonstandard measures of performance. Such performance data will be computed,
or accompanied by performance data computed in accordance with standards
defined by the SEC.
MONEY MARKET PORTFOLIO
From time to time, the Company may advertise the "yield" and "effective
yield" of the Money Market Subaccount of the Separate Account. Both yield
figures are based on historical earnings and are not intended to indicate
future performance. The "yield" of the Money Market Subaccount refers to the
income generated by Contract Values in the Money Market Subaccount over a
seven-day period (which period will be stated in the advertisement). This
income is "annualized." That is, the amount of investment income generated by
the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the Contract Values in the
Money Market Subaccount. The "effective yield" is calculated similarly.
However, when annualized, the income earned by Contract Values is assumed to
be reinvested. This results in the "effective yield" being slightly higher
than the "yield" because of the compounding effect of the assumed
reinvestment. The yield figure will reflect the deduction of any asset-based
charges and any applicable Annual Contract Maintenance Charge, but will not
reflect the deduction of any Withdrawal Charge. The deduction of any
Withdrawal Charge would reduce any percentage increase or make greater any
percentage decrease.
OTHER PORTFOLIOS
From time to time, the Company may advertise performance data for the
various other Portfolios under the Contract. Such data will show the
percentage change in the value of an Accumulation Unit based on the
performance of an investment medium over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that Unit by
the Accumulation Unit value at the beginning of the period. This percentage
figure will reflect the deduction of any asset-based charges and the fees and
expenses of the Portfolio, but will not reflect the deduction of any
Withdrawal Charge or Annual Contract Maintenance Charge. The deduction of any
Withdrawal Charge and Annual Contract Maintenance Charge would reduce any
percentage increase or make greater any percentage decrease.
Any advertisement will also include total return figures calculated as
described in the Statement of Additional Information. The total return figures
reflect the deduction of the asset-based charges, any applicable
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Annual Contract Maintenance Charge and Withdrawal Charges, as well as the fees
and expenses of the Portfolio being advertised.
The Company may make available yield information with respect to some of the
Portfolios. Such yield information will be calculated as described in the
Statement of Additional Information. The yield information will reflect the
deduction of any applicable Annual Contract Maintenance Charge as well as any
asset-based charges.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
COMPARISONS
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the Portfolios
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the Portfolio
being compared. The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged, unweighted average of 500 stocks, the majority of which are listed
on the New York Stock Exchange. The Dow Jones Industrial Average is an
unmanaged, weighted average of thirty blue chip industrial corporations listed
on the New York Stock Exchange. Both the Standard & Poor's 500 Composite Stock
Price Index and the Dow Jones Industrial Average assume quarterly reinvestment
of dividends.
The Company may, from time to time, include in its advertising and sales
materials, tax deferred compounding charts and other hypothetical
illustrations, which may include comparisons of currently taxable and tax
deferred investment programs, based on selected tax brackets.
In addition, the Company may, as appropriate, compare each Subaccount's
performance to that of other types of investments such as certificates of
deposit, savings accounts and U.S. Treasuries, or to certain interest rate and
inflation indices, such as the Consumer Price Index, which is published by the
U.S. Department of Labor and measures the average change in prices over time
of a fixed "market basket" of certain specified goods and services. Similar
comparisons of Subaccount performance may also be made with appropriate
indices measuring the performance of a defined group of securities widely
recognized by investors as representing a particular segment of the securities
markets. For example, Subaccount performance may be compared with IBC Money
Market Fund Report Averages (money market rates), Lehman Brothers Corporate
Bond Index (corporate bond interest rates) or Lehman Brothers Government Bond
Index (long-term U.S. Government obligation interest rates).
The Company may also distribute sales literature which compares the
performance of the Accumulation Unit values of the Contracts issued through
the Separate Account with the unit values of variable annuities issued through
the separate accounts of other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical data
which currently tracks the performance of almost 4,000 investment companies.
The rankings compiled by Lipper may or may not reflect the deduction of asset-
based insurance charges. The Company's sales literature utilizing these
rankings will indicate whether or not such charges have been deducted. Where
the charges have not been deducted, the sales literature will indicate that if
the charges had been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect
the deduction of asset-based insurance charges. The Company's sales literature
utilizing these rankings will indicate whether or not such charges have been
deducted. Where the charges have not been deducted, the sales literature will
indicate that if the charges had been deducted, the ranking might have been
lower.
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Morningstar rates a variable annuity subaccount against its peers with
similar investment objectives. Morningstar does not rate any subaccount that
has less than three years of performance data. The Company's sales literature
utilizing these rankings will indicate whether charges have been deducted.
Where the charges have not been deducted, the sales literature will indicate
that if the charges had been deducted, the ranking might have been lower.
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TAX STATUS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING INVESTMENT IN
THE CONTRACTS. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN CERTAIN
SITUATIONS. MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE
STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is
not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option selected. For a lump sum payment received as a total withdrawal
(total surrender), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Contract. For Non-Qualified Contracts, this cost
basis is generally the purchase payments, while for Qualified Contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates. Death proceeds received in lump sum are generally
taxed in the same manner.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period certain
or refund feature) bears to the expected return under the Contract. Payments
received after the investment in the Contract has been recovered (i.e. when
the total of the excludible amounts equals the investment in the Contract) are
fully taxable. The taxable portion is taxed at ordinary income tax rates. For
certain types of Qualified Plans there may be no cost basis in the Contract
within the meaning of Section 72 of the Code. Death proceeds distributed as
annuity payments are generally taxed in the same manner. Owners, Annuitants
and Beneficiaries under the Contracts should seek competent financial advice
about the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Contract as an annuity contract would result in imposition of federal
income tax to the Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract. The Code contains a safe
harbor provision which provides that annuity contracts such as the Contracts
meet the diversification requirements if, as of the end of each quarter, the
underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. Government securities and securities
of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The
Regulations amplify the diversification requirements for variable contracts
set forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment; (2) no more than
70% of the value of the total assets of the portfolio is represented by any
two investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
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The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios of the Investment Options underlying
the Contracts will be managed by the investment advisers for the Investment
Options in such a manner as to comply with these diversification requirements.
OWNER CONTROL
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
the owner of the assets of the Separate Account, thereby resulting in the loss
of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered as the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to receipt of
payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
being retroactively determined to be the owner of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from
such combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation, or certain other entities. Such Contracts
generally will not be treated as annuities for federal income tax purposes.
However, this treatment is not applied to Contracts held by a trust or other
entity as an agent for a natural person nor Contracts held by Qualified Plans.
Purchasers should consult their own tax counsel or other tax adviser before
purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS, TRANSFERS OR EXCHANGES
An assignment, transfer or pledge of a Contract, the designation of an
Annuitant, Beneficiary or other payee who is not the owner, the selection of
certain annuity dates and the exchange of the Contract may have tax
consequences not described herein. Owners considering such transactions should
therefore consult competent tax advisers.
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INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Owner are subject to Federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at
the rate of 10% from non-periodic payments. However, the Owner, in most cases,
may elect not to have taxes withheld or to have withholding done at a
different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for Federal income tax. The 20% withholding
requirement generally does not apply to: a) a series of substantially equal
payments made at least annually for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and a
designated beneficiary, or for a specified period of 10 years or more; b)
distributions which are required minimum distributions; or (c) the portion of
the distributions not includible in gross income (i.e. returns of after-tax
contributions). Participants should consult their own tax counsel or other tax
adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income.
It further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of
the Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his or her Beneficiary; (e) under
an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982.
The Contract provides that upon the death of the Annuitant prior to the
Maturity Date, the Death Proceeds will be paid to the named Beneficiary. Such
payments made upon the death of the Annuitant who is not the Owner of the
Contract do not qualify for the death of Owner exception described above, and
will be subject to the ten (10%) percent distribution penalty unless the
taxpayer is 59 1/2 years old or one of the other exceptions to the penalty
applies.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals -- Qualified Contracts," below.)
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of qualified plans. Generally, participants in a qualified
plan are not taxed on increases to the value of the contributions to the plan
until distribution occurs, regardless of whether the plan assets are held
under an annuity contract. Taxation of participants in each qualified plan
varies with the type of plan and terms and conditions of each specific plan.
Owners, Annuitants and Beneficiaries are cautioned that benefits under a
qualified plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures.
Owners, participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are general descriptions of
the types of qualified plans with which the Contracts may be used. Such
descriptions are not exhaustive and are for general informational purposes
only. The tax rules regarding qualified plans are very complex and will have
differing applications depending on individual facts and circumstances. Each
purchaser should obtain competent tax advice prior to purchasing a Contract
issued under a qualified plan.
34
<PAGE>
Contracts issued pursuant to qualified plans include special provisions
restricting Contract provisions that may otherwise be available as described
in this Prospectus. Generally, Contracts issued pursuant to qualified plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in violation
of applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts," below.)
On July 6, 1983, the U.S. Supreme Court decided in ARIZONA GOVERNING
COMMITTEE v. NORRIS that optional annuity benefits provided under an
employer's deferred compensation plan could not, under Title VII of the Civil
Rights Act of 1964, vary between men and women. The Contracts sold by the
Company in connection with certain qualified plans will utilize annuity tables
which do not differentiate on the basis of sex. Such annuity tables will also
be available for use in connection with certain non-qualified deferred
compensation plans.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals --
Qualified Contracts" and "Tax-Sheltered Annuities -- Withdrawal Limitations"
below.) Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
The Contract includes a death benefit that in some cases may exceed the
greater of the Purchase Payments or the Contract Value. The death benefit
could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under section 403(b). Because the death
benefit may exceed this limitation, employers using the Contract in connection
with such plans should consult their tax adviser.
b. Individual Retirement Annuities
(1) Regular Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals --Qualified Contracts"
below.) Under certain conditions, distributions from other IRAs and other
Qualified Plans may be rolled over or transferred on a tax-deferred basis into
an IRA. Sales of Contracts for use with IRAs are subject to special
requirements imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an IRA.
Purchasers of Contracts to be qualified as IRAs should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(2) SIMPLE IRAs
Section 408(p) of the Code permits certain employers (generally those with
less than 100 employees) to establish a retirement program for employees by
using Savings Incentive Match Plan Individual Retirement Annuities ("SIMPLE
IRA"). SIMPLE IRA programs can only be established with the approval of and
adoption by the employer of the Owner of the SIMPLE IRA. Contributions to
SIMPLE IRAs will be made pursuant to a salary reduction agreement in which an
Owner would authorize his/her employer to deduct a certain amount from his/her
pay and contribute it directly to the SIMPLE IRA. The Owner's employer will
also make contributions to the SIMPLE IRA in amounts based upon certain
elections of the employer. The only contributions that can be made to a SIMPLE
IRA are salary reduction contributions and employer contributions as described
above, and rollover contributions from other SIMPLE IRAs. Purchasers of
Contracts to be qualified as SIMPLE IRAs should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
35
<PAGE>
(3) ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRAs)
The Company currently issues the Contract as a Roth IRA. If the Contract is
used for this purpose, the Owner must be the Annuitant.
Purchase Payments. All Purchase Payments to a Roth IRA are limited and are
non-deductible. In general, Purchase Payments to a Roth IRA in a taxable year
are limited to the lesser of $2,000 or 100% of an individual's earned income
less any contributions made to other IRAs, including both Roth and non Roth
IRAs, but excluding any rollover contributions to IRAs. Subject to coordinated
IRA contribution limits, contributions to a Roth IRA for an individual and a
spouse cannot exceed $4,000 or 100% of the individual's and spouse's earned
income, if less. The maximum contribution can be made if either of the
following applies: (a) for joint tax filers, their adjusted gross income is
$150,000 or less, or (b) for individual tax filers, their adjusted gross
income is $95,000 or less. For amounts over these adjusted gross incomes, the
contribution limit is reduced as follows: (a) for a joint tax filer, the
maximum is reduced by 20% of the excess adjusted gross income over $150,000
(no contributions over $160,000); (b) for an individual tax filer, the maximum
is reduced by 13.3% of the excess adjusted gross income over $95,000 (no
contributions over $110,000).
Conversions of Non-Roth IRA to a Roth IRA. A Roth IRA may be purchased with
amounts received as a qualified rollover ("Rollover Roth IRA") if the
following conditions are met: (a) when a rollover is from a non-Roth IRA, the
taxpayer must not be a married individual filing separately and the taxpayer's
adjusted gross income must not exceed $100,000; (b) rollovers must be made
within 60 days of receipt by the taxpayer; (c) minimum distributions from a
non-Roth IRA cannot be contributed to a Rollover Roth IRA; (d) an asset
received in a distribution may be sold and the proceeds put in a Rollover Roth
IRA; (e) all or part of a non-Roth IRA may be contributed to a Rollover Roth
IRA except an inherited IRA or a SIMPLE IRA; (f) a rollover contribution must
be designated in writing as such by the Owner at the time the rollover
contribution must be designated in writing as such by the Owner at the time
the rollover is made. Any distribution from a non-Roth IRA made within 60 days
to a Roth IRA is taxable in the year of the distribution. For rollovers or
conversions completed in 1998, taxable income due to the distribution may be
included evenly over 1998-2001 tax years.
Rollovers from a Roth IRA to a Roth IRA. A rollover from a Roth IRA to a
Roth IRA may be accomplished if the following conditions are met: (a) the
rollover must be a direct rollover for the five year holding period of the
original Roth IRA to be preserved; (b) the rollover may be made for all or a
portion of the Roth IRA; (c) a rollover contribution must be designated as
such in writing at the time the rollover is made.
Taxation of Roth IRA Distributions. A distribution from a Roth IRA is not
subject to income tax or to the additional 10% penalty tax on premature
distributions if it is a "qualified distribution." A qualified distribution is
any payment or distribution from a Roth IRA which is made: (a) following the
end of the fifth taxable period (year) after a contribution or rollover is
made to a Roth IRA, and (b) on or after the Owner attains age 59 1/2, or made
to a beneficiary on or after the Owner's death, or as a result of the Owner
becoming disabled, or qualified first-time home buyer distribution (subject to
a $10,000 lifetime limit). Distributions not meeting these definitions are
"non-qualified distributions." Non-qualified distribution are treated as being
made from contributions to a Roth IRA to the extent the distribution, when
added to all previous distributions from a Roth IRA, does not exceed the sum
of contributions to a Roth IRA. A non-qualified distribution in excess of the
sum of contributions is subject to ordinary income tax in the year a
distribution is made. Such taxable distribution is also subject to a 10%
penalty tax unless the distribution is made under certain limited
circumstances.
Roth IRAs are not subject to required distributions at age 70 1/2.
c. Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and Profit-
Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These sections of
the Code also permit self-employed individuals to establish such retirement
plans for themselves and their employees (sometimes referred to as "Keogh" or
"H.R. 10" Plans). These retirement plans may permit the purchase of the
Contracts to provide benefits under the Plan. Contributions to the Plan for
the benefit of employees will not be includible in the gross income of the
employees until
36
<PAGE>
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans including on such items as: amount
of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. (See "Tax Treatment of
Withdrawals -- Qualified Contracts" below.) Purchasers of Contracts for use
with pension or profit-sharing plans should obtain competent tax advice as to
the tax treatment and suitability of such an investment.
The Contract includes a death benefit that in some cases may exceed the
greater of the Purchase Payments or the Contract value. The death benefit
could be characterized as an incidental benefit, the amount of which is
limited in any pension or profit-sharing plan. Because the death benefit may
exceed this limitation, employers using the Contract in connection with such
plans should consult their tax adviser.
d. Section 457 Plans of State and Local Governments and Tax-Exempt Entities
Section 457 of the Code permits employees of state and local governments and
tax-exempt entities to defer a portion of their compensation without paying
current federal income tax if the employer establishes an "eligible deferred
compensation plan" as defined in Section 457 of the Code. For plans
established by tax-exempt entities, the employer is the Owner of the Contract
and has the sole right to the proceeds of the Contract, until paid or made
available to the participant, subject to the claims of the general creditors
of the employer. For plans established by state and local governments after
August 20, 1996, the assets of the 457 plan must be held in trust for the
benefit of plan participants and Contracts issued to these plans will be held
in the name of such trust, or in the name of the plan, for the benefit of plan
participants, and are not subject to the general creditors of the employer.
Furthermore, this requirement must be met for all state and local government
457 plans no later than January 1, 1999. Purchasers of Contracts with respect
to 457 plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty tax
on the taxable portion of any distribution from qualified retirement plans,
including Contracts issued and qualified under Code Sections 401 (H.R. 10 and
Corporate Pension and Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities)
and 408(b) (Individual Retirement Annuities). The penalty is increased to 25%
instead of 10% for SIMPLE IRAs if distribution occurs within the first two
years after the Owner first participated in the SIMPLE IRA. To the extent
amounts are not includible in gross income because they have been rolled over
to an IRA or to another eligible qualified plan, no tax penalty will be
imposed. The tax penalty will not apply to the following distributions: (a) if
distribution is made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2; (b) distributions following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (c) after
separation from service, distributions that are part of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the Owner or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the amount allowable as a deduction under
Code Section 213 to the Owner or Annuitant (as applicable) for amounts paid
during the taxable year for medical care; (f) distributions made to an
alternate payee pursuant to a qualified domestic relations order; and (g)
distributions from an Individual Retirement Annuity for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Owner or Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable) has received unemployment compensation for
at least 12 weeks. This exception will no longer apply after the Owner or
Annuitant (as applicable) has been re-employed for at least 60
37
<PAGE>
days. The exceptions stated in (d) and (f) above do not apply in the case of
an Individual Retirement Annuity. The exception stated in (c) above applies to
an Individual Retirement Annuity without the requirement that there be a
separation from service.
Generally, distributions from a qualified plan (other than IRAs) must
commence no later than April 1 of the calendar year following the year in
which the employee attains age 70 1/2 or retires, whichever is later. For IRAs
and for "5 percent owners" under certain qualified plans (as defined in the
Code), distributions must commence no later than April 1 of the calendar year
following the year in which the Owner attains age 70 1/2. Required
distributions must be over a period not exceeding the life expectancy of the
individual or the joint lives or life expectancies of the individual and his
or her designated beneficiary. If the required minimum distributions are not
made, a 50% penalty tax is imposed as to the amount not distributed.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include
any investment results. The limitations on withdrawals became effective on
January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or transfers between certain Qualified
Plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
FINANCIAL STATEMENTS
Financial statements of the Company and the Separate Account have been
included in the Statement of Additional Information.
LEGAL PROCEEDINGS
The Company, like other insurance companies, is involving in lawsuits,
including class action lawsuits. In some class action and other lawsuits
involving insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, the Company believes that at the present
time, there are no pending or threatened lawsuits that are reasonably likely
to have a material adverse impact on Separate Account A or the Company.
38
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
Company.................................................................... 3
Experts.................................................................... 3
Legal Opinions............................................................. 3
Distributor................................................................ 3
Yield Calculation for Money Market Subaccount.............................. 3
Performance Information.................................................... 4
Annuity Provisions......................................................... 5
Financial Statements....................................................... 5
</TABLE>
39
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE AND FIXED ANNUITY CONTRACTS
issued by
EQUITABLE LIFE INSURANCE COMPANY OF IOWA SEPARATE ACCOUNT A
AND
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1998, FOR THE
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE
THE COMPANY AT: P.O. BOX 8794, WILMINGTON, DELAWARE 19899-8794,
(800) 344-6864.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1998.
TABLE OF CONTENTS
PAGE
Company
Experts
Legal Opinions
Distributor
Yield Calculation For Money Market Subaccounts
Performance Information
Annuity Provisions
Financial Statements
<PAGE>
COMPANY
Information regarding Equitable Life Insurance Company of Iowa (the "Company")
and its ownership is contained in the Prospectus.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, and the Statement of Assets and Liabilities
of the Separate Account A as of December 31, 1997, and the related statements
of operations and changes in net assets for each of the periods indicated
therein have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
LEGAL OPINIONS
The Legal validity of the Contract described in the prospectus and herein
has been passed upon by James R. Mumford, Esquite, General Counsel and
Secretary of the Company. The law firm of Sutherland, Asbill & Brennan LLP,
of Washington, D.C. has provided advice on certain matters relating to
Federal Securities laws.
DISTRIBUTOR
Equitable of Iowa Securities Network, Inc. ("EISN") acts as the distributor.
EISN is an affiliate of the Company and is registered as a broker-dealer.
The offering is on a continuous basis.
YIELD CALCULATION FOR MONEY MARKET SUBACCOUNTS
The Money Market Subaccounts of the Separate Account will calculate their
current yield based upon the seven days ended on the date of calculation.
For the seven calendar days ended December 31, 1997, the annualized yield
and effective yield for the Money Market Subaccounts were 3.77% and
3.84%, respectively. For the seven calendar days ended December 31,
1998, the annualized yield and effective yield for the Smith Barney
Money Market Subaccount were 3.65% and 3.72%, respectively.
The current yields of the Money Market Subaccounts are computed by determining
the net change (exclusive of capital changes) in the value of a hypothetical
pre-existing Owner account having a balance of one Accumulation Unit of the
Subaccount at the beginning of the period, subtracting the Mortality and
Expense Risk Charge, the Administrative Charge and the Annual Contract
Maintenance Charge, dividing the difference by the value of the account at the
beginning of the same period to obtain the base period return and multiplying
the result by (365/7).
The Money Market Subaccounts compute their effective compound yield according
to the method prescribed by the Securities and Exchange Commission. The
effective yield reflects the reinvestment of net income earned daily on Money
Market Subaccounts assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of
the Money Market Subaccounts in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Subaccounts and changes in the interest
rates on such investments, but also on changes in the Money Market
Subaccounts' expenses during the period.
Yield information may be useful in reviewing the performance of the Money
Market Subaccounts and for providing a basis for comparison with other
investment alternatives. However, the Money Market Subaccounts' yield
fluctuates, unlike bank deposits or other investments which typically pay a
fixed yield for a stated period of time. The yield information does not
reflect the deduction of any applicable Withdrawal Charge at the time of the
surrender. (See "Charges and Deductions - Deduction for Withdrawal Charge
(Sales Load)" in the Prospectus.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. Any such advertisement will include average annual total
return figures for the time periods indicated in the advertisement. Such total
return figures will reflect the deduction of a 1.25% Mortality and Expense
Risk Charge, a .15% Administrative Charge, the expenses for the underlying
Portfolio being advertised and any applicable Annual Contract Maintenance
Charge and Withdrawal Charges.
SEC Standard Average Annual Total Return
The hypothetical value of a Contract purchased for the time periods described
in the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Annual Contract Maintenance Charge and any applicable Withdrawal Charge to
arrive at the ending hypothetical value. The average annual total return is
then determined by computing the fixed interest rate that a $1,000 purchase
payment would have to earn annually, compounded annually, to grow to the
hypothetical value at the end of the time periods described. The formula used
in these calculations is
n
P (1 + T ) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used
(or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the time periods used.
SEC Standard 30-Day Yield for Non-Money Market SubAccounts
In addition to total return data, the Company may include yield information in
its advertisements. For each Subaccount (other than the Money Market
Subaccounts) for which the Company will advertise yield, it will show a yield
quotation based on a 30 day (or one month) period ended on the date of the
most recent balance sheet of the Separate Account included in the registration
statement, computed by dividing the net investment income per Accumulation
Unit earned during the period by the maximum offering price per Unit on the
last day of the period, according to the following formula:
Yield = a-b 6
[2(_____ + 1) - 1]
cd
Where:
a = Net investment income earned during the period by the
Portfolio attributable to shares owned by the Subaccount.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The maximum offering price per Accumulation Unit on the last
day of the period.
Hypothetical Average Annualized Total Return for the SubAccounts presented on
a standarized basis for the period ending December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Returns for Equi-Select Product:
Subaccounts Investing in:
One Year Period Inception to Subaccount
Ended 12/31/97 12/31/97 Inception Date
____________________________________________
<S> <C> <C> <C>
EQUI-SELECT SERIES TRUST
Money Market Portfolio (4.42)% 1.98% 10/07/94
Advantage Portfolio (3.84)% (3.85)% 10/07/94
International Fixed Income
Portfolio (8.84)% (3.93)% 10/07/94
Mortgage-Backed Securities
Portfolio (1.69)% 5.37% 10/07/94
OTC Portfolio 9.89% 19.89% 10/07/94
Research Portfolio 10.35% 20.59% 10/07/94
Total Return Portfolio 11.08% 14.65% 10/07/94
Value + Growth Portfolio 6.05% 12.61% 04/01/96
Growth & Income Portfolio 15.30% 24.56% 04/01/96
THE GCG TRUST
Small Cap 0.69% 11.14% 02/03/97
Rising Dividend 19.91% 17.11% 02/03/97
Fully Managed 5.64% 7.92% 02/03/97
WARBURG PINCUS TRUST
International Equity Portfolio (11.72)% (4.74)% 04/01/96
</TABLE>
<TABLE>
<CAPTION>
Returns for PrimElite Product:
Subaccounts Investing in:
One Year Period Inception to Subaccount
+ Ended 12/31/97 12/31/97 Inception Date
____________________________________________
<S> <C> <C> <C>
TRAVELERS SERIES FUND INC.
Smith Barney Money Market Portfolio (4.46)% 1.01% 05/24/95
Smith Barney Income and Growth
Portfolio 16.77% 21.71% 04/05/95
Smith Barney International Equity
Portfolio (6.82)% 9.84% 03/27/95
Smith Barney High Income Portfolio 4.17% 10.57% 04/28/95
GREENWICH STREET SERIES FUND
Appreciation Portfolio 16.53% 17.38% 03/22/96
EQUI-SELECT SERIES TRUST
OTC Portfolio 9.90% 19.89% 10/07/94
Research Portfolio 10.35% 20.60% 10/07/94
Total Return Portfolio 11.08% 14.66% 10/07/94
SMITH BARNEY CONCERT ALLOCATION SERIES INC.
Select High Growth N/A 0.69% 05/06/97
Select Growth N/A 2.67% 05/06/97
Select Balanced N/A 2.78% 05/06/97
Select Conservative N/A 2.60% 05/06/97
Select Income N/A 2.44% 05/06/97
</TABLE>
Nonstandard Total Return
The Company may also advertise performance data which will be calculated in
the same manner as described above but which will not reflect the deduction of
any Withdrawal Charge or Annual Contract Maintenance Charge.
Hypothetical Total Return for the SubAccounts presented on a nonstandarized
basis for the period ending December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Subaccounts Investing in:
One Year Period Inception to Subaccount
Ended 12/31/97 12/31/97 Inception Date
__________________________________________
<S> <C> <C> <C>
EQUI-SELECT SERIES TRUST
Money Market Portfolio 3.68% 3.56% 10/07/94
Advantage Portfolio 4.26% 5.36% 10/07/94
International Fixed Income Portfolio (0.75)% 5.43% 10/07/94
Mortgage-Backed Securities Portfolio 6.41% 6.83% 10/07/94
OTC Portfolio 17.99% 20.98% 10/07/94
Research Portfolio 18.44% 21.67% 10/07/94
Total Return Portfolio 19.17% 15.86% 10/07/94
Value + Growth Portfolio 14.15% 16.32% 04/01/96
Growth & Income Portfolio 23.40% 28.00% 04/01/96
THE GCG TRUST
Small Cap 8.78% 13.54% 02/03/97
Rising Dividend 28.01% 17.87% 02/03/97
Fully Managed 13.74% 7.86% 02/03/97
WARBURG PINCUS TRUST
International Equity Portfolio (3.62)% (0.55%) 04/01/96
TRAVELERS SERIES FUND INC.
Smith Barney Money Market Portfolio 3.63% 3.62% 05/24/95
Smith Barney Income and Growth Portfolio 24.86% 23.31% 04/05/95
Smith Barney International Equity Portfolio 1.27% 11.73% 03/27/95
Smith Barney High Income Portfolio 12.26% 12.52% 04/28/95
GREENWICH SERIES FUND
Appreciation Portfolio 24.62% 20.90% 03/22/96
SMITH BARNEY CONCERT ALLOCATION SERIES INC.
Select High Growth N/A 8.71% 05/06/97
Select Growth N/A 10.49% 05/06/97
Select Balanced N/A 10.59% 05/06/97
Select Conservative N/A 10.69% 05/06/97
Select Income N/A 10.29% 05/06/97
</TABLE>
Owners should note that the investment results of each Subaccount will
fluctuate over time, and any presentation of the Subaccount's total return or
yield for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return or yield may be in any
future period.
ANNUITY PROVISIONS
Currently, the Company makes available payment plans on a fixed basis only.
(See the Prospectus - "Contract Proceeds - Fixed Payment Plans" for a
description of the Payment Plans.)
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
Financial Statements - Statutory-Basis
Equitable Life Insurance Company of Iowa
Years ended December 31, 1997, 1996 and 1995
with Report of Independent Auditors
Equitable Life Insurance Company of Iowa
Financial Statements - Statutory-Basis
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors
Audited Financial Statements
Balance Sheets - Statutory-Basis
Statements of Operations - Statutory-Basis
Statements of Changes in Capital and Surplus - Statutory-Basis
Statements of Cash Flows - Statutory-Basis
Notes to Financial Statements
Schedules
Schedule I - Summary of Investments - Other Than Investments
in Related Parties
Schedule III - Supplemental Insurance Information
Schedule IV - Reinsurance
Report of Independent Auditors
The Board of Directors and Stockholder
Equitable Life Insurance Company of Iowa
We have audited the accompanying statutory-basis balance sheets of Equitable
Life Insurance Company of Iowa (wholly owned by Equitable of Iowa Companies,
Inc.) as of December 31, 1997 and 1996, and the related statutory-basis
statements of operations, changes in capital and surplus, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles and the effects on the accompanying financial statements are
described in Note 2.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles,
the financial position of Equitable Life Insurance Company of Iowa at
December 31, 1997 and 1996, or the results of its operations or its cash
flows for each of the three years in the period ended December 31, 1997.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Equitable Life
Insurance Company of Iowa at December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic statutory-basis financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
February 12, 1998 /S/Ernst & Young LLP
Equitable Life Insurance Company of Iowa
Balance Sheets - Statutory-Basis
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31
1997 1996
__________________________
<S> <C> <C>
ADMITTED ASSETS
Bonds:
United States government and agencies $56,563 $83,906
Public utilities 306,382 334,155
Industrial and miscellaneous 1,630,968 1,338,875
__________________________
1,993,913 1,756,936
Stocks:
Common stocks of unaffiliated companies, at
market (cost: 1997 - $7,806; 1996 - $7,280) 7,617 7,089
Common stocks of affiliated companies
(cost: 1997 - $408,837; 1996 - $419,926) 631,814 573,878
__________________________
639,431 580,967
Mortgage loans on real estate 505,116 402,358
Real estate 3,449 --
Policy loans 165,161 164,659
Cash and short-term investments 52,474 8,212
Derivative financial instruments 33,388 18,041
Funds in transit 7,746 3,463
Other invested assets 5,959 5,997
__________________________
Total cash and investments 3,406,637 2,940,633
Due from non-affiliated reinsurers 148 266
Electronic data processing equipment 2,319 --
Due from parent under tax allocation agreement 22,904 4,612
Premiums deferred and uncollected 9,214 9,822
Investment income due and accrued 37,071 34,312
Due from affiliates 2,943 2,844
Other assets 3,499 3,867
Separate account assets 1,142,251 450,623
__________________________
Total admitted assets $4,626,986 $3,446,979
==========================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Balance Sheets - Statutory-Basis (continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31
1997 1996
__________________________
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy reserves:
Annuity and life policy reserves $2,483,277 $2,109,884
Policy proceeds left at interest 40,265 37,398
Policyholders' dividend accumulations 113,602 113,491
__________________________
2,637,144 2,260,773
Policy and contract claims 8,949 6,148
Other policyholders' funds:
Dividends payable to policyholders 25,104 25,357
Premium deposit funds and other 40,305 43,144
__________________________
65,409 68,501
Interest maintenance reserve 26,426 23,926
Borrowed money from parent 50,000 --
Other liabilities 17,697 36,427
Asset valuation reserve 31,488 33,266
Separate account liabilities 1,142,251 450,623
__________________________
Total liabilities 3,979,364 2,879,664
Commitments and contingencies
Capital and surplus:
Common stock, par value $1.00 per share -
authorized 7,500,000 shares, issued and
outstanding 5,000,300 shares 5,000 5,000
Additional paid-in capital 248,743 248,743
Unassigned surplus 393,879 313,572
__________________________
Total capital and surplus 647,622 567,315
__________________________
Total liabilities and capital and surplus $4,626,986 $3,446,979
==========================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Statements of Operations - Statutory-Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
_____________________________________
<S> <C> <C> <C>
Revenues:
Annuity and life premiums $1,155,513 $569,866 $354,601
Policy proceeds and dividends left
at interest 27,270 30,982 23,670
Investment income, less investment
expenses of $8,335 in 1997, $6,105
in 1996 and $5,841 in 1995 282,745 252,120 234,864
Commission and expense allowances on
reinsurance ceded 299 348 389
Reserve transfer for reinsurance ceded -- 24,523 --
Other income 1,238 64 155
_____________________________________
1,467,065 877,903 613,679
Benefits and expenses:
Benefits paid or provided for:
Death benefits 37,197 33,136 37,579
Annuity benefits 48,306 118,850 75,229
Surrender benefits 189,194 37,078 34,222
Payments from funds left at interest 32,524 29,091 21,647
Other benefits 1,547 1,617 2,681
Increase in policy reserves 375,717 231,684 193,114
Increase (decrease) in liability
for premium deposit funds and other (2,840) (6,073) 521
_____________________________________
681,645 445,383 364,993
Insurance expenses:
Commissions 82,521 42,272 31,676
General expenses 44,455 32,732 28,851
Insurance taxes, licenses and fees 5,386 4,125 5,240
Net transfers to separate account 539,820 221,241 56,888
Interest expense 3,088 -- --
Other 539 231 8,272
_____________________________________
675,809 300,601 130,927
_____________________________________
1,357,454 745,984 495,920
_____________________________________
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Statements of Operations - Statutory-Basis (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
_____________________________________
<S> <C> <C> <C>
Gain from operations before dividends to
policyholders, federal income taxes
and net realized capital gains $109,611 $131,919 $117,759
Dividends to policyholders 25,015 25,259 25,063
_____________________________________
Gain from operations before federal
income taxes and net realized
capital gains 84,596 106,660 92,696
Federal income taxes (19,726) 11,297 6,938
_____________________________________
Net gain from operations before net
realized capital gains 104,322 95,363 85,758
Net realized capital gains 7,610 1,479 1,421
_____________________________________
Net income $111,932 $96,842 $87,179
=====================================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Statements of Changes in Capital and Surplus - Statutory-Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Additional Capital
Common Paid-In Unassigned and
Stock Capital Surplus Surplus
___________________________________________
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $5,000 $198,743 $227,842 $431,585
Net income -- -- 87,179 87,179
Net unrealized capital losses -- -- (19,658) (19,658)
Increase in non-admitted assets -- -- (7,687) (7,687)
Increase in policy reserves due
to change in valuation basis -- -- (1,011) (1,011)
Decrease in liability for
reinsurance in unauthorized
companies -- -- 9 9
Increase in asset valuation
reserve -- -- (7,600) (7,600)
Contributions from parent -- 50,000 -- 50,000
___________________________________________
Balance at December 31, 1995 5,000 248,743 279,074 532,817
Net income -- -- 96,842 96,842
Net unrealized capital losses -- -- (23,172) (23,172)
Increase in non-admitted assets -- -- (9,442) (9,442)
Increase in policy reserves due
to change in valuation basis -- -- (828) (828)
Decrease in liability for
reinsurance in unauthorized
companies -- -- 21 21
Increase in asset valuation
reserve -- -- (4,927) (4,927)
Non-admitted investment income -- -- 4 4
Dividends paid to parent -- -- (24,000) (24,000)
___________________________________________
Balance at December 31, 1996 5,000 248,743 313,572 567,315
Net income -- -- 111,932 111,932
Net unrealized capital losses -- -- (19,672) (19,672)
Increase in non-admitted assets -- -- (27,080) (27,080)
Increase in policy reserves due
to change in valuation basis -- -- (653) (653)
Decrease in asset valution
reserve -- -- 1,778 1,778
Non-admitted investment income -- -- (4) (4)
Pension adjustment -- -- 14,006 14,006
___________________________________________
Balance at December 31, 1997 $5,000 $248,743 $393,879 $647,622
===========================================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Statements of Cash Flows - Statutory-Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
__________________________________
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds and other
considerations $1,183,197 $345,052 $313,017
Investment income, less investment expenses 190,346 177,849 161,637
Reserve transfer for reinsurance ceded -- 24,523 --
Commissions and expense allowances on
reinsurance ceded 314 345 401
Other income 1,244 72 148
Benefits (305,862) (214,353) (169,994)
Insurance expenses (713,749) (69,694) (73,437)
Dividends to policyholders (25,269) (25,116) (25,172)
Federal income taxes paid (9,051) (19,974) (1,915)
__________________________________
Net cash provided by operating activities 321,170 218,704 204,685
INVESTING ACTIVITIES
Proceeds from investments sold, matured
or repaid:
Bonds 280,112 124,325 89,186
Common stocks - money market funds -- 226,468 184,911
Common stocks - affiliates 25,058 26,358 6,572
Mortgage loans on real estate 49,411 39,615 32,912
Policy loans - net -- 3,185 809
Real estate 68 7,034 --
Other invested assets 3,245 924 6,227
__________________________________
357,894 427,909 320,617
Cost of investments acquired:
Bonds (510,735) (210,135) (246,092)
Common stocks - money market funds -- (226,519) (184,911)
Common stocks - unaffilited companies (526) (637) (6,368)
Common stocks - affiliates (3,223) (11,288) (50,258)
Mortgage loans on real estate (155,883) (138,611) (111,475)
Policy loans - net (502) -- --
Real estate -- (559) (247)
Other invested assets (1,586) (650) (17)
__________________________________
(672,455) (588,399) (599,368)
Other (12,347) (35,620) 10,292
__________________________________
Net cash used in investing activities (326,908) (196,110) (268,459)
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Statements of Cash Flows - Statutory-Basis (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
__________________________________
<S> <C> <C> <C>
FINANCING ACTIVITIES
Cash contributions from parent -- -- $50,000
Borrowed money from parent $50,000 -- --
Dividends paid to parent -- ($24,000) --
__________________________________
Net cash provided by (used in)
financing activities 50,000 (24,000) 50,000
__________________________________
Increase (decrease) in cash and
short-term investments 44,262 (1,406) (13,774)
Cash and short-term investments at
beginning of year 8,212 9,618 23,392
__________________________________
Cash and short-term investments at
end of year $52,474 $8,212 $9,618
==================================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Equitable Life Insurance Company of Iowa (the "Company") is domiciled in Iowa
and is a wholly owned subsidiary of Equitable of Iowa Companies, Inc. The
Company offers various insurance products including deferred and immediate
annuities, variable annuities and interest sensitive and traditional life
insurance. These products are marketed by the Company's career agency force,
independent insurance agents, broker/dealers and financial institutions. The
Company's primary customers are individuals.
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable") pursuant to an Agreement and Plan of Merger among Equitable,
PFHI, and ING Groep N.V. ("ING"). PFHI is a wholly owned subsidiary of ING,
a global financial services holding company based in The Netherlands. As a
result of the merger, Equitable was merged into PFHI which was simultaneously
renamed Equitable of Iowa Companies, Inc. ("EIC" or the "Parent"), a Delaware
corporation.
FINANCIAL STATEMENTS
The financial statements presented herein are prepared on a statutory-basis
for the Company only and, as such, the accounts of the Company's wholly owned
subsidiaries, USG Annuity & Life Company ("USG"), Equitable American
Insurance Company ("Equitable American") and Equitable Companies are not
consolidated with those of the Company.
The preparation of financial statements of the Company requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known which could
impact the amounts reported and disclosed herein.
INVESTMENTS
Investments in bonds [except those to which the Securities Valuation
Committee of the National Association of Insurance Commissioners ("NAIC") has
ascribed a value], mortgage loans on real estate and short-term investments
are reported at cost adjusted for amortization of premiums and accrual of
discounts. Premiums and discounts are amortized/accrued utilizing the
scientific interest method which results in a constant yield over the
security's expected life. The amortization of premiums and accretion of dis-
counts of bonds backed by mortgages and other loans are periodically adjusted
for changes in the expected prepayment rate of the loans using the
retrospective method. Common stocks of unaffiliated companies, the Company's
Parent and affiliated mutual funds are carried at estimated fair value.
Common stock of subsidiaries (all 100% owned) are recorded at the equity in
net assets. Estimated fair values of publicly traded securities are based on
the latest quoted market prices as reported by an independent pricing
service.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimated fair values of conventional mortgage-backed securities not actively
traded in a liquid market are estimated using a third party pricing system.
This pricing system uses a matrix calculation assuming a spread over U.S.
Treasury bonds based upon the expected average lives of the securities.
Estimated fair values of private placement bonds are estimated using a matrix
that assumes a spread (based on interest rates and a risk assessment of the
bonds) over U.S. Treasury bonds. Estimated fair values of common stocks of
unaffiliated companies, as reported herein, are based on the latest quoted
market prices, or where not readily marketable, at cost or values which are
representative of the fair values of issues of comparable yield, maturity and
quality. Estimated fair values of common stocks of affiliated mutual funds
are based upon net asset values of the underlying assets of the funds. Real
estate is reported at cost less allowances for depreciation. Depreciation is
computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other invested assets consist
principally of investments in various joint ventures and are recorded at
equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by State of Iowa insurance laws
and rules and regulations adopted thereunder by the Insurance Division,
Department of Commerce, of the State of Iowa.
Realized capital gains and losses are determined on the basis of specific
identification and average cost methods for manager initiated and issuer
initiated disposals and are recorded net of related federal income taxes.
Under a formula prescribed by the NAIC, the Company has established an
Interest Maintenance Reserve which defers the portion of realized gains and
losses on sales, maturities and prepayments of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity. The Asset Valuation Reserve ("AVR") provides for
anticipated losses in the event of default by issuers of certain invested
assets. The amount of the AVR is determined using formulae prescribed by the
NAIC and is reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds where management determines collection is uncertain,
on mortgage loans on real estate which are more than three months in arrears
or where the loan is in foreclosure, or on real estate where rent is in
arrears for more than three months. At December 31, 1997 and 1996, the
Company excluded no investment income due and accrued with respect to such
investments.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The premiums paid for interest rate caps ("caps"), cash settled put swaptions
("swaptions") and Standard & Poors' ("S&P") 500 ([email protected].) Index
call options ("call options," or collectively with the caps and swaptions,
"instruments") are deferred. The deferred premiums are amortized over the
term of the instruments on a straight-line basis. Amortization of the deferred
premium and any payments received in accordance with the terms of the
instruments are recorded as an adjustment to other investment income. The
instruments do not require additional payments by the Company. The caps and
swaptions are held at amortized cost. Unrealized gains and losses on the caps
and swaptions are not recorded in income until realized. The call options are
held at market value with changes in market value reflected in investment
income.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of twelve months or
less to be cash equivalents.
POLICY RESERVES
The reserves for annuity and life policies, all developed by actuarial
methods, are established and maintained on the basis of published mortality
tables using assumed interest rates and valuation methods that will provide,
in the aggregate, reserves that are equal to or greater than the minimum
valuation required by law or guaranteed policy cash values.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Premiums are recognized as revenues over the premium-paying period, whereas
commissions and other costs applicable to the acquisition of new business are
charged to operations as incurred.
DIVIDENDS TO POLICYHOLDERS
Dividends payable to policyholders in the following year are charged to
operations and are established by the Company's Board of Directors.
SEPARATE ACCOUNT
Separate account assets and liabilities are presented in the aggregate in the
balance sheets. The statements of operations include the premiums, benefits,
net transfers to the separate account and other items arising from the
operations of the separate account of the Company.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDEND RESTRICTIONS
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's Parent which exceed an annual limitation. On
August 12, 1996, the Company paid a dividend to Equitable of $24,000,000.
During 1998, the Company could pay dividends to its Parent of approximately
$104,322,000 without prior approval of regulatory authorities.
2. BASIS OF FINANCIAL REPORTING
The financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Division, Department of
Commerce, of the State of Iowa, which practices differ in some respects from
generally accepted accounting principles. The significant differences are as
follows: (1) costs of acquiring new business are charged to current
operations as incurred rather than deferred and amortized over the life of
the policies; (2) an asset is not recorded and amortized to expense for the
present value of future cash flows from insurance contracts acquired as a
result of the merger; (3) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (4) policy reserves on annuity and interest sensitive life
products use discounting methodologies utilizing statutory interest rates
rather than full account values; (5) reserves are reported net of reserve
credits related to reinsurance ceded rather than the reserve credit being
established as a receivable, net of an allowance for uncollectible amounts;
(6) bonds are valued at amortized cost rather than being designated as
"available for sale" and valued at estimated fair value with unrealized
appreciation/depreciation, net of adjustments to deferred income taxes (if
applicable), present value of in force acquired and deferred policy
acquisition costs, credited/charged directly to stockholder's equity; (7) the
carrying value of bonds is reduced to estimated fair value through the
establishment of a formula-determined statutory investment reserve (carried
as a liability), changes in which are charged directly to surplus rather than
by a charge to realized losses in the statements of income when declines in
carrying value are judged to be other than temporary; (8) deferred income
taxes are not provided for the difference between the financial statement and
income tax bases of assets and liabilities except for tax-basis deferred
policy acquisition costs; (9) net realized gains or losses attributed to
changes in the level of interest rates in the market are deferred and
amortized over the remaining life of the bond or mortgage loan, rather than
recognized as gains or losses in the statements of operations when the sale
is completed; (10) gains arising from sale-leaseback transactions are
recognized in the period of sale rather than being deferred and amortized
over the life of the lease; (11) guaranty fund assessments, depending upon
the laws of the particular state guaranty association, are either expensed or
capitalized and amortized, when assessed in accordance with procedures
permitted by insurance regulatory authorities rather than accrued, net of
related anticipated premium tax credits, when the amounts to be assessed are
probable and estimable; (12) a prepaid pension cost asset established in
accordance with Statement of Financial Accounting Standard (SFAS) No. 87,
"Employers' Accounting for Pensions," agents' balances and certain other
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
2. BASIS OF FINANCIAL REPORTING (CONTINUED)
assets designated as "non-admitted assets" have been charged to surplus
rather than being reported as assets; (13) revenues for annuity and universal
life products consist of premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (14) expenses for
postretirement benefits other than pensions are recognized for vested and
fully-eligible employees rather than all qualified employees, and the
accumulated postretirement benefit obligation for years prior to adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," was deferred and amortized over twenty years rather than recognized
as a cumulative effect of change in accounting method; (15) assets and
liabilities retain their historical value rather than being restated to fair
values with provision for goodwill and other intangible assets when a change
in ownership occurs; (16) amortization of the cost of the caps and swaptions
purchased in conjunction with the hedging program are deducted from net
investment income rather than recorded in interest credited; (17) call options
are carried at market value with changes in market value reported in
investment income rather than amortized cost plus intrinsic value, if any;
(18) the financial statements of subsidiaries are not consolidated with those
of the Company; and (19) certain contingent liabilities (i.e. class action
lawsuits) are provided for as incurred rather than expensed when the amount of
the loss is probable and estimable.
A summary of financial information for the Company on the basis of generally
accepted accounting principles ("GAAP") follows. The Company's financial
information for the period subsequent to October 24, 1997, is presented on
the Post-Merger new basis of accounting and for October 24, 1997 and prior
periods on the Pre-Merger basis of accounting.
A summary of the Company's balance sheet information on a GAAP basis is as
follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
_____________________________________
December 31, 1997 | December 31, 1996
__________________| _________________
(Dollars in thousands)
<S> <C> | <C>
Investments $10,629,767 | $9,438,093
Total assets 13,731,191 | 10,881,275
Total liabilities 11,369,021 | 9,832,311
Stockholder's equity 2,362,170 | 1,048,964
|
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
2. BASIS OF FINANCIAL REPORTING (CONTINUED)
A summary of the Company's statement of income information on a GAAP basis is
as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
___________________________________________________________
For the period | For the period
October 25, | January 1,
1997 | 1997
through | through
December 31, | October 24, Year ended December 31
1997 | 1997 1996 1995
_______________| __________________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Revenues $145,159 | $745,839 $824,221 $751,354
Benefits and |
expenses 114,766 | 600,696 625,327 616,628
Net income 15,825 | 100,723 129,321 87,510
</TABLE>
At December 31, 1997, participating business approximates 9.73% of life
insurance in force. Participating life insurance accounted for 2.3% in 1997
and 4.7% in 1996 of premium income from all products written by the Company.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
3. INVESTMENT OPERATIONS
At December 31, 1997 and 1996, the statement value, gross unrealized gains
and losses, and estimated fair value of the Company's debt securities are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Statement Unrealized Unrealized Fair
Value Gains Losses Value
_______________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1997
Bonds:
United States government
and agencies:
Mortgage-backed securities $44,207 $2,163 -- $46,370
Other 12,104 620 -- 12,724
States, municipalities and
political subdivisions 252 4 -- 256
Public utilities 312,166 20,285 ($287) 332,164
Industrial and miscellaneous:
Mortgage-backed securities 535,225 10,631 (2,412) 543,444
Other 1,089,959 78,857 (1,210) 1,167,606
_______________________________________________
Total $1,993,913 $112,560 ($3,909) $2,102,564
===============================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Statement Unrealized Unrealized Fair
Value Gains Losses Value
_______________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1996
Bonds:
United States government
and agencies:
Mortgage-backed securities $60,679 $1,685 ($156) $62,208
Other 22,974 709 (310) 23,373
States, municipalities and
political subdivisions 253 -- -- 253
Public utilities 327,491 12,131 (3,906) 335,716
Industrial and miscellaneous:
Mortgage-backed securities 443,299 7,071 (8,860) 441,510
Other 902,240 49,388 (10,220) 941,408
_______________________________________________
Total $1,756,936 $70,984 ($23,452) $1,804,468
===============================================
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
Short-term investments, all with maturities of 30 days or less, have been
excluded from the above schedules. Statement value approximates estimated
fair value for these securities.
The amortized cost and estimated fair value of the Company's portfolio of
debt securities at December 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Statement Estimated
Value Fair Value
___________________________
(Dollars in thousands)
<S> <C> <C>
Due after one year through five years $38,994 $40,811
Due after five years through ten years 536,609 564,616
Due after ten years 838,878 907,323
___________________________
1,414,481 1,512,750
Mortgage-backed securities 579,432 589,814
___________________________
Total $1,993,913 $2,102,564
===========================
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
_________________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Bonds $5,486 $4,611 $3,301
Common stocks of unaffiliated
mutual funds 1,831 -- --
Common stocks of affiliated
mutual funds 8,915 868 912
Mortgage loans on real estate 394 112 772
Real estate (469) 717 --
Other invested assets 1,621 569 1,988
Tax effect (6,222) (2,517) (2,441)
Transfer to IMR (3,946) (2,881) (3,111)
_________________________________________
Net realized capital gains $7,610 $1,479 $1,421
=========================================
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
Net realized capital gains (losses) include gross gains on the sale or
prepayment of bonds of $7,701,000, $5,030,000 and $4,184,000 and gross losses
on the sale or prepayment of bonds of $2,215,000, $419,000 and $883,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
Unrealized depreciation of common stock of unaffiliated companies of $189,000
and $191,000 is comprised of gross unrealized appreciation of $47,000 and
$42,000 at December 31, 1997 and 1996, and gross unrealized depreciation of
$236,000 and $233,000 on the individual securities at December 31, 1997 and
1996, respectively. Unrealized appreciation of affiliated common stock (ING
in 1997, Equitable in 1996) and affiliated mutual funds of $1,119,000 and
$6,764,000 is comprised entirely of gross unrealized appreciation at
December 31, 1997 and 1996, respectively.
The Company's investment policies related to its investment portfolio require
diversification by asset type, company and industry and set limits on the
amount which can be invested in an individual issuer. Such policies are at
least as restrictive as those set forth by the Insurance Division, Department
of Commerce, of the State of Iowa. Investments in bonds included investments
in various non-governmental mortgage-backed securities (27% in 1997, 25% in
1996), basic industrials (26% in 1997 and 1996), public utilities (16% in
1997, 19% in 1996), consumer products (13% in 1997, 14% in 1996) and
financial companies (10% in 1997, 6% in 1996). Mortgage loans on real estate
have been analyzed by geographical location and there are no significant
concentrations of mortgage loans in any state. Mortgage loans on real estate
have also been analyzed by collateral type with significant concentrations
identified in retail facilities (31% in 1997, 36% in 1996), office buildings
(28% in 1997, 21% in 1996), industrial buildings (23% in 1997, 22% in 1996)
and multi-family residential buildings (17% in 1997, 20% in 1996). Common
stocks of unaffiliated companies, real estate and other invested assets are
not significant to the Company's overall investment portfolio.
Mortgage loans are net of loans sold and being serviced for the benefit of
others. At December 31, 1997, the principal amount of serviced loans was
$8,531,000. This amount is comprised of loans being serviced by the Company
for USG. At December 31, 1996, this amount was $9,666,000 and included loans
being serviced by the Company for USG and the Company's separate account
aggregating $9,363,000 and $303,000, respectively. During 1997, the Company
had sales of mortgage loans to Equitable American of $23,427,000. The total
mortgage loans sold during 1996 was $24,800,000. This amount consisted of
sales to Equitable American of $22,870,000 and sales to Golden American Life
Insurance Company ("Golden American") of $1,930,000.
At December 31, 1997, one mortgage loan with a carrying value of $33,000 was
delinquent by 90 days or more. During the first quarter of 1997, the value
of a mortgage loan with a book value of $4,266,000 was determined to be
impaired other than temporary. At that time, a valuation allowance was
established to reduce the carrying value of this mortgage loan to its
estimated fair value, resulting in a charge to investment income of $245,000.
The Company foreclosed on property in June 1997 and based upon an appraisal,
recorded a permanent writedown on the real estate investment of $572,000
resulting in a charge to realized losses. At December 31, 1996, no
investments were identified as having an impairment other than temporary.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
During 1997, the maximum and minimum lending rates for mortgage loans were
8.55% and 7.12% for city loans. At the issuance of a loan, the percentage of
loan to value on any one loan does not exceed 75%, except for loans made in
accordance with Section 511.8(9)(f) of the Code of Iowa. All properties
covered by mortgage loans have fire insurance at least equal to the excess of
the loan over the maximum loan that would be allowed on the land without the
building.
At December 31, 1997, affidavits of deposits covering bonds with a par value
of $2,002,654,000 (1996 - $1,769,472,000), mortgage loans with an unpaid
principal balance of $505,419,000 (1996 - $402,911,000) and policy loans with
an unpaid balance of $165,161,000 (1996 - $164,659,000) were on deposit with
state agencies to meet regulatory requirements.
4. FINANCIAL INSTRUMENTS - RISK MANAGEMENT
HEDGING PROGRAM
During the second quarter of 1996, the Company implemented a hedging program
under which caps and swaptions were purchased to reduce the negative effects
of potential increases in withdrawal activity related to the Company's
annuity liabilities which may result from extreme increases in interest
rates. The Company purchased caps and swaptions, all during the second
quarter of 1996, with notional amounts totaling $600,000,000 and
$1,300,000,000, respectively, all of which were outstanding at December 31,
1997. The Company paid approximately $21,100,000 in premiums for these caps
and swaptions in 1996. The cost of this program has been incorporated into
the Company's product pricing. The caps and swaptions do not require any
additional payments by the Company.
The agreements for the caps and swaptions entitle the Company to receive
payments from the instruments' counterparties on future reset dates if
interest rates, as specified in the agreements, rise above a specified fixed
rate (9.0% and 9.5%). The amount of such payments to be received by the
Company for the caps, if any, will be calculated by taking the excess of the
current applicable rate over the specified fixed rate, and multiplying this
excess by the notional amount of the caps. Payments on swaptions are also
calculated based upon the excess of the current applicable rate over the
specified fixed rate multiplied by the notional amount. The product of this
rate differential times the notional amount is assumed to continue for a
series of defined future semiannual payment dates and the resulting
hypothetical payments are discounted to the current payment date using the
discount rate defined in the agreement.
In January 1997, the Company introduced an equity-indexed annuity product
which provides a guaranteed base rate of return with a higher potential
return linked to the performance of a broad based equity index.
Concurrently, the Company implemented a hedging program to purchase S&P call
options. Call options are purchased to hedge potential increases in
policyholder account balances for equity-indexed annuity policies resulting
from increases in the index to which the product is linked. During 1997, the
Company paid approximately $17,400,000 in premiums for call options, which
mature beginning in 2002 through 2004. The cost of this program has been
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
4. FINANCIAL INSTRUMENTS - RISK MANAGEMENT (CONTINUED)
incorporated into the Company's pricing of its equity-indexed annuity
product. The call options do not require any additional payments by the
Company.
The agreement for the call options entitle the Company to receive payments
from the counterparty if the S&P 500 Index exceeds the specified strike
price on the maturity date. The amount of such payments to be received by
the Company for the call options, if any, will be calculated by taking the
excess of the average closing price (as defined in the contract) at maturity
over the specified strike price and multiplying this excess by the number of
the S&P 500 units defined in the contract. Any payments received from the
counterparties will be recorded as an adjustment to other investment income.
The following table summarizes the contractual maturities of notional amounts
by type of instrument at December 31, 1997:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Total
_____________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest rate
caps -- -- -- $400,000 $200,000 $600,000
Cash settled
put swaptions $100,000 $400,000 $400,000 350,000 50,000 1,300,000
_____________________________________________________________
Total notional
amount $100,000 $400,000 $400,000 $750,000 $250,000 $1,900,000
=============================================================
</TABLE>
ACCOUNTING TREATMENT
The Company has recorded amortization of the deferred premiums related to the
instruments of $5,844,000 and $3,081,000 for 1997 and 1996, respectively.
Unrealized gains and losses on the caps and swaptions and related assets or
liabilities will not be recorded in income until realized. The call options
are carried at market value.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
4. FINANCIAL INSTRUMENTS - RISK MANAGEMENT (CONTINUED)
Any unrealized gain or loss on the caps and swaptions is off-balance sheet
and therefore, is not reflected in the financial statements. The effect of
changes in the market value of the call options will be reflected in the
financial statements in the period of change. During 1997, the Company
increased investment income by recording a market value adjustment of
$3,793,000 on the call options. The following table summarizes the carrying
value, amortized cost, gross unrealized gains and losses and estimated fair
value on these instruments as of December 31, 1997:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Amortized Unrealized Unrealized Fair
Value Cost Gains Losses Value
__________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest rate caps $4,073 $4,073 -- ($3,571) $502
Cash settled put
swaptions 9,048 9,048 -- (7,039) 2,009
S&P 500 call options 20,267 16,474 $3,967 (174) 20,267
__________________________________________________________
Total $33,388 $29,595 $3,967 ($10,784) $22,778
==========================================================
</TABLE>
The differences between fair value from amortized cost for the instruments
reflect changes in interest rates and market conditions since time of
purchase.
EXPOSURE TO LOSS - COUNTERPARTY NONPERFORMANCE
The Company is exposed to the risk of losses in the event of nonperformance
by the counterparties of these instruments. Losses recorded in the Company's
financial statements in the event of nonperformance will be limited to the
unamortized premium (remaining amortized cost) paid to purchase the
instrument plus the market value adjustment, if any, for these instruments
because no additional payments are required by the Company on these
instruments after the initial premium. Counterparty non-performance would
result in an economic loss if interest rates exceeded the specified fixed
rate for caps and swaptions, or for the call options, the average closing
price at maturity exceeded the specified strike price. Economic losses would
be measured by the net replacement cost, or estimated fair value, for such
instruments. The estimated fair value is the average of quotes, if more than
one quote is available, obtained from related and unrelated counterparties.
The Company limits its exposure to such losses by: diversification among
counterparties, limiting exposure to any individual counterparty based upon
that counterparty's credit rating, and limiting its exposure by instrument
type to only those instruments that do not require future payments. For
purposes of determining risk exposure to any individual counterparty, the
Company evaluates the combined exposure to that counterparty on both a
derivative financial instruments' level and on the total investment portfolio
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
4. FINANCIAL INSTRUMENTS - RISK MANAGEMENT (CONTINUED)
credit risk and reports its exposure to senior management at least monthly.
The maximum potential economic loss (the cost of replacing an instrument or
the net replacement value) due to nonperformance of the counterparties will
increase or decrease during the life of the instruments as a function of
maturity and market conditions.
The Company determines counterparty credit quality by reference to ratings
from independent rating agencies. As of December 31, 1997, the ratings
assigned by Standard & Poors' Rating Services by instrument with respect to
the net replacement value (fair value) of the Company's instruments were as
follows:
<TABLE>
<CAPTION>
Net Replacement Value
_______________________________________________________
Interest Cash S&P 500
Rate Settled Put Call
Caps Swaptions Options Total
_______________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
Counterparties
credit quality:
AAA $321 $990 -- $1,311
AA+ to AA- 181 620 $14,108 14,909
A+ to A- -- 399 6,159 6,558
_______________________________________________________
Total $502 $2,009 $20,267 $22,778
=======================================================
</TABLE>
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of estimated fair value of all financial instruments,
including both assets and liabilities recognized and not recognized in a
company's balance sheet, unless specifically exempted. SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," requires additional disclosures about derivative
financial instruments. Most of the Company's investments, investment
contracts and debt fall within the standards' definition of a financial
instrument. Fair values for the Company's insurance contracts other than
investment contracts are not required to be disclosed. In cases where quoted
market prices are not available, estimated fair values are based on estimates
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accounting, actuarial and regulatory
bodies are continuing to study the methodologies to be used in developing
fair value information, particularly as it relates to liabilities for
insurance contracts. Accordingly, care should be exercised in deriving
conclusions about the Company's business or financial condition based on the
information presented herein.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The Company closely monitors the composition and yield of its invested
assets, the duration and interest credited on insurance liabilities and
resulting interest spreads and timing of cash flows. These amounts are taken
into consideration in the Company's overall management of interest rate risk,
which attempts to minimize exposure to changing interest rates through the
matching of investment cash flows with amounts expected to be due under
insurance contracts. As discussed below, the Company has used discount rates
in its determination of fair values for its liabilities which are consistent
with market yields for related assets. The use of the asset market yield is
consistent with management's opinion that the risks inherent in its asset and
liability portfolios are similar. This assumption, however, might not result
in values consistent with those obtained through an actuarial appraisal of
the Company's business or values that might arise in a negotiated
transaction.
The following compares carrying values as shown for financial reporting
purposes with estimated fair values.
<TABLE>
<CAPTION>
December 31 1997 1996
_______________________________________________________________________________
(Dollars in thousands) Estimated | Estimated
Carrying Fair | Carrying Fair
Value Value | Value Value
_________________________| ________________________
<S> <C> <C> | <C> <C>
ASSETS |
Bonds $1,993,913 $2,102,564 | $1,756,936 $1,804,468
Common stocks of affiliated |
mutual funds 214 214 | 15,792 15,792
Common stocks of |
unaffiliated companies 7,617 12,804 | 7,089 12,351
Mortgage loans on |
real estate 505,116 535,248 | 402,358 407,169
Policy loans 165,161 165,161 | 164,659 164,659
Cash and short-term |
investments 52,474 52,474 | 8,212 8,212
Derivative financial |
instruments 33,388 22,778 | 18,041 14,080
Separate account assets 1,142,251 1,142,251 | 450,623 450,623
|
LIABILITIES |
Annuity products 1,599,860 1,379,668 | 1,117,690 952,789
Borrowed money from parent 50,000 50,000 | -- --
Separate account |
liabilities 1,142,251 1,008,699 | 450,623 405,086
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions are used by the Company in estimating
fair values:
BONDS: Estimated fair values of publicly traded securities are as reported
by an independent pricing service. Estimated fair values of conventional
mortgage-backed securities not actively traded in a liquid market are
estimated using a third-party pricing system. This pricing system uses a
matrix calculation assuming a spread over U.S. Treasury bonds based upon the
expected average lives of the securities. Fair values of private placement
bonds are estimated using a matrix that assumes a spread (based on interest
rates and a risk assessment of the bonds) over U.S. Treasury bonds.
Estimated fair values of redeemable preferred stocks are as reported by the
NAIC.
COMMON STOCKS OF AFFILIATED MUTUAL FUNDS: Estimated fair values of the
Company's investment in affiliated mutual funds are based upon the latest
quoted market price.
COMMON STOCKS OF UNAFFILIATED COMPANIES: Estimated fair values are based
upon the latest quoted market prices, where available. For securities not
actively traded, estimated fair values are based upon values of issues of
comparable yield and quality or conversion value where applicable.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting
expected cash flows using interest rates currently being offered for
similar loans.
POLICY LOANS: Carrying values approximate the estimated fair value for
policy loans.
CASH AND SHORT-TERM INVESTMENTS: Carrying values reported in the Company's
balance sheet approximate estimated fair value for these instruments due to
their short-term nature.
DERIVATIVE FINANCIAL INSTRUMENTS: The estimated fair values are the
average of quotes, if more than one quote is available, obtained from
related and unrelated counterparties.
SEPARATE ACCOUNT ASSETS: Separate account assets are based upon the quoted
fair values of the individual securities in the separate account.
ANNUITY PRODUCTS: Estimated fair values of the Company's liabilities for
future policy benefits for annuity products, including supplemental
contracts without life contingencies are based upon discounted cash flow
calculations. Cash flows of future policy benefits are discounted using
the market yield rate of the assets supporting these liabilities.
BORROWED MONEY FROM PARENT: Carrying value reported in the Company's
balance sheet approximates estimated fair value for this instrument which
is callable upon demand.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
5. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at
estimated fair values of separate account liabilities and based upon
assumptions using an estimated long-term average market rate of return to
discount future cash flows. The reduction in fair values for separate
account liabilities reflect the present value of future revenues from product
charges or surrender charges.
6. INCOME TAXES
Prior to October 25, 1997, the Company and its subsidiaries filed a
consolidated federal income tax return with Equitable. After October 24,
1997, the Company will file a consolidated federal income tax return with its
wholly owned life insurance subsidiaries. Under the Internal Revenue Code,
newly acquired insurance companies must file a separate return for five
years. Under these arrangements, each company reports current income tax
expense as allocated under the consolidated tax allocation agreement. Taxes
receivable under this agreement was $22,904,000 and $4,612,000 at December
31, 1997 and 1996, respectively. Generally, this allocation results in
profitable companies recognizing a tax provision as if the individual company
filed a separate return and loss companies recognizing benefits to the extent
their losses contribute to reduce consolidated taxes.
The Company has established deferred income taxes on its tax-basis deferred
policy acquisition costs. The effect of this was to decrease income tax
expense by $365,000, $2,980,000 and $2,169,000 for the years ended December
31, 1997, 1996 and 1995, respectively. The corresponding deferred tax asset
has been non-admitted and, as a result, capital and surplus has not been
impacted by this accounting treatment. At December 31, 1997, 1996 and 1995,
this is the only item to which deferred income tax accounting has been
applied.
The Company is taxed at usual corporate rates on taxable income based on
existing laws that may result in a provision for federal income taxes that
does not have the customary relationship of taxes to income. These
differences are principally related to differences in the handling of policy
reserves, deferred acquisition costs, writedowns of investments prior to
disposal, certain compensation related accruals, equity investee income or
losses, and the accrual for market discounts for tax and financial reporting
purposes.
The Internal Revenue Service ("IRS") has examined Equitable's consolidated
income tax returns through 1992. The 1993 consolidated income tax return was
not examined by the IRS. The 1994, 1995 and 1996 consolidated income tax
returns remain open to examination. Management does not believe any
adjustments that have been raised by the IRS will be material to the
financial statements.
Prior to 1984, a portion of the Company's current income was not subject to
current income taxation, but was accumulated for tax purposes in a memorandum
account designated as "policyholders' surplus account." The aggregate
accumulation in this account at December 31, 1997 was $14,388,000. Should
the policyholders' surplus account of the Company exceed the limitation
prescribed by federal income tax law, or should distributions be made by the
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Company to the parent company in excess of $335,000,000, such excess would be
subject to federal income taxes at rates then effective.
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS
Certain key employees of the Company participated in stock incentive plans
sponsored by Equitable which provided for the award of stock options or
shares of stock of Equitable through three means: qualified incentive stock
options (as defined in the Internal Revenue Code), non-qualified stock
options and restricted shares. As the result of the merger with ING, these
plans became fully vested, were terminated and fully settled as of the date
of the merger. The Parent incurred all costs of the final settlement of such
plans as of the merger date.
The incentive stock options were granted from 1983 to October 24, 1997 with
option prices ranging from $3.50 to $55.38, which represents the market value
at the date of grant. Options became exercisable over the five year period
following the date of grant. Prior to the merger, 60,258 options were
exercised under this plan with option prices ranging from $5.31 to $36.75
during 1997.
The non-qualified stock options were compensatory and required the accrual of
compensation expense over the period of service from the date the options are
granted until they became fully exercisable if market values exceeded the
option price on the measurement date. No expense was recognized in 1997 and
1996. During the year ended December 31, 1995, compensation income of $4,000
was recognized related to these options.
The Company also awarded restricted common stock of Equitable to certain key
employees. These shares were subject to forfeiture to Equitable should the
individuals terminate their relationship with the Company for reasons other
than death, permanent disability or change in Company control prior to full
vesting. Shares granted to key employees generally vested over three to five
years from the date of grant. As a result of the merger, all unvested shares
became vested and were issued. Compensation expense recognized during the
years ended December 31, 1997, 1996 and 1995 aggregated $170,000, $2,697,000
and $1,871,000, respectively. As a result of the merger, the Parent
reimbursed the Company for $2,436,000 for restricted stock previously
expensed which vested at October 24, 1997.
The Company also participated in a discretionary stock award plan under which
employees and agents were awarded shares of Equitable's stock for superior
performance. During the years ended December 31, 1997, 1996 and 1995, awards
of 700, 620 and 1,370 shares of stock resulted in charges to income of
$41,200, $22,000 and $42,000, respectively. This plan was also terminated as
of the date of the merger.
Prior to the merger, the Company sponsored a long-term incentive compensation
plan which allowed certain agents to earn units equal to shares of
Equitable's common stock based on personal production and the maintenance of
specific levels of assets under management. At December 31, 1996, the
Company held 112,000 shares of common stock of Equitable with a market value
of $5,138,000 (cost - $618,000) to provide for projected distributions based
on current performance levels under this plan. Due to the merger, the plan
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS (CONTINUED)
was terminated and the Company did not hold any shares related to this plan
at December 31, 1997. This program resulted in expense of $3,014,000,
$1,195,000 and $736,000 in the years ended December 31, 1997, 1996 and 1995,
respectively.
Substantially all full-time employees of the Company and its subsidiaries are
covered by a non-contributory self-insured defined benefit pension plan. The
benefits are based on years of service and the employee's compensation during
the last five years of employment. Further, the Parent sponsors a
supplemental defined benefit plan to provide benefits in excess of amounts
allowed pursuant to Internal Revenue Code Section 401(a)(17) and those
allowed due to integration rules. The Company also sponsors an unfunded
deferred compensation plan providing benefits to certain former employees.
The Company's funding policy with respect to the plan is consistent with the
funding requirements of federal law and regulations.
As of the merger date, the Company's pension assets were revalued. This
revaluation resulted in a $14,006,000 adjustment to surplus.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
December 31
1997 1996
________________________
(Dollars in thousands)
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $61,109 at December 31, 1997 and
$56,780 at December 31, 1996 $62,037 $57,711
========================
Plan assets at fair value, primarily bonds, common
stocks (including 173,932 shares of the ING
bearer receipts in 1997 and 400,000 shares of
Equitable common stock in 1996), mortgage loans
and short-term investments $122,344 $101,025
Projected benefit obligation for service rendered
to date 69,563 64,764
________________________
Plan assets in excess of projected benefit
obligation 52,781 36,261
Unrecognized net gain from past experience
different from that assumed and effects of changes
in assumptions (1,001) (1,544)
Prior service cost not yet recognized -- 477
Unrecognized net liability at the transition
date, net of amortization -- 344
________________________
Prepaid pension cost $51,780 $35,538
========================
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS (CONTINUED)
Net periodic pension benefit included the following components:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
__________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Actual return on plan assets $25,139 $11,801 $18,201
Service cost-benefits earned
during the period (1,654) (1,594) (1,052)
Interest cost on projected
benefit obligation (4,594) (4,253) (4,110)
Net amortization and deferral (16,942) (3,599) (9,945)
__________________________________
Net periodic pension benefit $1,949 $2,355 $3,094
==================================
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.25% and 5.0%, respectively, at December 31, 1997. The discount rate
and rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefits obligation were 7.0% and
5.0%, respectively, at December 31, 1996. The average expected long-term
rate of return on plan assets was 9.0% in 1997 and 8.0% in 1996 and 1995.
In addition to benefits offered under the aforementioned defined benefit
plan, the Company sponsors plans that provide postretirement medical and
group term life insurance benefits to full-time employees and agents who have
worked for the Company for five years or had been hired, had attained age 50
and had a combined age and years of service of 60 or more before January 1,
1992. The medical plans are contributory, with retiree contributions
adjusted annually, and contain other cost-sharing features such as
deductibles and coinsurance.
The Company accounts for the cost of the retiree benefit plans on the accrual
method, whereby the Company has elected to amortize its transition obligation
of retirees and fully eligible or vested employees over 20 years. The
Company has chosen not to fund any amounts in excess of current benefits.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS (CONTINUED)
The following tables sets forth the amounts recognized in the Company's
balance sheet:
<TABLE>
<CAPTION>
Life
Medical Insurance
Plans Plans Total
_____________________________
December 31, 1997 (Dollars in thousands)
_____________________________________________________________________________
<S> <C> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $2,331 $1,724 $4,055
Fully eligible active plan participants 248 106 354
_____________________________
2,579 1,830 4,409
Unrecognized net obligation at transition (3,045) (1,512) (4,557)
Prior service cost not yet recognized in net
postretirement benefit cost 998 1 999
Unrecognized net gain 442 227 669
_____________________________
Accrued postretirement benefit cost $974 $546 $1,520
=============================
December 31, 1996
_____________________________________________________________________________
Accumulated postretirement benefit obligations:
Retirees $3,978 $2,230 $6,208
Fully eligible active plan participants 1,051 155 1,206
_____________________________
5,029 2,385 7,414
Unrecognized net obligation at transition (3,248) (1,612) (4,860)
Prior service cost not yet recognized in net
postretirement benefit cost 5 -- 5
Unrecognized net loss (883) (313) (1,196)
_____________________________
Accrued postretirement benefit cost $903 $460 $1,363
=============================
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS (CONTINUED)
Net periodic postretirement benefit costs in the statements of operations are
as follows:
<TABLE>
<CAPTION>
Life
Medical Insurance
Plans Plans Total
_____________________________
December 31, 1997 (Dollars in thousands)
_____________________________________________________________________________
<S> <C> <C> <C>
Service cost $117 $10 $127
Interest cost 171 126 297
Net amortization of prior service cost and
amortization of unrecognized loss 106 96 202
_____________________________
Net periodic postretirement benefit cost $394 $232 $626
=============================
December 31, 1996
_____________________________________________________________________________
Service cost $14 -- $14
Interest cost 340 $161 501
Amortization of unrecognized net obligation 203 102 305
Net amortization of prior service cost and
amortization of unrecognized loss 26 9 35
_____________________________
Net periodic postretirement benefit cost $583 $272 $855
=============================
December 31, 1995
_____________________________________________________________________________
Service cost $13 -- $13
Interest cost 351 $150 501
Amortization of unrecognized net obligation 204 100 304
Net amortization of prior service cost and
amortization of unrecognized loss (1) -- (1)
_____________________________
Net periodic postretirement benefit cost $567 $250 $817
=============================
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of health care benefits (i.e., health care cost trend rate) used in
determining the actuarial present value of the accumulated postretirement
benefit obligation was 10.8% at December 31, 1997 and 11.5% at December 31,
1996 for employees under 65 and 7.5% at December 31, 1997 and 8.0% at
December 31, 1996 for employees over 65, with the rates for both groups to be
graded down to 5.5% for 2005 and thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care trend rates by one percent would increase
the accumulated postretirement benefit obligation as of December 31, 1997 by
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
7. EMPLOYEE STOCK COMPENSATION AND RETIREMENT PLANS (CONTINUED)
$356,000 and net periodic postretirement benefit costs for the year ended
December 31, 1997 by $40,000. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% at December 31, 1997
and 7.0% at December 31, 1996.
Substantially all full-time employees of the Company also are eligible to
participate in a defined contribution pension plan that is qualified under
Internal Revenue Code Section 401(k). Employees may contribute a portion of
their annual salary, subject to limitation, to the plan. The Company
contributes an additional amount, subject to limitation, based on the
voluntary contribution of the employee. Company contributions charged to
expense with respect to this plan during the years ended December 31, 1997,
1996 and 1995 were $403,000, $372,000 and $292,000, respectively.
The Company also sponsors an unfunded deferred compensation plan providing
benefits to certain former employees. The Company recognized benefits
(costs) of $24,000, $(10,000) and $20,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Company also has non-contributory defined contribution pension plans tax
qualified and non-qualified for its agents. Contributions charged to expense
under these plans during the years ended December 31, 1997, 1996 and 1995
were $1,189,000, $710,000 and $729,000, respectively.
Certain of the assets related to these plans are on deposit with the Company
and amounts relating to these plans are included in these financial
statements.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
8. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products that
are not subject to significant mortality or morbidity risk (i.e., annuities,
supplementary contracts and separate account reserves); however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The reserves on these products, by withdrawal
characteristics for annuities, supplementary contracts and separate account
reserves are summarized as follows:
<TABLE>
<CAPTION>
December 31 1997 1996
_______________________________________________________________________________
Percent Percent
Amount of Total Amount of Total
_______________________ _______________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with market
value adjustment $679,532 24% $314,309 17%
Subject to discretionary
withdrawal at book value
less surrender charge
(charges of 5% or more) 334,468 12 390,271 21
Subject to discretionary
withdrawal at market
value 1,085,268 39 427,809 23
Subject to discretionary
withdrawal at book value
(charges of less than 5%) 566,359 20 581,314 32
Not subject to discretionary
withdrawal provision 143,816 5 128,092 7
_______________________ _______________________
2,809,443 100% 1,841,795 100%
Less reinsurance ceded 152,627 ========== 182,496 ==========
___________ ___________
Total policy reserves on
annuities and deposit
fund liabilities $2,656,816 $1,659,299
=========== ===========
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
8. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to
be received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1997 and 1996, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
__________________________________________
(Dollars in thousands)
<S> <C> <C> <C>
December 31, 1997
Ordinary direct first year business $585 $358 $227
Ordinary direct renewal business 10,991 1,163 9,828
Group life direct business 1 -- 1
Reinsurance ceded (842) -- (842)
__________________________________________
$10,735 $1,521 $9,214
==========================================
December 31, 1996
Ordinary direct first year business $651 $451 $200
Ordinary direct renewal business 11,742 1,212 10,530
Group life direct business 1 -- 1
Reinsurance ceded (909) -- (909)
__________________________________________
$11,485 $1,663 $9,822
==========================================
December 31, 1995
Ordinary direct first year business $687 $476 $211
Ordinary direct renewal business 12,119 1,164 10,955
Group life direct business 1 -- 1
Reinsurance ceded (679) -- (679)
__________________________________________
$12,128 $1,640 $10,488
==========================================
</TABLE>
At December 31, 1997 and 1996, the Company had insurance in force aggregating
$156,883,000 and $206,617,000, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State
of Iowa. The Company established policy reserves of $1,504,000 and
$1,790,000 to cover these deficiencies at December 31, 1997 and 1996,
respectively.
In 1995, the NAIC adopted Guideline XXXIII, which requires the Company to
increase annuity reserves in its statutory-basis financial statements by
approximately $2.5 million. The Company received approval from the Insurance
Division, Department of Commerce, of the State of Iowa to phase this increase
in over a three year period beginning in 1995. A direct charge to surplus of
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
8. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
$653,000, $828,000 and $1,011,000 was made for the years ended December 31,
1997, 1996 and 1995, respectively, related to the change in reserve
methodology.
9. SEPARATE ACCOUNT
The separate account held by the Company represents funds backing the
Company's defined benefit pension plan and its variable annuity product. The
assets of this account are carried at market value. Information regarding
the separate account of the Company as of and for the years ended December
31, 1997, 1996 and 1995 is as follows:
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
9. SEPARATE ACCOUNT (CONTINUED)
<TABLE>
<CAPTION>
Nonindexed Non-
Guarantee guaranteed
More than Separate
4% Account Total
__________________________________________
(Dollars in thousands)
<S> <C> <C> <C>
1997
______________________________________________________________________________
Premiums, considerations or
deposits for the year ended
December 31, 1997 -- $618,924 $618,924
==========================================
Reserves at December 31, 1997:
For accounts with assets at
market value $129,184 $956,085 $1,085,269
==========================================
Reserves at December 31, 1997:
By withdrawal characteristics:
Subject to discretionary
withdrawal at market value $129,184 $956,085 $1,085,269
==========================================
1996
______________________________________________________________________________
Premiums, considerations or
deposits for the year ended
December 31, 1996 -- $250,985 $250,985
==========================================
Reserves at December 31, 1996:
For accounts with assets at
market value $106,789 $321,020 $427,809
==========================================
Reserves at December 31, 1996:
By withdrawal characteristics:
Subject to discretionary
withdrawal at market value $106,789 $321,020 $427,809
==========================================
1995
______________________________________________________________________________
Premiums, considerations or
deposits for the year ended
December 31, 1995 -- $65,987 $65,987
==========================================
Reserves at December 31, 1995:
For accounts with assets at
market value $98,018 $68,868 $166,886
==========================================
Reserves at December 31, 1995:
By withdrawal characteristics:
Subject to discretionary
withdrawal at market value $98,018 $68,868 $166,886
==========================================
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
9. SEPARATE ACCOUNT (CONTINUED)
A reconciliation of the amounts transferred to and from the separate account
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
__________________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Transfers as reported in summary
of operations of the separate
account statement:
Transfers to separate account $619,052 $251,010 $66,029
Transfers from separate account 79,206 29,549 9,127
__________________________________________
Net transfers to separate account 539,846 221,461 56,902
Reconciling adjustments:
Surrender and annual charges
received by the general account (26) (220) (13)
1994 admin fees paid to general
account in 1995 -- -- (1)
__________________________________________
Transfers as reported in the
summary of operations of the
life, accident and health
annual statement $539,820 $221,241 $56,888
==========================================
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company purchases investment management services from an affiliate.
Payments for these services aggregated $6,194,000, $2,740,000 and $2,469,000
during the years ended December 31, 1997, 1996 and 1995, respectively.
Golden American provides certain advisory, computer and other resources and
services to the Company. Expenses for these services incurred by the Company
totaled $4,330,000 for the year ending December 31, 1997. No services were
provided by Golden American in 1996.
The Company has a service agreement with Golden American and its subsidiary
in which the Company provides administrative and financial related services.
For the year ending December 31, 1997, revenues of $29,000 were recorded
which reduced general expenses as a result of this agreement.
The Company guarantees all contractual policy claims of USG. Also, the
Company has a guaranty agreement with Golden American. In consideration of
an annual fee, payable June 30, the Company guarantees to Golden American
that it will make the funds available, if needed, to Golden American to pay
the contractual claims made under the provisions of Golden American's life
insurance and annuity contracts. The agreement is not, and nothing contained
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
therein or done pursuant thereto by the Company shall deemed to constitute, a
direct or indirect guaranty by the Company of the payment of any debt or
other obligation, indebtedness or liability, of any kind or character
whatsoever, of Golden American. The agreement does not guarantee the value
of the underlying assets held in separate accounts in which funds of variable
life insurance and variable annuity policies have been invested. The
calculation of the annual fee is based on risk based capital. As Golden
American's risk based capital level was above required amounts, no annual fee
was received in 1997.
The Company maintained a line of credit agreement with Equitable to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under the agreement which expired on December 31, 1997, the
Company could borrow up to $30,000,000. Interest on any outstanding
borrowings was charged at the rate of Equitable's monthly average aggregate
cost of short-term funds plus 1.00%. Under this agreement, the Company
incurred interest expense on the note totaling $4,000, $288,000 and $358,000
for the years ended December 31, 1997, 1996 and 1995, respectively. At
December 31, 1997, no amounts were outstanding under the line of credit.
On April 15, 1997, the Company issued a promissory note in the amount of
$50,000,000 to Equitable. Interest is charged at an annual rate of 8.75%.
The Company incurred interest of $3,088,000 on this note for the year ended
December 31, 1997. As of December 31, 1997, the Company's liability for
borrowed money amounted to $50,000,000.
The Company maintains a reciprocal loan agreement with ING America Insurance
Holdings, Inc. ("ING America"), a Delaware corporation and affiliate of EIC,
to facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement, which became effective January 1, 1998
and expires December 31, 2007, the Company and ING America can borrow up to
$30,000,000 from one another. Interest on any Company borrowings is charged
at the rate of ING America's cost of funds for the interest period plus
0.15%. Interest on any ING America borrowings is charged at a rate based on
the prevailing interest rate of U.S. commercial paper available for purchase
with a similar arrangement.
Certain investments accounted for by the equity method currently have
mortgage loans outstanding with the Company. Generally, these loans were
made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated parties. At December 31, 1996 and 1995, $433,000 and $458,000,
respectively, were outstanding under these arrangements and have been
reported herein as mortgage loans on real estate.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
11. REINSURANCE
Policy reserves, premiums and expenses are stated net of amounts related to
reinsurance agreements. Annuity and life policy reserves have been reduced
by $160,737,000 at December 31, 1997 and $189,976,000 at December 31, 1996,
for reinsurance ceded to other companies, including USG (see below). To the
extent reinsuring companies are later unable to meet obligations under
reinsurance agreements, the Company would be liable. Annuity and life
premiums have likewise been reduced by $6,287,000, $5,845,000 and $15,537,000
and insurance benefits have been reduced by $7,985,000, $4,301,000 and
$8,131,000 in 1997, 1996 and 1995, respectively, for the cession agreements.
The amount of reinsurance assumed is not significant.
Reinsurance coverages for life insurance vary according to the age of the
insured and risk classification with retention limits ranging up to $500,000
of coverage per individual life. At December 31, 1997, life insurance in
force ceded amounted to $1,282,369,000 or approximately 15.04% of total life
insurance in force.
In addition, the Company cedes certain annuity policies to its wholly owned
subsidiary, USG, under an agreement that pays the Company a commission of
5.0% of premiums ceded. Under this reinsurance agreement, the Company cedes
renewal premiums on deferred annuity policies issued prior to January 1,
1994, and immediate annuity policies issued prior to January 1, 1996. During
the years ended December 31, 1997, 1996 and 1995, the Company ceded
(recaptured) net premiums to (from) USG of $529,000, $(280,000) and
$8,988,000 resulting in commissions of $10,000, $15,000 and $504,000,
respectively. Reserves ceded under this agreement aggregated $152,627,000
and $182,496,000 at December 31, 1997 and 1996, respectively. In 1996,
approximately $24,000,000 of reserves were transferred to the Company as a
result of the recapture of supplementary contracts previously reinsured by
USG.
Effective January 1, 1997, the Company entered into a coinsurance agreement
with USG. Under this agreement the Company assumes all of USG's Choice Index
Annuity policies and pays USG an allowance equal to commissions paid plus a
fee of 0.1% of premiums. At December 31, 1997, the Company had assumed
premiums and reserves of $135,458,000 and $140,121,000, respectively. For
the year ending December 31, 1997, the Company incurred $8,213,000 of
commissions plus fees.
A wholly owned subsidiary of USG, USGL Service Corporation, services policies
ceded by the Company under the above reinsurance agreement. Under this
agreement, USGL Service Corporation receives from the ceding company a
commission and expense allowance of 4.9% of premiums ceded by the Company.
The Company paid $12,000, $14,000 and $494,000 during the years ended
December 31, 1997, 1996 and 1995, respectively.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
12. COMMITMENTS AND CONTINGENCIES
GUARANTY FUND ASSESSMENTS
Assessments are levied on the Company by life and health guaranty
associations in most states in which the Company is licensed to cover losses
of policyholders of insolvent or rehabilitated insurers. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Additionally, many states allow companies to establish
admitted assets when paid and amortize such assets over periods of time
dictated by the individual states at the time of payment. The Company
accrues for such assessments only when notice of such assessment is received
from a state guaranty fund; accordingly, no amounts have been provided in the
accompanying financial statements for estimated future assessments. However,
such assessments may be material in the future.
LEASES AND OTHER COMMITMENTS
The Company leases its home office space and certain other equipment under
operating leases which expire through 2017. During the years ended
December 31, 1997, 1996 and 1995, rent expense totaled $4,138,000, $2,570,000
and $2,001,000, respectively. At December 31, 1997, minimum rental payments
due under all non-cancelable operating leases are: 1998 - $5,713,000; 1999 -
$4,440,000; 2000 - $3,876,000; 2001- $2,852,000; 2002 - $2,645,000; and
thereafter - $38,428,000.
At December 31, 1997, outstanding commitments to fund equity investments
totaled $2,521,000.
LITIGATION
USG, a wholly owned subsidiary of the Company, is a defendant in a class
action complaint filed in the state circuit court of Kentucky in September
1997. The suit claims unspecified damages and injunctive relief as a result
of alleged improper actions related to the interest rate adjustment
provisions of USG's fixed annuity contracts. The Company believes the
allegations are without merit. The original plaintiff punitive class
representative has been joined by an additional named plaintiff who claims
also to be a class representative. The suit is in the early procedural
stage. The Company intends to defend the suit vigorously, including
vigorously contesting its class action status. The amount of any liability
which may arise as a result of this suit, if any, cannot be reasonably
estimated and no provision for loss has been made in the accompanying
financial statements.
The Company and certain of its subsidiaries are defendants in class action
lawsuits filed in the United States District Court for the Middle District of
Florida, Tampa Division, in February 1996 ("Florida action") and in the
Superior court of the State of Arizona in and for Pima county ("Arizona
action"). These suits claimed unspecified damages as a result of alleged
improper life insurance sales practices. The Company denies the allegations
in these class action lawsuits but entered into a settlement to limit
additional expense and burden on its operations. The settlement has been
approved by the federal court in the Florida action and by the Arizona court
in the Arizona action. Approximately $1,600,000 of incremental costs were
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
incurred in 1997 related to this matter. The Company has not established a
reserve for the settlement and expects to incur total incremental costs of
$20,500,000, of which, a substantial portion will be incurred in 1998.
Owners of approximately 130,000 universal and whole life insurance policies
issued by the Company from 1984 through 1996 may be eligible to receive the
following benefits provided by the settlement: 1) one time enhancement to
the interest component of the policy; 2) one time enhancement to the dividend
component of the policy; 3) optional premium loans that would allow
policyholders to borrow at reduced rates; 4) enhanced value deferred
annuities to holders of affected policies; 5) enhanced value immediate
annuities to affected policyholders; and 6) enhanced value life policies to
affected policyholders. In addition, the settlement provides Individual
Claim-Review Relief (an arbitration-type process) for policyholders who
believe they may have been misled or otherwise harmed in connection with
their policies.
In the ordinary course of business, the Company and its subsidiaries are also
engaged in certain other litigation, none of which management believes is
material.
VULNERABILITY FROM CONCENTRATIONS
The Company has various concentrations in its investment portfolio (see Note
3 for further information). The Company's asset growth, net investment
income and cash flows are primarily generated from the sale of individual
fixed annuity policies, variable products and associated future policy
benefits and separate account liabilities. Substantial changes in tax laws
that would make these products less attractive to consumers, extreme
fluctuations in interest rates or stock market returns which may result in
higher lapse experience than assumed, could cause a severe impact to the
Company's financial condition. The Company has purchased interest rate caps
and swaptions for its hedging program (see Note 4) to mitigate the financial
statement impact of significant increases in interest rates.
YEAR 2000 (UNAUDITED)
Based on a study of its computer software and hardware, EIC, the Company's
parent, has determined the Company's exposure to the Year 2000 change of the
century date issue. EIC has developed a plan to modify its information
technology to be ready for the Year 2000. Efforts began in 1997 to modify
its systems. This project is expected to be substantially completed by the
second quarter of 1999. The projected cost of the Year 2000 project is
approximately $4,000,000 to $6,000,000. During 1997, the Company incurred
costs of $1,027,000 for the Year 2000 project. While additional testing will
be conducted on its systems through the Year 2000, the Company does not
expect this project to have a significant effect on operations.
To mitigate the effect of outside influences and other dependencies relative
to the Year 2000, the Company will be contacting significant customers,
suppliers and other third parties. To the extent these third parties would
be unable to transact business in the Year 2000 and thereafter, the Company's
operations could be adversely affected.
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
13. CONDENSED FINANCIAL INFORMATION OF SUBSIDIARIES
Summarized financial information - statutory-basis of USG is summarized as
follows:
<TABLE>
<CAPTION>
December 31
1997 1996
_________________________________
(Dollars in thousands)
<S> <C> <C>
ADMITTED ASSETS
Cash and investments $7,243,763 $6,743,918
Investment income due and accrued 98,483 95,012
Other assets 17,698 16,834
_________________________________
Total admitted assets $7,359,944 $6,855,764
=================================
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Annuity and life policy reserves $6,463,224 $6,083,650
Other policy liabilities 216,707 174,987
Interest maintenance reserve 46,991 41,874
Other liabilities 83,785 83,877
Asset valuation reserve 72,779 60,635
_________________________________
Total liabilities 6,883,486 6,445,023
Capital and surplus 476,458 410,741
_________________________________
Total liabilities and capital and surplus $7,359,944 $6,855,764
=================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
_______________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Premiums, policy proceeds and
other considerations $1,142,107 $1,178,006 $1,361,405
Investment income, less
investment expenses 550,805 516,686 459,572
Other income 37,185 20,693 15,502
Benefits (1,504,198) (1,467,525) (1,611,882)
Insurance expenses (102,275) (136,273) (135,186)
Federal income taxes (43,341) (43,415) (27,158)
_______________________________________
Gain from operations before net
realized capital gains (losses) 80,283 68,172 62,253
Net realized capital gains (losses) 484 113 (2,527)
_______________________________________
Net income $80,767 $68,285 $59,726
=======================================
</TABLE>
Equitable Life Insurance Company of Iowa
Notes to Financial Statements (continued)
13. CONDENSED FINANCIAL INFORMATION OF SUBSIDIARIES (CONTINUED)
The Company also owns 100% of the outstanding stock of Equitable American and
Equitable Companies. At December 31, 1997 and 1996, the Company's investment
in Equitable American aggregated $149,086,000 and $140,268,000, respectively.
At December 31, 1997 and 1996, the Company's investment in Equitable
Companies aggregated $2,073,000 and $1,938,000, respectively. Operations of
these subsidiaries are considered immaterial to the Company's financial
statements.
Equitable Life Insurance Company of Iowa - Statutory-Basis
Schedule I
Summary of Investments-
Other Than Investments in Related Parties
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance
Sheet
December 31, 1997 Cost 1 Value Amount
_______________________________________________________________________________
<S> <C> <C> <C>
TYPE OF INVESTMENT
Fixed maturities:
Bonds:
United States government and govern-
mental agencies and authorities $56,311 $59,094 $56,311
States, municipalities and
political subdivisions 252 256 252
Public utilities 312,166 332,164 312,166
All other corporate bonds 1,625,184 1,711,050 1,625,184
_______________________________________
Total fixed maturities 1,993,913 2,102,564 1,993,913
Equity securities:
Common stocks:
Affiliates 408,837 631,814 631,814
Industrial, miscellaneous and
all other 7,806 7,617 7,617
_______________________________________
Total equity securities 416,643 639,431 639,431
Mortgage loans on real estate 505,116 505,116
Real estate 3,449 3,449
Policy loans 165,161 165,161
Cash and short-term investments 52,474 52,474
Derivative financial instruments 16,474 33,388
Funds in transit 7,746 7,746
Other invested assets 5,959 5,959
___________ ___________
Total cash and investments $3,166,935 $3,406,637
=========== ===========
<FN>
Note 1: Cost is defined as amortized cost for bonds and short-term
investments adjusted for amortization of premiums and
accrual of discounts.
</TABLE>
Equitable Life Insurance Company of Iowa - Statutory-Basis
Schedule III
Supplementary Insurance Information
(Dollars in thousands)
<TABLE>
<CAPTION>
Future
Policy Other
Benefits, Policy
Losses, Claims
Claims and
and Un- Bene-
Loss earned fits Premium
Segment Expenses Premiums Payable Revenue
______________________________________________________________________________
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Life insurance $2,637,144 -- $8,949 $1,155,513
Year ended December 31, 1996:
Life insurance $2,260,773 -- $6,148 $569,866
Year ended December 31, 1995:
Life insurance $2,028,318 -- $6,232 $354,601
</TABLE>
<TABLE>
<CAPTION>
Benefits
Claims,
Losses
Net and Other
Invest- Settle- Opera-
ment ment ting Premium
Segment Income Expenses Expenses Written
______________________________________________________________________________
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Life insurance $282,745 $681,645 $675,809 --
Year ended December 31, 1996:
Life insurance $252,120 $445,383 $300,601 --
Year ended December 31, 1995:
Life insurance $234,864 $364,993 $130,927 --
</TABLE>
Equitable Life Insurance Company of Iowa - Statutory-Basis
Schedule IV
Reinsurance
(Dollars in thousands)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Year ended December
31, 1997:
Life insurance in
force $9,808,737 $1,282,369 -- $8,526,368 --
Insurance premiums
and charges $1,026,478 $6,950 $135,985 $1,155,513 11.77%
Year ended December
31, 1996:
Life insurance in
force $9,676,791 $1,199,227 -- $8,477,564 --
Insurance premiums
and charges $575,412 $6,574 $1,027 $569,865 0.18%
Year ended December
31, 1995:
Life insurance in
force $9,282,614 $1,170,058 -- $8,112,556 --
Insurance premiums
and charges $370,395 $15,794 -- $354,601 --
</TABLE>
Financial Statements
Equitable Life Insurance Company of Iowa
For the Periods October 25, 1997 through December 31,
1997 and January 1, 1997 through October 24, 1997 and
the Years ended
December 31, 1996 and 1995
with Report of Independent Auditors
Equitable Life Insurance Company of Iowa
Financial Statements
For the Periods October 25, 1997 through
December 31, 1997 and January 1, 1997 through
October 24, 1997 and the Years ended
December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors
Audited Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
The Board of Directors and Stockholder
Equitable Life Insurance Company of Iowa
We have audited the accompanying consolidated balance sheets of Equitable
Life Insurance Company of Iowa (wholly owned by Equitable of Iowa Companies,
Inc.) as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for the
periods from October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997 and the years ended December 31, 1996 and 1995. Our
audits also included the financial statement schedules in the Index at Item
24. These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Equitable Life Insurance Company of Iowa at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for the
periods from October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997 and the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/S/ Ernst & Young LLP
February 12, 1998
Equitable Life Insurance Company of Iowa
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
__________________________
December 31,| December 31,
1997 | 1996
____________| ____________
<S> <C> | <C>
ASSETS |
Investments |
Fixed maturities, available for sale, |
at fair value (cost: 1997 - $8,097,413; |
1996 - $7,282,582) $8,181,037 | $7,456,401
Equity securities of unaffiliated companies, at |
fair value (cost: 1997 - $57,172; 1996 - $48,821) 63,712 | 77,148
Equity securities of affiliated company, at fair |
value (cost: 1997 - $4,159; 1996 - $618) 3,982 | 5,138
Mortgage loans on real estate 2,087,057 | 1,689,088
Real estate, less allowance for depreciation |
of $48 in 1997 and $4,588 in 1996 16,419 | 8,613
Policy loans 191,375 | 185,853
Short-term investments 86,185 | 15,852
____________| ____________
Total investments 10,629,767 | 9,438,093
|
Cash and cash equivalents 35,383 | 11,741
Securities and indebtedness of related parties 12,397 | 7,872
Accrued investment income 137,238 | 131,152
Notes and other receivables 27,799 | 21,062
Deferred policy acquisition costs 27,592 | 721,690
Present value of in force acquired 315,469 | --
Property and equipment, less allowance for |
depreciation of $666 in 1997 and $13,105 in 1996 14,204 | 9,620
Intangible assets, less accumulated amortization |
of $5,307 in 1997 and $632 in 1996 1,268,484 | 2,343
Other assets 97,492 | 82,031
Due from affiliates 23,115 | 5,039
Separate account assets 1,142,251 | 450,632
____________| ____________
Total assets $13,731,191 | $10,881,275
==========================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Balance Sheets (continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
__________________________
December 31,| December 31,
1997 | 1996
____________| ____________
<S> <C> | <C>
LIABILITIES AND STOCKHOLDER'S EQUITY |
Policy liabilities and accruals: |
Future policy benefits: |
Annuity and interest sensitive life products $9,177,107 | $8,389,888
Traditional life insurance products 703,671 | 712,296
Unearned revenue reserve 15,996 | 18,398
Other policy claims and benefits 11,720 | 7,481
____________| ____________
9,908,494 | 9,128,063
|
Other policyholders' funds: |
Advance premiums and other deposits 203 | 597
Accrued dividends 12,404 | 12,807
____________| ____________
12,607 | 13,404
|
Deferred income taxes 31,335 | 43,201
Note payable to parent 50,000 | --
Due to affiliates 20,491 | 8,518
Other liabilities 203,843 | 188,493
Separate account liabilities 1,142,251 | 450,632
____________| ____________
Total liabilities 11,369,021 | 9,832,311
|
Commitments and contingencies |
|
Stockholder's equity: |
Common stock, par value $1.00 per share - |
authorized 7,500,000 shares, issued and |
outstanding 5,000,300 shares 5,000 | 5,000
Additional paid-in capital 2,287,046 | 274,009
Unrealized appreciation (depreciation) of |
securities at fair value 54,299 | 108,968
Retained earnings 15,825 | 660,987
____________| ____________
Total stockholder's equity 2,362,170 | 1,048,964
____________| ____________
Total liabilities and stockholder's equity $13,731,191 | $10,881,275
==========================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
<S> <C> | <C> <C> <C>
Revenues: |
Annuity and interest sensitive |
life product charges $14,022 | $70,404 $62,638 $51,466
Traditional life |
insurance premiums 6,498 | 32,105 39,566 43,425
Net investment income 120,466 | 624,122 705,074 638,056
Realized gains on investments 4,051 | 18,775 16,213 9,524
Other income 122 | 433 730 8,883
____________| __________________________________
145,159 | 745,839 824,221 751,354
Benefits and expenses: |
Annuity and interest sensitive |
life benefits: |
Interest credited to |
account balances 81,956 | 390,722 437,702 390,039
Benefit claims incurred in |
excess of account balances 3,166 | 10,000 7,892 10,396
Traditional life |
insurance benefits 7,076 | 37,797 44,316 68,338
Decrease in future |
traditional policy benefits (618)| (3,812) (1,243) (6,867)
Distributions to participating |
policyholders 3,779 | 21,087 25,209 25,125
Underwriting, acquisition and |
insurance expenses: |
Commissions 23,888 | 129,924 130,379 146,224
General expenses 9,525 | 74,740 48,461 40,867
Insurance taxes 1,119 | 7,428 7,391 45,472
Policy acquisition costs |
deferred (29,649)| (150,887) (156,041) (178,133)
Amortization: |
Deferred policy acquisition |
costs 1,823 | 81,119 79,306 72,537
Present value in force |
acquired 6,669 | -- -- --
Goodwill 5,308 | 62 74 74
____________| __________________________________
114,042 | 598,180 623,446 614,072
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Income (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
<S> <C> | <C> <C> <C>
Interest expense $724 | $2,514 $1,880 $2,565
Other expenses -- | 2 1 (9)
____________| __________________________________
114,766 | 600,696 625,327 616,628
____________| __________________________________
30,393 | 145,143 198,894 134,726
Income taxes 14,497 | 44,775 69,486 47,233
____________| __________________________________
15,896 | 100,368 129,408 87,493
Equity income (loss), net of |
related income taxes (71)| 355 (87) 17
____________| __________________________________
Net income $15,825 | $100,723 $129,321 $87,510
================================================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Changes in Stockholder's Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Unreal-
ized
Appre-
ciation
(Depre-
ciation)
Addi- of Total
tional Securities Stock-
Common Paid-In at Fair Retained holder's
Stock Capital Value Earnings Equity
____________________________________________________
PRE-MERGER
____________________________________________________
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1995 $5,000 $224,009 ($24,320) $468,156 $672,845
Net income -- -- -- 87,510 87,510
Unrealized appreciation
of securities at fair
value -- -- 237,039 -- 237,039
Contributions from parent -- 50,000 -- -- 50,000
____________________________________________________
Balance at December 31,
1995 5,000 274,009 212,719 555,666 1,047,394
Net income -- -- -- 129,321 129,321
Dividends paid to parent -- -- -- (24,000) (24,000)
Unrealized depreciation
of securities at fair
value -- -- (103,751) -- (103,751)
____________________________________________________
Balance at December 31,
1996 5,000 274,009 108,968 660,987 1,048,964
Net income -- -- -- 100,723 100,723
Unrealized appreciation
of securities at fair
value -- -- 48,751 -- 48,751
____________________________________________________
Balance at October 24,
1997 $5,000 $274,009 $157,719 $761,710 $1,198,438
====================================================
POST-MERGER
____________________________________________________
Balance at October 25,
1997 $5,000 $2,287,046 -- -- $2,292,046
Net income -- -- -- $15,825 15,825
Unrealized appreciation
of securities at fair
value -- -- $54,299 -- 54,299
____________________________________________________
Balance at December 31,
1997 $5,000 $2,287,046 $54,299 $15,825 $2,362,170
====================================================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
<S> <C> | <C> <C> <C>
OPERATING ACTIVITIES |
Net income $15,825 | $100,723 $129,321 $87,510
Adjustments to reconcile net |
income to net cash provided by |
operations: |
Adjustments related to |
annuity and interest sensi- |
tive life products: |
Interest credited to account |
balances 81,225 | 385,908 434,621 390,039
Charges for mortality and |
administration (12,787)| (63,006) (63,398) (54,308)
Change in unearned revenues 666 | 237 1,226 (293)
Increase (decrease) in |
traditional life policy |
liabilities, and accruals 1,634 | (735) (3,582) 2,758
Decrease in other policy- |
holders' funds (629)| (168) (2) (756)
Decrease (increase) in accrued |
investment income 1,055 | (7,141) (8,318) (16,875)
Policy acquisition costs |
deferred (29,649)| (150,887) (156,041) (178,133)
Amortization of present value |
of in force acquired 6,669 | -- -- --
Amortization of deferred policy |
acquisition costs 1,823 | 81,119 79,306 72,537
Change in other assets, other |
liabilities and accrued |
income taxes 24,122 | (33,779) (13,270) 42,496
Provision for depreciation and |
amortization 15,381 | 3,243 982 (8,449)
Provision for deferred income |
taxes 5,344 | 9,181 -- 1,117
Share of losses (equity in |
earnings) of related |
parties 80 | (546) 133 (27)
Realized gains on investments (4,051)| (18,775) (16,213) (9,524)
____________| __________________________________
Net cash provided by operating |
activities 106,708 | 305,374 384,765 328,092
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
_________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through|1997 through Year ended
December 31,|October 24, December 31
1997 | 1997 1996 1995
____________|____________________________________
<S> <C> | <C> <C> <C>
INVESTING ACTIVITIES |
Sale, maturity or repayment |
of investments: |
Fixed maturities |
- available for sale $138,039 | $755,639 $525,164 $145,173
Fixed maturities |
- held for investment -- | -- -- 203,395
Equity securities 3,834 | 16,782 16,358 6,572
Mortgage loans on real estate 27,725 | 70,623 80,257 53,544
Real estate -- | 3,007 7,414 2,030
Policy loans 4,568 | 26,511 32,417 28,436
Short-term investments - net -- | -- 19,431 10,514
____________|____________________________________
174,166 | 872,562 681,041 449,664
Acquisition of investments: |
Fixed maturities |
- available for sale (190,030)| (1,165,709) (902,978) (943,285)
Fixed maturities |
- held for investment -- | -- -- (59,759)
Equity securities (362)| (2,498) (14,523) (32,097)
Mortgage loans on real estate (81,105)| (326,322) (599,802) (612,449)
Real estate (36)| (112) (710) (1,018)
Policy loans (4,896)| (31,705) (35,847) (34,411)
Short-term investments - net (2,822)| (67,504) -- --
____________|____________________________________
(279,251)| (1,593,850) (1,553,860) (1,683,019)
Disposal of investments account- |
ed for by the equity method 103 | 3,770 790 498
Additions to investments |
accounted for by the |
equity method (641)| (5,669) (2,500) --
Proceeds from sale of interest |
in Equitable of Iowa Companies 6,155 | -- -- --
Purchase of ING Groep N.V. shares |
from separate account (2,774)| -- -- --
Repayments of notes receivable -- | 200 200 1,317
Sales of property and equipment 546 | 2,477 177 109
Purchases of property and |
equipment (2,570)| (9,544) (5,592) (3,397)
____________|____________________________________
Net cash used in investing |
activities (104,266)| (730,054) (879,744) (1,234,828)
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
<S> <C> | <C> <C> <C>
FINANCING ACTIVITIES |
Proceeds from line of credit |
borrowings -- | $183,296 $592,289 $754,104
Repayment of line of credit |
borrowings -- | (183,296) (592,289) (754,104)
Issuance of note payable |
to parent -- | 50,000 -- --
____________| __________________________________
-- | 50,000 -- --
Receipts from annuity and |
interest sensitive life |
policies credited to policy- |
holder account balances $229,040 | 1,444,453 1,498,885 1,691,189
Return of policyholder account |
balances on annuity policies |
and interest sensitive life |
policies (208,384)| (1,068,426) (978,555) (835,893)
Net reallocations to |
separate accounts (489)| (314) -- --
Contributions from parent -- | -- -- 50,000
Dividends paid to parent -- | -- (24,000) --
____________| __________________________________
Net cash provided by financing |
activities 20,167 | 425,713 496,330 905,296
____________| __________________________________
Increase (decrease) in cash |
and cash equivalents 22,609 | 1,033 1,351 (1,440)
|
Cash and cash equivalents at |
beginning of period 12,774 | 11,741 10,390 11,830
____________| __________________________________
Cash and cash equivalents at |
end of period $35,383 | $12,774 $11,741 $10,390
============| ==================================
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
<S> <C>| <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF |
CASH FLOW INFORMATION |
Cash paid during the period for: |
Interest -- | $2,156 $1,876 $2,567
Income taxes -- | 51,337 69,171 33,490
Non-cash investing and |
financing activities: |
Foreclosure of mortgage loans, |
including taxes and costs |
capitalized (1997: $50 and |
1996: $15) -- | 7,913 690 --
</TABLE>
See accompanying notes.
Equitable Life Insurance Company of Iowa
Notes to Consolidated Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Equitable Life Insurance Company of Iowa (the "Company") is a wholly owned
subsidiary of Equitable of Iowa Companies, Inc. The Company and its
subsidiary, USG Annuity & Life Company ("USG"), offer various insurance
products including deferred and immediate fixed annuities, variable annuities
and interest sensitive and traditional life insurance. These products are
marketed by the Company's career agency force, independent insurance agents,
broker/dealers and financial institutions. The Company's primary customers
are individuals.
On October 24, 1997, PFHI Holdings, Inc. ("PFHI"), a Delaware corporation,
acquired all of the outstanding capital stock of Equitable of Iowa Companies
("Equitable"), pursuant to an Agreement and Plan of Merger ("Merger
Agreement") among Equitable, PFHI and ING Groep N.V. ("ING"). PFHI is a
wholly owned subsidiary of ING, a global financial services holding company
based in The Netherlands. As a result of the merger, Equitable was merged
into PFHI which was simultaneously renamed Equitable of Iowa Companies, Inc.
("EIC" or the "Parent"), a Delaware corporation.
For financial statement purposes, the merger was accounted for as a purchase
effective October 25, 1997. The merger resulted in a new basis of accounting
reflecting estimated fair value of assets and liabilities at the merger date.
As a result, the Company's financial statements for the period subsequent to
October 24, 1997, are presented on the Post-Merger new basis of accounting
and for October 24, 1997 and prior periods on the Pre-Merger basis of
accounting.
CONSOLIDATION
The consolidated financial statements include the Company and its
subsidiaries. The Company's principal subsidiaries are USG, Equitable
American Insurance Company and Equitable Companies. At December 31, 1997 and
1996, all subsidiaries are wholly owned. All significant intercompany
accounts and transactions have been eliminated.
INVESTMENTS
FIXED MATURITIES: Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
requires fixed maturity securities to be designated as either "available for
sale," "held for investment" or "trading." Sales of fixed maturities
designated as "available for sale" are not restricted by SFAS No. 115.
Available for sale securities are reported at fair value and unrealized gains
and losses on these securities are included directly in stockholder's equity,
after adjustment for related changes in deferred policy acquisition costs
("DPAC"), present value of in force acquired ("PVIF"), policy reserves and
deferred income taxes. At December 31, 1997 and 1996, all of the Company's
fixed maturity securities are designated as available for sale although the
Company is not precluded from designating fixed maturity securities as held
for investment or trading at some future date.
Securities determined to have a decline in value that is other than temporary
are written down to estimated fair value which becomes the security's new cost
basis by a charge to realized losses in the Company's Statements of Income.
Premiums and discounts are amortized/accrued utilizing the scientific interest
method which results in a constant yield over the security's expected life.
Amortization/accrual of premiums and discounts on mortgage-backed securities
incorporates a prepayment assumption to estimate the securities' expected
lives.
EQUITY SECURITIES: Equity securities (common and non-redeemable preferred
stocks) are reported at estimated fair value if readily marketable or
conversion value, if applicable. The change in unrealized appreciation and
depreciation of marketable equity securities (net of related deferred income
taxes, if any) is included directly in stockholder's equity. Equity
securities determined to have a decline in value that is other than temporary
are written down to estimated fair value which becomes the securities' new
cost basis by a charge to realized losses in the Company's Statements of
Income.
MORTGAGE LOANS: Mortgage loans on real estate are reported at cost adjusted
for amortization of premiums and accrual of discounts. If the value of any
mortgage loan is determined to be impaired (i.e., when it is probable the
Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement), the carrying value of the mortgage
loan is reduced to the present value of expected future cash flows from the
loan, discounted at the loan's effective interest rate, or to the loan's
observable market price, or the fair value of the underlying collateral. The
carrying value of impaired loans is reduced by the establishment of a
valuation allowance which is adjusted at each reporting date for significant
changes in the calculated value of the loan. Changes in this valuation
allowance are charged or credited to income.
REAL ESTATE: Real estate, which includes real estate acquired through
foreclosure, is reported at cost less allowances for depreciation. Real
estate acquired through foreclosure, or in-substance foreclosure, is recorded
at the lower of cost (which includes the balance of the mortgage loan, any
accrued interest and any costs incurred to obtain title to the property) or
fair value at or before the foreclosure date. The carrying value of these
assets is subject to review when events or circumstances indicate an
impairment might exist. If the estimated undiscounted cash flows are less
than the carrying amount of the assets, an impairment in value is deemed to
exist and an impairment loss is recognized. The carrying value of the asset
is written down to an amount representing the sum of the estimated discounted
cash flows which becomes the asset's new cost basis.
OTHER INVESTMENTS: Policy loans are reported at unpaid principal. Short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Investments accounted for by the equity method
include investments in, and advances to, various joint ventures and
partnerships in which the Company has a less than controlling interest.
FAIR VALUES: Estimated fair values, as reported herein, of publicly traded
fixed maturity securities are as reported by an independent pricing service.
Fair values of conventional mortgage-backed securities not actively traded in
a liquid market are estimated using a third party pricing system. This
pricing system uses a matrix calculation assuming a spread over U.S. Treasury
bonds based upon the expected average lives of the securities. Fair values
of private placement bonds are estimated using a matrix that assumes a spread
(based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Estimated fair values of redeemable preferred stocks are as
reported by the National Association of Insurance Commissioners ("NAIC").
Estimated fair values of equity securities are based on the latest quoted
market prices or conversion value, if applicable. Estimated fair values of
the Company's investment in its registered separate accounts are based upon
the quoted fair value of the securities comprising the individual portfolios
underlying the separate accounts. Fair values of equity securities which are
not readily marketable, are estimated based upon values which are
representative of the fair values of issues of comparable yield and quality.
Realized gains and losses are determined on the basis of specific
identification and average cost methods for manager initiated and issuer
initiated disposals, respectively.
FINANCIAL INSTRUMENTS
The premiums paid for interest rate caps ("caps") and cash settled put
swaptions ("swaptions") are deferred and reported at amortized cost and
included in other assets. The premiums paid for Standard & Poors' ("S&P")
500 ([email protected].) Index Call Options ("call options," or
collectively with the caps and swaptions, "instruments") are deferred and
reported at amortized cost plus intrinsic value, if any and included in other
assets. The deferred premiums are amortized over the term of the instruments
on a straight-line basis. Amortization of the deferred premium and any
payments received in accordance with the terms of the instruments are recorded
as an adjustment to interest credited. The instruments do not require any
additional payments by the Company. Unrealized gains and losses on the caps
and swaptions are not recorded in income until realized. For the call options,
the unrealized gains and losses related to the change in their intrinsic value
will be an adjustment to interest credited.
The call options were purchased to hedge potential increases in policyholder
account balances for equity-indexed annuity policies resulting from increases
in the index to which the product is linked. The call options used are
designated as a hedge and reduce the indicated risk by having a high
correlation of changes in the value of the call options and the policy
benefits being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met, hedge accounting would be
discontinued and the call options would be marked-to-market with the change
recorded in net income.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all demand deposits and interest-bearing accounts not related to
the investment function to be cash equivalents. All interest-bearing
accounts classified as cash equivalents have original maturities of three
months or less.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring new insurance business, principally commissions
and other expenses related to the production of new business, have been
deferred. For annuity and interest sensitive life products, such costs are
being amortized generally in proportion to the present value (using the
assumed crediting rate) of expected gross profits. This amortization is
"unlocked" when the Company revises its estimate of current or future gross
profits to be realized from a group of products. For traditional life
insurance products, such costs are being amortized over the premium-
paying period of the related policies in proportion to premium revenues
recognized, using principally the same assumptions for interest, mortality
and withdrawals that are used for computing liabilities for future policy
benefits subject to traditional "lock-in" concepts. DPAC is adjusted to
reflect the pro-forma impact of unrealized gains and losses on fixed maturity
securities the Company has designated as "available for sale" under SFAS No.
115.
PRESENT VALUE OF IN FORCE ACQUIRED
As a result of the merger, a portion of the acquisition cost was allocated to
the right to receive future cash flows from existing insurance contracts.
This allocated cost represents the present value of in force acquired which
reflects the value of those purchased policies calculated by discounting
actuarially determined expected future cash flows at the discount rate
determined by the purchaser. Amortization of PVIF is charged to expense in
proportion to expected gross profits. This amortization is "unlocked" when
the Company revises its estimate of current or future gross profits to be
realized from the insurance contracts acquired. PVIF is adjusted to reflect
the pro forma impact of unrealized gains and losses on available for sale
fixed maturities.
PROPERTY AND EQUIPMENT
Property and equipment primarily represent leasehold improvements at the
Company's headquarters and at various agency offices, office furniture and
equipment and capitalized computer software and are not considered to be
significant to the Company's overall operations. Property and equipment are
reported at cost less allowances for depreciation. Depreciation expense is
computed primarily on the basis of the straight-line method over the
estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets include goodwill established as result of the merger.
Goodwill established as a result of the merger is being amortized over 40
years using the straight-line method.
FUTURE POLICY BENEFITS
Future policy benefits for fixed annuity and interest sensitive life products
are established utilizing the retrospective deposit accounting method.
Policy reserves represent the premiums received plus accumulated
interest, less mortality and administration charges. Interest credited to
these policies ranged from 3.00% to 11.40% during 1997, 3.00% to 11.00%
during 1996 and 3.35% to 11.35% during 1995. For equity-indexed annuity
policies, such future policy benefits are increased to reflect the intrinsic
value of the liability option (i.e., increases in the index to which the
product is linked).
The liability for future policy benefits for traditional life insurance
products has been calculated on a net-level premium basis. Interest
assumptions range from 2.75% for 1956 and prior issues to a 9.00% level,
graded to 6.00% after twenty years for current issues. Mortality, morbidity
and withdrawal assumptions generally are based on actual experience. These
assumptions have been modified to provide for possible adverse deviation from
the assumptions. Future dividends for participating business (which accounted
for 1.26% of premiums and 8.17% of life insurance in force in 1997) are
provided for in the liability for future policy benefits.
The unearned revenue reserve primarily reflects the unamortized balance of
the excess of first year administration charges over renewal period
administration charges (policy initiation fees) on fixed annuity and interest
sensitive life products. These excess charges have been deferred and are
being recognized in income over the period benefited using the same
assumptions and factors used to amortize DPAC.
SEPARATE ACCOUNT
Assets and liabilities of the separate account reported in the accompanying
balance sheets represent funds that are separately administered principally
for variable annuity contracts, as well as, the Company's defined pension
benefit plan assets and liabilities. Contractholders, rather than the Company,
bear the investment risk for variable products. At the direction of the
Contractholders, the separate account invests the premiums from the sale
of variable annuity products in shares of specified mutual funds. The assets
and liabilities of the separate account are clearly identified and
segregated from other assets and liabilities of the Company. The portion of
the separate account assets applicable to variable annuity contracts cannot
be charged with liabilities arising out of any other business the Company may
conduct.
Variable separate account assets carried at fair value of the underlying
investments generally represent Contractholder investment values maintained
in the account. Variable separate account liabilities represent account
balances for the variable annuity contracts invested in the separate
account. The Company's separate account assets and liabilities for its
pension plan represent the estimated fair values of the pension plan assets
and associated liabilities. Net investment income and realized and unrealized
capital gains and losses related to separate account assets are not reflected
in the accompanying Statements of Income.
Product charges recorded by the Company from variable annuity products
consist of charges applicable to each contract for mortality and expense
risk, contract administration and surrender charges.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for fixed annuity and interest sensitive life products consist of
policy charges for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges assessed against
policyholder account balances during the period. Expenses related to these
products include interest credited to policyholder account balances and
benefit claims incurred in excess of policyholder account balances.
Traditional life insurance premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs
are associated with the premiums as earned by means of the provision for
future policy benefits and amortization of DPAC.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred tax assets or
liabilities are adjusted to reflect the pro forma impact of unrealized gains
and losses on equity securities and fixed maturity securities the Company has
designated as available for sale under SFAS No. 115. Changes in deferred tax
assets or liabilities resulting from this SFAS No. 115 adjustment are charged
or credited directly to stockholder's equity. Deferred income tax expenses
or credits reflected in the Company's Statements of Income are based on the
changes in the deferred tax asset or liability from period to period
(excluding the SFAS No. 115 adjustment).
DIVIDEND RESTRICTIONS
The Company's ability to pay dividends to its Parent is restricted because
prior approval of insurance regulatory authorities is required for payment of
dividends to the stockholder which exceed an annual limitation. On August 12,
1996, the Company paid a dividend to Equitable of $24,000,000. During 1998,
the Company could pay dividends to its Parent of approximately $104,322,000
without prior approval of regulatory authorities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Management is required to utilize historical experience and assumptions about
future events and circumstances in order to develop estimates of material
reported amounts and disclosures. Included among the material (or
potentially material) reported amounts and disclosures that require extensive
use of estimates and assumptions are (1) estimates of fair values of
investments in securities and other financial instruments, as well as fair
values of policyholder liabilities, (2) policyholder liabilities, (3)
deferred policy acquisition costs and present value of in force acquired, (4)
fair values of assets and liabilities recorded as a result of the merger, (5)
net assets for pension and liabilities for postretirement benefits, (6) asset
valuation allowances, (7) guaranty fund assessment accruals, (8) deferred tax
benefits (liabilities) and (9) estimates for commitments and contingencies
including legal matters, if a liability is anticipated and can be reasonably
estimated. Estimates and assumptions regarding all of the preceding are
inherently subject to change and are reassessed periodically. Changes in
estimates and assumptions could materially impact the financial statements.
2. BASIS OF FINANCIAL REPORTING
The financial statements of the Company differ from related statutory-basis
financial statements principally as follows: (1) acquisition costs of
acquiring new business are deferred and amortized over the life of the
policies rather than charged to operations as incurred; (2) an asset
representing the present value of future cash flows from insurance contracts
acquired was established as a result of the merger and is amortized and
charged to expense; (3) future policy benefit reserves for annuity and
interest sensitive life products are based on full account values, rather
than the greater of cash surrender value or amounts derived from discounting
methodologies utilizing statutory interest rates; (4) future policy benefit
reserves on traditional life insurance products are based on reasonable
assumptions of expected mortality, interest and withdrawals which include a
provision for possible unfavorable deviation from such assumptions, which may
differ from reserves based upon statutory mortality rates and interest; (5)
reserves are reported before reduction for reserve credits related to
reinsurance ceded and a receivable is established, net of an allowance for
uncollectible amounts, for these credits rather than presented net of these
credits; (6) fixed maturity investments are designated as "available for
sale" and valued at fair value with unrealized appreciation/depreciation, net
of adjustments to deferred income taxes (if applicable), present value of in
force acquired and deferred policy acquisition costs, credited/charged
directly to stockholder's equity rather than valued at amortized cost; (7)
the carrying value of fixed maturity securities is reduced to fair value by a
charge to realized losses in the Statements of Income when declines in
carrying value are judged to be other than temporary, rather than through the
establishment of a formula-determined statutory investment reserve (carried
as a liability), changes in which are charged directly to surplus; (8)
deferred income taxes are provided for the difference between the financial
statement and income tax bases of assets and liabilities; (9) net realized
gains or losses attributed to changes in the level of interest rates in the
market are recognized when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security or mortgage
loan; (10) gains arising from sale-leaseback transactions are deferred and
amortized over the life of the lease rather than recognized in the period of
sale; (11) a liability is established for anticipated guaranty fund
assessments, net of related anticipated premium tax credits, rather than
capitalized when assessed and amortized in accordance with procedures
permitted by insurance regulatory authorities; (12) a prepaid pension cost
asset established in accordance with SFAS No. 87, "Employers' Accounting for
Pensions," agents' balances and certain other assets designated as "non-
admitted assets" for statutory purposes are reported as assets rather than
being charged to surplus; (13) revenues for annuity and interest sensitive
life products consist of policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed rather than premiums received; (14) the financial statements
of the Company's wholly owned subsidiaries are consolidated rather than
recorded at the equity in net assets; (15) expenses for postretirement
benefits other than pensions are recognized for all qualified employees
rather than for only vested and fully-eligible employees, and the
accumulated postretirement benefit obligation for years prior to adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," was recognized as a cumulative effect of change in accounting
method rather than deferred and amortized over twenty years; (16) assets and
liabilities are restated to fair values when a change in ownership occurs,
with provisions for goodwill and other intangible assets, rather than
continuing to be presented at historical cost; (17) amortization of the cost
of interest rate caps and cash settlement put swaptions purchased in
conjunction with the Company's hedging program are recorded in interest
credited rather than as a deduction from net investment income; (18) the S&P
500 call options are carried at amortized cost plus intrinsic value, if any,
reporting amortization in interest credited rather than recorded at market
value with changes in the market value reported in net investment income; and
(19) certain contingent liabilities (i.e. class action lawsuits) are expensed
when the amount of the loss is probable and estimable rather than provided
for as incurred.
Net income for the Company as determined in accordance with statutory
accounting practices was $111,932,000 in 1997, $96,841,000 in 1996, and
$87,179,000 in 1995. Total statutory capital and surplus was $647,622,000 at
December 31, 1997 and $567,316,000 at December 31, 1996.
3. INVESTMENT OPERATIONS
INVESTMENT RESULTS
Major categories of net investment income are summarized below:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Fixed maturities $96,165 | $506,533 $576,781 $558,903
Equity securities 1,153 | 3,687 3,080 1,255
Mortgage loans on real estate 24,688 | 124,037 125,144 76,382
Real estate 404 | 1,481 2,588 2,747
Policy loans 1,745 | 8,983 10,414 10,049
Short-term investments 840 | 2,610 1,397 1,275
Other - net 425 | 1,234 1,007 996
____________| __________________________________
125,420 | 648,565 720,411 651,607
|
Less investment expenses (4,954)| (24,443) (15,337) (13,551)
____________| __________________________________
Net investment income $120,466 | $624,122 $705,074 $638,056
================================================
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Fixed maturities: |
Available for sale $1,217 | $13,939 $13,557 ($3,401)
Held for investment -- | -- -- 9,330
Equity securities 3,664 | 3,258 869 912
Mortgage loans on real estate (830)| -- -- --
Real estate -- | (43) 1,218 (161)
Equity investments -- | 1,621 569 2,844
____________| __________________________________
Realized gains on investments $4,051 | $18,775 $16,213 $9,524
================================================
</TABLE>
The change in unrealized appreciaiton (depreciation) on securities at fair
value is as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Fixed maturities |
Available for sale $83,624 | $165,128 ($293,555) $507,971
Held for investment -- | -- -- 334,708
Equity securities 6,363 | (6,737) 29,060 1,614
____________| __________________________________
Unrealized appreciation |
(depreciation) of |
investments $89,987 | $158,391 ($264,495) $844,293
================================================
</TABLE>
FIXED MATURITY AND EQUITY SECURITIES
SFAS No. 115 requires the carrying value of fixed maturity securities
classified as available for sale to be adjusted for changes in market value,
primarily caused by interest rates. While other related accounts are
adjusted as discussed above, the insurance liabilities supported by these
securities are not adjusted under SFAS No. 115, thereby creating volatility
in stockholder's equity as interest rates change. As a result, the Company
expects that its stockholder's equity will be exposed to incremental
volatility due to changes in market interest rates and the accompanying
changes in the reported value of securities classified as available for
sale, with equity increasing as market interest rates decline and,
conversely, decreasing as market interest rates rise.
At December 31, 1997 and 1996, amortized cost, gross unrealized gains and
losses and estimated fair value of the Company's fixed maturity securities,
all of which are designated as available for sale, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
__________________________________________________
(Dollars in thousands)
December 31, 1997 POST-MERGER
_____________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government and
governmental agencies
and authorities:
Mortgage-backed
securities $217,909 $1,083 ($86) $218,906
Other 31,265 88 -- 31,353
States, municipalities
and political
subdivisions 16,095 117 (99) 16,113
Foreign governments 13,738 528 -- 14,266
Public utilities 1,183,863 18,758 (688) 1,201,933
Investment grade
corporate 3,290,428 44,010 (931) 3,333,507
Below investment grade
corporate 802,539 7,237 (4,741) 805,035
Mortgage-backed
securities 2,541,194 20,787 (2,439) 2,559,542
Redeemable preferred
stocks 382 -- -- 382
__________________________________________________
Total $8,097,413 $92,608 ($8,984) $8,181,037
==================================================
December 31, 1996 PRE-MERGER
_____________________________________________________________________________
U.S. government and
governmental agencies
and authorities:
Mortgage-backed
securities $251,342 $9,674 ($755) $260,261
Other 87,374 2,125 (1,420) 88,079
States, municipalities
and political
subdivisions 15,131 1,134 -- 16,265
Foreign governments 10,572 2,706 -- 13,278
Public utilities 1,205,377 41,076 (15,757) 1,230,696
Investment grade
corporate 2,654,742 156,968 (16,290) 2,795,420
Below investment grade
corporate 707,260 13,981 (15,992) 705,249
Mortgage-backed
securities 2,350,168 41,857 (45,259) 2,346,766
Redeemable preferred
stocks 616 -- (229) 387
__________________________________________________
Total $7,282,582 $269,521 ($95,702) $7,456,401
==================================================
</TABLE>
Short-term investments, all with maturities of 30 days or less, have been
excluded from the above schedules. Amortized cost approximates estimated
fair value for these securities.
At December 31, 1997, net unrealized investment gains on fixed maturity
securities designated as available for sale totaled $83,624,000. This
appreciation caused an increase in stockholder's equity of $50,163,000 at
December 31, 1997 (net of deferred income taxes of $27,011,000, an adjustment
of $234,000 to DPAC and an adjustment of $6,216,000 to PVIF).
At December 31, 1996, net unrealized investment gains on fixed maturity
securities designated as available for sale totaled $173,819,000. This
appreciation caused an increase in stockholder's equity of $76,121,000 at
December 31, 1996 (net of deferred income taxes of $43,533,000 and an
adjustment of $54,165,000 to DPAC).
At December 31, 1997, net unrealized appreciation of equity securities of
$6,363,000 was comprised of net unrealized depreciation of $186,000 on the
Company's investment in affiliated common stock and its registered separate
account, gross unrealized appreciation of $6,550,000 on an investment in a
real estate investment trust and gross unrealized depreciation of $1,000 on
other equity securities. The Company's investment in the real estate
investment trust had an estimated fair value of $63,431,000 and a cost basis
of $56,881,000 at December 31, 1997. The estimated fair value of the
Company's investment is based upon conversion value. Conversion value is
derived from the quoted market value of the publicly traded security into
which the Company's investment can be converted and the issuer's cash flow
from operations. As such, changes in operating cash flows or the quoted
market price of the issuer may result in significant volatility in the
estimated fair value of the Company's investment.
At December 31, 1996, net unrealized appreciation of equity securities of
$32,847,000 was comprised of gross unrealized appreciation of $6,765,000 on
the Company's investment in affiliated common stock and its registered
separate account, gross unrealized appreciation of $26,315,000 on an
investment in a real estate investment trust and gross unrealized
depreciation of $233,000 on other equity securities. The Company's
investment in the real estate investment trust had an estimated fair value of
$61,339,000 and a cost basis of $35,024,000 at December 31, 1996.
The amortized cost and estimated fair value of fixed maturity securities, by
contractual maturity, at December 31, 1997, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
POST-MERGER
_________________________
Estimated
Amortized Fair
Cost Value
_________________________
(Dollars in thousands)
<S> <C> <C>
December 31, 1997
Due within one year $3,493 $3,488
Due after one year through five years 379,009 379,958
Due after five years through ten years 2,535,562 2,555,500
Due after ten years 2,420,246 2,463,643
_________________________
5,338,310 5,402,589
Mortgage-backed securities 2,759,103 2,778,448
_________________________
Total $8,097,413 $8,181,037
=========================
</TABLE>
An analysis of sales, maturities and principal repayments of the Company's
fixed maturities portfolio for the years ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
______________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
For the period October 25, 1997
through December 31, 1997
Scheduled principal repayments,
calls and tenders $75,003 $250 ($102) $75,151
Sales 61,819 1,076 (7) 62,888
______________________________________________
Total $136,822 $1,326 ($109) $138,039
==============================================
For the period January 1, 1997
through October 24, 1997
Scheduled principal repayments,
calls and tenders $384,567 $10,779 ($319) $395,027
Sales 357,133 9,797 (6,318) 360,612
______________________________________________
Total $741,700 $20,576 ($6,637) $755,639
==============================================
Year ended December 31, 1996
Scheduled principal repayments,
calls and tenders $289,645 $11,866 ($315) $301,196
Sales 221,962 3,461 (1,455) 223,968
______________________________________________
Total $511,607 $15,327 ($1,770) $525,164
==============================================
Year ended December 31, 1995
Scheduled principal repayments,
calls and tenders (available
for sale only):
Available for sale $59,935 $319 ($19) $60,235
Held for investment 172,082 5,279 (274) 177,087
Sales:
Available for sale 82,837 2,104 (3) 84,938
Held for investment 21,983 4,325 -- 26,308
______________________________________________
Total $336,837 $12,027 ($296) $348,568
==============================================
</TABLE>
MORTGAGE-BACKED SECURITIES
The amortized cost and estimated fair value of mortgage-backed securities,
which comprise 34% of the Company's investment in fixed maturity securities
at December 31, 1997, by type, are as follows:
<TABLE>
<CAPTION>
POST-MERGER
_________________________
Estimated
Amortized Fair
Cost Value
_________________________
(Dollars in thousands)
<S> <C> <C>
December 31, 1997
Mortgage-backed securities:
Government and agency guaranteed pools:
Very accurately defined maturities $18,239 $18,553
Planned amortization class 74,971 75,350
Targeted amortization class 18,934 19,032
Sequential pay 56,312 56,424
Pass through 49,453 49,548
Private label CMOs and REMICs:
Very accurately defined maturities 31,559 31,601
Planned amortization class 26,944 27,158
Targeted amortization class 400,168 405,119
Sequential pay 2,019,288 2,032,176
Mezzanines 38,191 38,565
Private placements and subordinate issues 25,044 24,922
_________________________
Total mortgage-backed securities $2,759,103 $2,778,448
=========================
</TABLE>
During periods of significant interest rate volatility, the mortgages
underlying mortgage-backed securities may prepay more quickly or more slowly
than anticipated. If the principal amount of such mortgages is prepaid
earlier than anticipated during periods of declining interest rates,
investment income may decline due to reinvestment of these funds at lower
current market rates. If principal repayments are slower than anticipated
during periods of rising interest rates, increases in investment yield may
lag behind increases in interest rates because funds will remain invested at
lower historical rates rather than reinvested at higher current rates. To
mitigate this prepayment volatility, the Company invests primarily in
intermediate tranche collateralized mortgage obligations ("CMOs"). CMOs are
pools of mortgages that are segregated into sections, or tranches, which
provide sequential retirement of bonds rather than a pro-rata share of
principal return in the pass-through structure. At December 31, 1997,
unamortized premium on mortgage-backed securities totaled $28,346,000 and
unaccrued discounts on mortgage-backed securities totaled $27,485,000.
OTHER INVESTMENT INFORMATION
INVESTMENT VALUATION ANALYSIS: The Company analyzes its investment portfolio
at least quarterly in order to determine if the carrying value of any of its
investments has been impaired. The carrying value of debt and equity
securities is written down to fair value by a charge to realized losses when
an impairment in value appears to be other than temporary.
At December 31, 1997, two mortgage loans with a total carrying value of
$649,000 were delinquent by 90 days or more. During the first quarter of
1997, the value of a mortgage loan with a book value of $4,021,000 was
determined to be impaired other than temporary. At that time, a valuation
allowance was established to reduce the carrying value of this mortgage loan
to its estimated fair value, resulting in a charge to investment income of
$245,000. The Company foreclosed on the property in June 1997 and based upon
an appraisal, recorded a permanent write-down on the real estate investment
of $430,000 resulting in a charge to realized losses. During the second
quarter of 1997, the Company foreclosed on a mortgage loan with a book value
of $3,892,000. At this time the Company does not believe any permanent
impairment exists on this property. At December 31, 1996, no investments
were identified as having an impairment other than temporary. During 1995,
the Company identified two below investment grade securities as having
impairments in value that were other than temporary. As a result of those
determinations, the Company recognized pre-tax losses of $5,802,000 to reduce
the carrying value of the securities to their estimated fair value. These
securities were subsequently sold resulting in realized gains totaling
$1,200,000 during 1995.
The carrying value of investments which have been non-income producing for
the year ending December 31, 1997 and 1996 totaled $750,000 and $239,000,
respectively, related to a real estate property.
INVESTMENTS ON DEPOSIT: At December 31, 1997, affidavits of deposits
covering bonds with a par value of $2,010,634,000 (1996 - $1,780,482,000),
mortgage loans with an unpaid principal balance of $505,419,000 (1996 -
$402,911,000) and policy loans with an unpaid balance of $165,161,000 (1996 -
$164,659,000) were on deposit with state agencies to meet regulatory
requirements. In addition, at December 31, 1997, pursuant to a reinsurance
agreement, the Company had investments with a carrying value of $36,228,000
(1996 - $56,314,000) and estimated market value of $37,395,000 (1996 -
$53,833,000) deposited in a trust for the benefit of the ceding company.
INVESTMENT DIVERSIFICATIONS: The Company's investment policies related to
its investment portfolio require diversification by asset type, company and
industry and set limits on the amounts which can be invested in an individual
issuer. Such policies are at least as restrictive as those set forth by
regulatory authorities. Fixed maturity investments included investments in
various non-governmental mortgage-backed securities (31% in 1997, 24% in
1996), basic industrials (24% in 1997, 26% in 1996), public utilities (15% in
1997, 19% in 1996) and consumer products (12% in 1997, 14% in 1996).
Mortgage loans on real estate have been analyzed by geographical locations
and there are no concentrations of mortgage loans in any state exceeding ten
percent in 1997 and 1996. Mortgage loans on real estate have also been
analyzed by collateral type with significant concentrations identified in
industrial buildings (29% in 1997 and 1996), retail facilities (26% in 1997,
28% in 1996), office buildings, (26% in 1997, 22% in 1996) and multi-family
residential buildings (17% in 1997, 20% in 1996). Equity securities (which
represent 0.6% of the Company's investments) consist primarily of investments
in the Company's registered separate accounts and an investment of
$63,431,000 in a real estate investment trust. Real estate and investments
accounted for by the equity method are not significant to the Company's
overall investment portfolio.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of
stockholder's equity at December 31, 1997.
4. FINANCIAL INSTRUMENTS - RISK MANAGEMENT
HEDGING PROGRAM: During the second quarter of 1996, the Company implemented
a hedging program under which certain derivative financial instruments, caps
and swaptions, were purchased to reduce the negative effects of potential
increases in withdrawal activity related to the Company's annuity liabilities
which may result from extreme increases in interest rates. The Company
purchased caps and swaptions, all during the second quarter of 1996, with
notional amounts totaling $600,000,000 and $1,300,000,000, respectively, all
of which were outstanding at December 31, 1997. The Company paid
approximately $21,100,000 in premiums for these caps and swaptions in 1996.
The cost of this program has been incorporated into the Company's product
pricing. The caps and swaptions do not require any additional payments by
the Company.
The agreements for the caps and swaptions entitle the Company to receive
payments from the instruments' counterparties on future reset dates if
interest rates, as specified in the agreements, rise above a specified fixed
rate (9.0% and 9.5%). The amount of such payments to be received by the
Company for the interest rate caps, if any, will be calculated by taking the
excess of the current applicable rate over the specified fixed rate, and
multiplying this excess by the notional amount of the caps. Payments on cash
settled put swaptions are also calculated based upon the excess of the
current applicable rate over the specified fixed rate multiplied by the
notional amount. The product of this rate differential times the notional
amount is assumed to continue for a series of defined future
semi-annual payment dates and the resulting hypothetical payments are
discounted to the current payment date using the discount rate defined in the
agreement.
In January 1997, the Company introduced an equity-indexed annuity product
which provides a guaranteed base rate of return with a higher potential
return linked to the performance of a broad based equity index.
Concurrently, the Company implemented a hedging program to purchase S&P call
options. Call options are purchased to hedge potential increases in
policyholder account balances for equity-indexed annuity policies resulting
from increases in the index to which the product is linked. During 1997, the
Company paid approximately $17,400,000 in premiums for call options, which
mature beginning in 2002 through 2004. The cost of this program has been
incorporated into the Company's pricing of its equity-indexed annuity
product. The call options do not require any additional payments by the
Company.
The agreements for the call options entitle the Company to receive payments
from the counterparty if the S&P 500 Index exceeds the specified strike price
on the maturity date. The amount of such payments to be received by the
Company for the call options, if any, will be calculated by taking the excess
of the average closing price (as defined in the contract) at maturity over
the specified strike price and multiplying this excess by the number of S&P
500 units defined in the contract. Any payments received from the
counterparties will be recorded as an adjustment to interest credited.
The following table summarizes the contractual maturities of notional amounts
by type of instrument at December 31, 1997:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Total
_______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest rate
caps -- -- -- $400,000 $200,000 $600,000
Cash settled
put swaptions $100,000 $400,000 $400,000 350,000 50,000 1,300,000
_____________________________________________________________
Total notional
amount $100,000 $400,000 $400,000 $750,000 $250,000 $1,900,000
=============================================================
</TABLE>
ACCOUNTING TREATMENT: The Company has recorded amortization of the deferred
premiums related to the instruments of $704,000, $4,602,000 and $3,081,000
for the period October 25, 1997 through December 31, 1997, January 1, 1997
through October 24, 1997 and for the year ended December 31, 1996.
The Financial Accounting Standards Board ("FASB") is evaluating the
accounting and disclosure requirements for these instruments. FASB has issued
an exposure draft titled "Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities," which if adopted as a Statement of
Financial Accounting Standards in its current form, would require the Company
to change its accounting treatment for these instruments. The requirements
of any final standard which may result from this exposure process are not
known at this time and, therefore, the impact of such a standard on the
Company's financial statements cannot be determined.
Any unrealized gain or loss on the caps and swaptions is off-balance sheet
and therefore, is not reflected in the financial statements. The effect of
changes in the intrinsic value (which may vary from estimated market value)
of the call options and future policy benefits will be reflected in the
financial statements in the period of change.
The following table summarizes the amortized cost, gross unrealized gains and
losses and estimated fair value on these instruments as of December 31, 1997:
<TABLE>
<CAPTION>
POST-MERGER
__________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest rate caps $847 -- ($345) $502
Cash settled put swaptions 3,040 -- (1,031) 2,009
S&P 500 call options 18,118 $2,315 (166) 20,267
__________________________________________________
Total $22,005 $2,315 ($1,542) $22,778
==================================================
</TABLE>
The differences between fair value and amortized cost for the instruments
reflect changes in interest rates and market conditions since time of
purchase.
EXPOSURE TO LOSS - COUNTERPARTY NONPERFORMANCE: The Company is exposed to
the risk of losses in the event of nonperformance by the counterparties of
these instruments. Losses recorded in the Company's financial statements in
the event of non-performance will be limited to the unamortized premium
(remaining amortized cost) paid to purchase the instrument plus the recorded
intrinsic value, if any, for the call options because no additional payments
are required by the Company on these instruments after the initial premium.
Counterparty non-performance would result in an economic loss if interest
rates exceeded the specified fixed rate for the caps and swaptions, or for the
call options, the average closing price at maturity exceeded the specified
strike price. Economic losses would be measured by the net replacement cost,
or estimated fair value, for such instruments. The estimated fair value is
the average of quotes, if more than one quote is available, obtained from
related and unrelated counterparties. The Company limits its exposure to such
losses by: diversification among counterparties, limiting exposure to any
individual counterparty based upon that counterparty's credit rating, and
limiting its exposure by instrument type to only those instruments that do not
require future payments. For purposes of determining risk exposure to any
individual counterparty, the Company evaluates the combined exposure to that
counterparty on both a derivative financial instruments' level and on the
total investment portfolio credit risk and reports its exposure to senior
management at least monthly. The maximum potential economic loss (the cost of
replacing an instrument or the net replacement value) due to nonperformance of
the counterparties will increase or decrease during the life of the
instruments as a function of maturity and market conditions.
The Company determines counterparty credit quality by reference to ratings
from independent rating agencies. As of December 31, 1997, the ratings
assigned by Standard & Poors' Rating Services by instrument with respect to
the net replacement value (fair value) of the Company's instruments were as
follows:
<TABLE>
<CAPTION>
POST-MERGER
_______________________________________________________
Net Replacement Value
_______________________________________________________
Interest Rate Cash Settled S&P 500
December 31, 1997 Caps Put Swaptions Call Options Total
______________________________________________________________________________
(Dollars in thousands)
<S> <C> <C> <C> <C>
Counterparties
credit quality:
AAA $321 $990 -- $1,311
AA+ to AA- 181 620 $14,108 14,909
A+ to A- -- 399 6,159 6,558
_______________________________________________________
Total $502 $2,009 $20,267 $22,778
=======================================================
</TABLE>
5. MERGER
TRANSACTION: On October 23, 1997, Equitable shareholders approved the Merger
Agreement dated as of July 7, 1997, among Equitable, PFHI and ING. On
October 24, 1997, PFHI, a Delaware corporation, acquired all of the
outstanding capital stock of Equitable pursuant to the Merger Agreement.
PFHI is a wholly owned subsidiary of ING, a global financial services holding
company based in The Netherlands. Equitable, an Iowa corporation, in turn,
owned all the outstanding capital stock of the Company and Golden American
Life Insurance Company ("Golden American") and their wholly owned subsidiaries.
Equitable also owned all the outstanding capital stock of Locust Street
Securities, Inc., Equitable Investment Services, Inc., Directed Services,
Inc., Equitable of Iowa Companies Capital Trust, Equitable of Iowa Companies
Capital Trust II and Equitable of Iowa Securities Network, Inc. In exchange
for the outstanding capital stock of Equitable, ING paid total consideration of
approximately $2.1 billion in cash and stock plus the assumption of
approximately $400 million in debt according to the Merger Agreement. As a
result of the merger, Equitable was merged into PFHI which was simultaneously
renamed Equitable of Iowa Companies, Inc. ("EIC" or "Parent"), a Delaware
corporation. All costs of the merger, including expenses to terminate certain
benefit plans, were paid by the Parent.
ACCOUNTING TREATMENT: The merger was accounted for as a purchase resulting
in a new basis of accounting, reflecting estimated fair values for assets and
liabilities at October 24, 1997. The purchase price was allocated to EIC and
its subsidiaries. Goodwill was established for the excess of the merger cost
over the fair value of the net assets and pushed down to EIC and its
subsidiaries including the Company. The merger cost is preliminary with
respect to estimated expenses and, as a result, the PVIF and related
amortization and deferred taxes may change. The allocation of the purchase
price to the Company was approximately $2,292,046,000. The amount of
goodwill allocated to the Company relating to the merger was $1,273,791,000
at the merger date and is being amortized over 40 years on a straight-line
basis. The carrying value of goodwill will be reviewed periodically for any
indication of impairment in value. The Company's DPAC and unearned revenue
as of the merger date were eliminated and an asset of $328,354,000
representing PVIF was established for all policies in force at the merger
date.
PRESENT VALUE OF IN FORCE ACQUIRED: As part of the merger, a portion of
the acquisition cost was allocated to the right to receive future cash
flows from insurance contracts existing with the Company at the date of
merger. This allocated cost represents the present value of in force
acquired reflecting the value of those purchased policies calculated by
discounting the actuarially determined expected future cash flow at the
discount rate determined by ING.
An analysis of the PVIF asset is as follows:
<TABLE>
<CAPTION>
POST-MERGER
______________________
For the period
October 25, 1997
through
December 31, 1997
______________________
(Dollars in thousands)
<S> <C>
Beginning balance $328,354
Imputed interest 3,000
Amortization (9,669)
Adjustment for unrealized gains
on available for sale securities (6,216)
______________________
Ending balance $315,469
======================
</TABLE>
Interest is imputed on the unamortized balance of PVIF at rates of 5.98% and
5.34% for the period October 25, 1997 through December 31, 1997. The
amortization of PVIF net of imputed interest is charged to expense. PVIF is
also adjusted for the unrealized gains (losses) on available for sale
securities; such changes are included directly in stockholder's equity.
Based on current conditions and assumptions as to future events on acquired
policies in force, the expected approximate net amortization for the next
five years, relating to the balance of PVIF as of December 31, 1997, is
$40,300,000 in 1998, $38,700,000 in 1999, $35,400,000 in 2000, $31,100,000 in
2001 and $26,700,000 in 2002. Actual amortization may vary based upon final
purchase price allocation and changes in assumptions and experience.
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of estimated fair value of all financial instruments,
including both assets and liabilities recognized and not recognized in a
company's balance sheet, unless specifically exempted. SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," requires additional disclosures about derivative
financial instruments. Most of the Company's investments, investment
contracts and debt fall within the standards' definition of a financial
instrument. Fair values for the Company's insurance contracts other than
investment contracts are not required to be disclosed. In cases where quoted
market prices are not available, estimated fair values are based on estimates
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accounting, actuarial and regulatory
bodies are continuing to study the methodologies to be used in developing
fair value information, particularly as it relates to liabilities for
insurance contracts. Accordingly, care should be exercised in deriving
conclusions about the Company's business or financial condition based on the
information presented herein.
The Company closely monitors the composition and yield of its invested
assets, the duration and interest credited on insurance liabilities and
resulting interest spreads and timing of cash flows. These amounts are taken
into consideration in the Company's overall management of interest rate risk,
which attempts to minimize exposure to changing interest rates through the
matching of investment cash flows with amounts expected to be due under
insurance contracts. As discussed below, the Company has used discount rates
in its determination of fair values for its liabilities which are consistent
with market yields for related assets. The use of the asset market yield is
consistent with management's opinion that the risks inherent in its asset and
liability portfolios are similar. This assumption, however, might not result
in values consistent with those obtained through an actuarial appraisal of
the Company's business or values that might arise in a negotiated
transaction.
The following compares carrying values as shown for financial reporting
purposes with estimated fair values:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
___________________________________________________
December 31 1997 | 1996
_____________________________________________________| ________________________
(Dollars in thousands) Estimated | Estimated
Carrying Fair | Carrying Fair
Value Value | Value Value
_________________________| ________________________
<S> <C> <C> | <C> <C>
ASSETS |
Fixed maturities, |
available for sale $8,181,037 $8,181,037 | $7,456,401 $7,456,401
Equity securities of |
unaffiliated companies 63,712 63,712 | 77,148 77,148
Mortgage loans on real |
estate 2,087,057 2,111,410 | 1,689,088 1,708,464
Policy loans 191,375 191,375 | 185,853 185,853
Short-term investments 86,185 86,185 | 15,852 15,852
Cash and cash equivalents 35,383 35,383 | 11,741 11,741
Notes and other |
receivables 149,118 149,118 | 137,949 137,949
Separate account assets 1,142,251 1,142,251 | 450,632 450,632
Derivative financial |
instruments 22,005 22,778 | 18,041 14,080
|
LIABILITIES |
Annuity products 8,614,681 7,643,356 | 7,761,840 6,473,411
Note payable to parent 50,000 50,000 | -- --
Separate account |
liabilities 1,142,251 1,008,669 | 450,632 405,083
</TABLE>
The following methods and assumptions were used by the Company in estimating
fair values:
FIXED MATURITIES: Estimated fair values of publicly traded securities are as
reported by an independent pricing service. Estimated fair values of
conventional mortgage-backed securities not actively traded in a liquid
market are estimated using a third-party pricing system. This pricing system
uses a matrix calculation assuming a spread over U. S. Treasury bonds based
upon the expected average lives of the securities. Fair values of private
placement bonds are estimated using a matrix that assumes a spread (based
on interest rates and a risk assessment of the bonds) over U.S. Treasury
bonds. Estimated fair values of redeemable preferred stocks are as reported
by the NAIC.
EQUITY SECURITIES: Estimated fair values are based upon the latest quoted
market prices, where available. For equity securities not actively traded,
estimated fair values are based upon values of issues of comparable yield and
quality or conversion value where applicable.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting
expected cash flows, using interest rates currently being offered for similar
loans.
POLICY LOANS: Carrying values approximate the estimated fair value for
policy loans.
SHORT-TERM INVESTMENTS, CASH AND CASH EQUIVALENTS AND NOTES AND OTHER
RECEIVABLES: Carrying values reported in the Company's historical cost basis
balance sheet approximate estimated fair value for these instruments, due to
their short-term nature.
SEPARATE ACCOUNT ASSETS: Separate account assets are based upon the quoted
fair values of the individual securities in the separate account.
DERIVATIVE FINANCIAL INSTRUMENTS: The estimated fair values of the
instruments are the average of quotes, if more than one quote is available,
obtained from related and unrelated counterparties.
ANNUITY PRODUCTS: Estimated fair values of the Company's liabilities for
future policy benefits for annuity products are based upon discounted cash
flow calculations. Cash flows of future policy benefits are discounted using
the market yield rate of the assets supporting these liabilities.
NOTE PAYABLE TO PARENT: Carrying value reported in the Company's historical
cost basis balance sheet approximates estimated fair value for this
instrument which is callable upon demand.
SEPARATE ACCOUNT LIABILITIES: Separate account liabilities are reported at
full account value in the Company's historical cost balance sheet. Estimated
fair values of separate account liabilities are based upon assumptions using
an estimated long-term average market rate of return to discount future cash
flows. The reduction in fair values for separate account liabilities
reflects the present value of future revenues from product charges or
surrender charges.
7. INCOME TAXES
Prior to October 25, 1997, the Company and all of its subsidiaries filed a
consolidated federal income tax return with Equitable. After October 24,
1997, the Company will file a consolidated federal income tax return with its
wholly owned life insurance subsidiaries. Under the Internal Revenue Code,
newly acquired insurance companies must file a separate return for five
years. Under these arrangements, each company reports current income tax
expense as allocated under the consolidated tax allocation agreement. Taxes
payable (receivable) under this agreement was $(2,991,000) and $3,417,000 at
December 31, 1997 and 1996, respectively. Generally, this allocation results
in profitable companies recognizing a tax provision as if the individual
company filed a separate return and loss companies recognizing benefits to
the extent their losses contribute to reduce consolidated taxes. Deferred
income taxes have been established by each member of the consolidated group
based upon the temporary differences, the reversal of which will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled, within each entity.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Taxes provided in consolidated |
statements of income on: |
Income before equity |
income (loss): |
Current $9,162 | $35,637 $69,538 $46,168
Deferred 5,335 | 9,138 (52) 1,065
____________| __________________________________
14,497 | 44,775 69,486 47,233
Equity income (loss): |
Current (17)| 148 (99) (43)
Deferred 9 | 43 52 52
____________| __________________________________
(8)| 191 (47) 9
|
Taxes provided in consolidated |
statements of changes in |
stockholder's equity on |
unrealized gains and losses 29,238 | 41,392 (69,970) 113,503
____________| __________________________________
$43,727 | $86,358 ($531) $160,745
</TABLE> ================================================
The effective tax rate on income before income taxes and equity income (loss)
is different from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Income before income taxes |
and equity income (loss) $30,393 | $145,143 $198,894 $134,726
============| ==================================
|
Income tax at federal |
statutory rate $10,638 | $50,800 $69,613 $47,154
Compensatory stock option and |
restricted stock expense -- | (14,347) -- --
Taxes provided for future |
contingency 2,000 | 5,000 -- --
Adjustment for prior years -- | 3,369 -- --
Goodwill amortization 1,857 | -- -- --
Tax effect (decrease) of |
other items 2 | (47) (127) 79
____________| __________________________________
Income tax expense $14,497 | $44,775 $69,486 $47,233
================================================
</TABLE>
The Internal Revenue Service ("IRS") has examined Equitable's consolidated
income tax returns through 1992. The 1993 consolidated income tax return was
not examined by the IRS. The 1994, 1995 and 1996 consolidated income tax
returns remain open to examination. Management believes amounts provided for
income taxes are adequate to settle any adjustments raised by the IRS.
The tax effect of temporary differences giving rise to the Company's deferred
income tax liabilities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
_________________________
December 31 1997 | 1996
_________________________________________________________________| ___________
(Dollars in thousands) |
<S> <C> | <C>
Deferred tax assets: |
Future policy benefits $240,634 | $231,465
Accrued investment income 4,215 | 1,624
Accrued dividends 4,445 | 4,393
Guaranty fund assessment accruals 14,911 | 16,103
Deferred policy acquisition costs 28,956 | --
Other 17,649 | 8,530
____________| ___________
310,810 | 262,115
Deferred tax liabilities: |
Fixed maturity securities (118,149)| --
Net unrealized appreciation of available for |
sale fixed maturity securities (29,269)| (60,992)
Deferred policy acquisition costs -- | (221,889)
Prepaid pension costs (18,116)| (12,441)
Unamortized cost assigned to present value of |
in force acquired (112,590)| --
Equity securities (9,138)| --
Net unrealized appreciation of equity securites |
at fair value (2,227)| --
Mortgage loans (34,495)| --
Other (18,161)| (9,994)
____________| ___________
(342,145)| (305,316)
____________| ___________
Deferred income tax liability ($31,335)| ($43,201)
=========================
</TABLE>
Prior to 1984, a portion of the Company's current income was not subject to
current income taxation, but was accumulated, for tax purposes, in a
memorandum account designated as "policyholders' surplus account." The
aggregate accumulation in this account at December 31, 1997 was $14,388,000.
Should the policyholders' surplus account of the Company exceed the
limitation prescribed by federal income tax law, or should distributions be
made by the Company to the Parent in excess of $335,000,000, such excess
would be subject to federal income taxes at rates then effective. Deferred
income taxes of $5,036,000 have not been provided on amounts included in this
memorandum account since the Company contemplates no action and can foresee
no events that would create such a tax.
Deferred income taxes (credits) were also reported on equity income during
these periods. These taxes arise from the recognition of income and losses
differently for purposes of filing federal income tax returns than for
financial reporting purposes.
8. EMPLOYEE STOCK COMPENSATION PLANS
Certain key employees of the Company participated in stock incentive plans
sponsored by Equitable, which provided for the award of stock options or
shares of stock of Equitable through three means: qualified incentive stock
options (as defined in the Internal Revenue Code), non-qualified stock
options and restricted shares. As a result of the merger with ING, these
plans became fully vested, were terminated and fully settled as of the date
of the merger. The Parent incurred all costs of the final settlement of such
plans as of the merger date.
The incentive stock options were granted from 1983 to October 24, 1997 with
option prices ranging from $3.50 to $55.38, which represent the market value at
the date of grant. Options became exercisable over the five year period
following the date of grant. Prior to the merger, 60,258 options were exercised
under this plan with option prices ranging from $5.31 to $36.75 during 1997.
The non-qualified stock options were compensatory and required the accrual of
compensation expense over the period of service from the date the options
were granted until they became fully exercisable if market values exceeded
the option price on the measurement date. No expense was recognized in 1997
and 1996. During the year ended December 31, 1995 compensation income of
$4,000 was recognized related to these options.
The Company also awarded restricted common stock of Equitable to certain key
employees. These shares were subject to forfeiture to Equitable should the
individuals terminate their relationship with the Company for reasons other
than death, permanent disability or change in Company control prior to full
vesting. Shares granted to key employees generally vested over three to five
years from the date of grant. As a result of the merger, all unvested shares
became vested and were issued. The Company amortized as compensation expense
the market value on date of grant of restricted stock using the straight-line
method over the vesting periods. Compensation expense recognized during the
period January 1, 1997 through October 24, 1997 and for the years ended
December 31, 1996 and 1995 aggregated $2,002,000, $953,000 and $533,000,
respectively. As a result of the merger, the Parent reimbursed the Company
for the remaining unamortized restricted stock asset that vested at the
merger date.
The Company also participated in a discretionary stock award plan under which
employees and agents were awarded shares of Equitable's stock for superior
performance. During the period January 1, 1997 through October 24, 1997 and
for the years ended December 31, 1996 and 1995, awards of 700, 620 and 1,370
shares of stock resulted in charges to income of $41,200, $22,000 and
$42,000, respectively. This plan was also terminated as of the date of the
merger.
Prior to the merger, the Company sponsored a long-term incentive compensation
plan which allowed certain agents to earn units equal to shares of
Equitable's common stock based on personal production and the maintenance of
specific levels of assets under management. At December 31, 1996 the Company
held 112,000 shares of common stock of Equitable, with a market value of
$5,138,000 (cost - $618,000), to provide for projected distributions based on
current performance levels, under this plan. Due to the merger, the plan was
terminated and the Company did not hold any shares related to this plan at
December 31, 1997. This program resulted in expense of $3,014,000,
$1,195,000 and $736,000 in the years ended December 31, 1997, 1996 and 1995,
respectively.
9. RETIREMENT PLANS
DEFINED BENEFIT PLANS
Substantially all full-time employees of the Company are covered by a non-
contributory self-insured defined benefit pension plan. The benefits are
based on years of service and the employee's compensation during the last
five years of employment. Further, the Parent sponsors a supplemental
defined benefit plan to provide benefits in excess of amounts allowed
pursuant to Internal Revenue Code Section 401(a)(17) and those allowed due to
integration rules. The Company's funding policy with respect to the plan is
consistent with the funding requirements of federal law and regulations.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
____________ ____________
December 31,| December 31,
1997 | 1996
____________| ____________
(Dollars in thousands)
<S> <C> | <C>
Accumulated benefit obligation, including vested |
benefits of $61,109 in 1997 and $56,470 in 1996 $62,037 | $57,401
============| ============
|
Plan assets at fair value, primarily bonds, common |
stocks (including 173,932 shares of the ING |
bearer receipts in 1997 and 400,000 of Equitable |
shares in 1996), mortgage loans and short-term |
investments $122,344 | $101,025
Projected benefit obligation for service rendered |
to date 69,563 | 64,454
____________| ____________
Plan assets in excess of projected benefit |
obligation 52,781 | 36,571
|
Unrecognized net gain from past experience |
different from that assumed and effects of changes |
in assumptions (1,001) | (899)
Prior service cost not yet recognized -- | 477
Unrecognized net liability at the transition |
date, net of amortization -- | 82
____________| ____________
Prepaid pension cost $51,780 | $36,231
=========================
</TABLE>
Net periodic pension benefit included the following components:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
________________________________________________
For the | For the
period | period
October 25, | January 1,
1997 through| 1997 through Year ended
December 31,| October 24, December 31
1997 | 1997 1996 1995
____________| __________________________________
| (Dollars in thousands)
<S> <C> | <C> <C> <C>
Actual return on plan assets $2,799 | $22,340 $11,801 $18,201
Service cost-benefits earned |
during the period (274)| (1,379) (1,402) (1,052)
Interest cost on projected |
benefit obligation (831)| (3,763) (4,233) (4,096)
Net amortization and deferral (1,001)| (15,942) (3,619) (9,979)
____________| __________________________________
Net periodic pension benefit $693 | $1,256 $2,547 $3,074
================================================
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.25% and 5.0%, respectively, at December 31, 1997. The discount rate
and rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation were 7.0% and
5.0% at December 31, 1996. The average expected long-term rate of return on
plan assets was 9.0% in 1997 and 8.0% in 1996 and 1995.
POSTRETIREMENT BENEFIT PLANS
The Company sponsors plans that provide postretirement medical and group term
life insurance benefits to full-time employees and agents who have worked for
the Company for five years or had been hired, had attained age 50 and had a
combined age and years of service of 60 or more before January 1, 1992. The
medical plans are contributory, with retiree contributions adjusted annually,
and contain other cost-sharing features such as deductibles and coinsurance.
All payments of the liability for group-term life insurance are funded by the
Company on a pay-as-you-go (cash) basis.
The Company has chosen not to fund any amounts in excess of current benefits.
The following table sets forth the amounts recognized in the Company's
consolidated balance sheet:
<TABLE>
<CAPTION>
POST-MERGER
_____________________________
December 31, 1997
_____________________________
Life
Medical Insurance
Plans Plans Total
_____________________________
(Dollars in thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $2,373 $1,708 $4,081
Fully eligible active plan participants 130 97 227
Other active plan participants 1,046 59 1,105
_____________________________
Accumulated postretirement benefit obligation
in excess of plan assets 3,549 1,864 5,413
Unrecognized net loss (91) -- (91)
_____________________________
Accrued postretirement benefit cost $3,458 $1,864 $5,322
=============================
</TABLE>
<TABLE>
<CAPTION>
PRE-MERGER
_____________________________
December 31, 1996
_____________________________
Life
Medical Insurance
Plans Plans Total
_____________________________
(Dollars in thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $3,978 $2,232 $6,210
Fully eligible active plan participants 1,037 155 1,192
Other active plan participants 1,669 54 1,723
_____________________________
Accumulated postretirement benefit obligation
in excess of plan assets 6,684 2,441 9,125
Prior service cost not yet recognized in net
postretirement benefit cost 327 75 402
Unrecognized net loss (226) (335) (561)
_____________________________
Accrued postretirement benefit cost $6,785 $2,181 $8,966
=============================
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
POST-MERGER
_________________________________
For the period October 25, 1997
through
December 31, 1997
_________________________________
Life
Medical Insurance
Plans Plans Total
_________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $16 $1 $17
Interest cost 41 23 64
_________________________________
Net periodic postretirement benefit cost $57 $24 $81
=================================
</TABLE>
<TABLE>
<CAPTION>
PRE-MERGER
_________________________________
For the period January 1, 1997
through
October 24, 1997
_________________________________
Life
Medical Insurance
Plans Plans Total
_________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $83 $8 $91
Interest cost 196 107 303
Net amortization of prior service cost (184) (11) (195)
_________________________________
Net periodic postretirement benefit cost $95 $104 $199
=================================
</TABLE>
<TABLE>
<CAPTION>
PRE-MERGER
_________________________________
For the year
ended
December 31, 1996
_________________________________
Life
Medical Insurance
Plans Plans Total
_________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $511 $12 $523
Interest cost 415 164 579
Net amortization of prior service cost (33) (8) (41)
_________________________________
Net periodic postretirement benefit cost $893 $168 $1,061
=================================
</TABLE>
<TABLE>
<CAPTION>
PRE-MERGER
_________________________________
For the year
ended
December 31, 1995
_________________________________
Life
Medical Insurance
Plans Plans Total
_________________________________
(Dollars in thousands)
<S> <C> <C> <C>
Service cost $250 $10 $260
Interest cost 409 153 562
Net amortization of prior service cost (33) (7) (40)
_________________________________
Net periodic postretirement benefit cost $626 $156 $782
=================================
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of health care benefits (i.e., health care cost trend rate) used in
determining the actuarial present value of the accumulated postretirement
benefit obligation was 10.8% at December 31, 1997 and 11.5% at December 31,
1996 for employees under 65 and 7.5% at December 31, 1997 and 8.0% at
December 31, 1996 for employees over 65, with the rates for both groups to be
graded down to 5.0% for 2008 and thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care trend rates by one percent would increase
the accumulated postretirement benefit obligation as of December 31, 1997 by
$349,000 and net periodic postretirement benefit costs for the year ended
December 31, 1997 by $40,000. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% at December 31, 1997
and 7.0% at December 31, 1996.
OTHER BENEFIT PLANS
The Company also sponsors an unfunded deferred compensation plan providing
benefits to certain former employees. The Company recognized benefits
(costs) of $(3,000), $27,000, $(10,000) and $20,000 for the periods October 25,
1997 through December 31, 1997, for January 1, 1997 through October 24, 1997
and for the years ended December 31, 1996 and 1995, respectively.
The Company sponsors pension plans for its employees which are qualified
under Internal Revenue Code Section 401(k). Employees may contribute a
portion of their annual salary, subject to limitation, to the plan. The
Company contributes an additional amount, subject to limitation, based on the
voluntary contribution of the employee. Company contributions charged to
expense with respect to this plan during the periods October 25, 1997 through
December 31, 1997 and January 1, 1997 through October 24, 1997 and for the
years ended December 31, 1996 and 1995 were $66,000, $337,000, $372,000 and
$292,000, respectively.
The Company has non-contributory defined contribution pension plans, tax
qualified and non-qualified, for its agents. Combined contributions charged
to expense under the career, general and corporate agent pension plans during
the periods October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997 and for the years ended December 31, 1996 and 1995
amounted to $130,000, $1,059,000, $710,000 and $729,000, respectively.
Certain of the assets related to the plans discussed above are on deposit
with the Company and amounts relating to these plans are included in these
consolidated financial statements.
10. COMMITMENTS AND CONTINGENCIES
REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers. Reinsurance
coverages for life insurance vary according to the age and risk
classification of the insured with retention limits ranging up
to $500,000 of coverage per individual life. The Company does not use
financial or surplus relief reinsurance. At December 31, 1997, life insurance
in force ceded on a consolidated basis amounted to $1,569,159,000, or
approximately 13.4% of total life insurance in force.
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to
meet obligations under reinsurance agreements, the Company would be liable
for these obligations, and payment of these obligations could result in
losses to the Company. To limit the possibility of such losses, the Company
evaluates the financial condition of its reinsurers, monitors concentrations
of credit risk arising from factors such as similar geographic regions, and
limits its exposure to any one reinsurer. At December 31, 1997 and 1996, the
Company had reinsurance treaties with 14 reinsurers, all of which are deemed
to be long-duration, retroactive contracts, and has established a receivable
totaling $17,434,000 and $14,885,000, respectively, for reserve credits,
reinsurance claims and other receivables from these reinsurers. No allowance
for uncollectible amounts has been established since none of the receivables
are deemed to be uncollectible. The Company's liability for future policy
benefits and notes and other receivables has been increased by $15,919,000 at
December 31, 1997 ($14,265,000 in 1996) for reserve credits on reinsured
policies. This "gross-up" of assets and liabilities for reserve credits on
reinsurance had no impact on the Company's net income. Insurance premiums
and product charges have been reduced by $1,921,000, $5,685,000, $6,850,000
and $6,271,000 and insurance benefits have been reduced by $1,004,000,
$4,131,000, $5,916,000 and $8,281,000 for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997 and
for the years ended December 31, 1996 and 1995, respectively, as a result of
the cession agreements. The amount of reinsurance assumed is not significant.
GUARANTY FUND ASSESSMENTS
Assessments are levied on the Company by life and health guaranty
associations in most states in which the Company is licensed to cover losses
of policyholders of insolvent or rehabilitated insurers. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. The Company cannot predict whether and to what extent
legislative initiatives may affect the right to offset. Based upon
information currently available from the National Organization of Life and
Health Guaranty Association (NOLHGA), the Company believes that it is
probable these insolvencies will result in future assessments which could be
material to the Company's financial statements if the Company's reserve is
not sufficient. The Company regularly reviews its reserve for these
insolvencies and updates its reserve based upon the Company's interpretation
of information from the NOLGHA annual report. The associated cost for a
particular insurance company can vary significantly based upon its premium
volume by line of business and state premium levels as well as its potential
for premium tax offset. Accordingly, the Company accrued and charged to
expense an additional $36,492,000 for the year ended December 31, 1995. At
December 31, 1997, the Company has an undiscounted reserve of $42,563,000 to
cover estimated future assessments (net of related anticipated premium tax
credits) and has established an asset totaling $16,761,000 for assessments
paid which may be recoverable through future premium tax offsets. The Company
believes this reserve is sufficient to cover expected future guaranty fund
assessments, based upon previous premiums, and known insolvencies at this
time.
LITIGATION
USG, a wholly owned subsidiary of the Company, is a defendant in a class
action complaint filed in the state circuit court of Kentucky in September
1997. The suit claims unspecified damages in injunctive relief as a result
of alleged improper actions related to the interest rate adjustment
provisions of USG's fixed annuity contracts. The Company believes the
allegations are without merit. The original plaintiff putative class
representative has been joined by an additional named plaintiff who claims to
also be a class representative. The suit is in the early procedural stage.
The Company intends to defend the suit vigorously, including vigorously
contesting its class action status. The amount of any liability which may
arise as a result of this suit, if any, cannot be reasonably estimated and no
provision for loss has been made in the accompanying financial statements.
The Company and certain of its subsidiaries are defendants in class action
lawsuits filed in the United States District Court for the Middle District of
Florida, Tampa Division in February 1996 ("Florida action") and in the
Superior Court of the State of Arizona in and for Pima County ("Arizona
action"). These suits claim unspecified damages as a result of alleged
improper life insurance sales practices. The Company denies the allegations
in these class action lawsuits, but entered into a settlement to limit
additional expense and burden on its operations. The settlement has been
approved by the federal court in the Florida action and by the Arizona court
in the Arizona action.
In the second quarter of 1997, the Company established a reserve and accrued
a pre-tax expense of approximately $20.5 million for policy liabilities and
administrative and other costs anticipated with the settlement. At December
31, 1997, the reserve was $18.9 million. Owners of approximately 130,000
universal and whole life insurance policies issued by the Company from 1984
through 1996 may be eligible to receive the following benefits provided by
the settlement: 1) one time enhancement to the interest component of the
policy; 2) one time enhancement to the dividend component of the policy; 3)
optional premium loans that would allow policyholders to borrow at reduced
rates; 4) enhanced value deferred annuities to holders of affected policies;
5) enhanced value immediate annuities to affected policyholders; and 6)
enhanced value life policies to affected policyholders. In addition, the
proposed settlement provides Individual Claim-Review Relief (an arbitration-
type process) for policyholders who believe they may have been misled or
otherwise harmed in connection with their policies.
In the ordinary course of business, the Company and its subsidiaries are also
engaged in certain other litigation, none of which management believes is
material.
VULNERABILITY FROM CONCENTRATIONS
The Company has various concentrations in its investment portfolio (see Note
3 for further information). The Company's asset growth, net investment
income and cash flow are primarily generated from the sale of individual
fixed annuity policies, variable products and associated future policy
benefits and separate account liabilities. Substantial changes in tax laws
that would make these products less attractive to consumers, extreme
fluctuations in interest rates or stock market returns which may result
in higher lapse experience than assumed, could cause a severe impact to the
Company's financial condition. The Company has purchased interest rate caps
and swaptions for its hedging program (see Note 4) to mitigate the financial
statement impact of significant increases in interest rates.
LEASES AND OTHER COMMITMENTS
The Company leases its home office space and certain other equipment under
operating leases which expire through 2017. For the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997 and
for the years ended December 31, 1996 and 1995, rent expense totaled
$1,063,000, $3,015,000, $2,570,000 and $2,001,000, respectively. At
December 31, 1997, minimum rental payments due under all non-cancelable
operating leases with initial terms of one year or more are: 1998 -
$5,713,000; 1999 - $4,440,000; 2000 - $3,876,000; 2001 - $2,852,000; 2002 -
$2,645,000; and thereafter - $38,428,000.
At December 31, 1997, outstanding commitments to fund mortgage loans on real
estate and equity investments totaled $8,550,000 and $7,689,000, respectively.
YEAR 2000 (UNAUDITED): Based on a study of its computer software and
hardware, EIC, the Company's parent, has determined the Company's exposure to
the Year 2000 change of the century date issue. EIC has developed a plan to
modify its information technology to be ready for the Year 2000. Efforts
began in 1997 to modify its systems. This project is expected to be
substantially completed by the second quarter of 1999. The projected cost of
the Year 2000 project is approximately $4,000,000 to $6,000,000. For the
period October 25, 1997 through December 31, 1997 and January 1, 1997 through
October 24, 1997, the Company incurred costs of $275,000 and $752,000,
respectively, for the Year 2000 project. While additional testing will be
conducted on its systems through the Year 2000, the Company does not expect
this project to have a significant effect on operations.
To mitigate the effect of outside influences and other dependencies relative
to the Year 2000, the Company will be contacting significant customers,
suppliers and other third parties. To the extent these third parties would
be unable to transact business in the Year 2000 and thereafter, the Company's
operations could be adversely affected.
11. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS: The Company purchases investment management services
from an affiliate. Payments for these services aggregated $4,236,000,
$19,783,000, $9,257,000 and $8,143,000 for the periods October 25, 1997
through December 31, 1997 and January 1, 1997 through October 24, 1997 and
for the years ended December 31, 1996 and 1995, respectively.
Golden American provides certain advisory, computer and other resources and
services to the Company. The Company incurred general expenses for these
services which totaled $1,338,000 and $2,992,000 for the periods October 25,
1997 through December 31, 1997 and January 1, 1997 through October 24, 1997,
respectively. No services were provided by Golden American in 1996.
The Company has a service agreement with Golden American and its subsidiary
in which the Company provides administrative and financial related services.
For the period October 25, 1997 through December 31, 1997 and January 1, 1997
through October 24, 1997, the Company had revenues of $13,000 and $16,000,
respectively, which reduced general expenses as a result of this agreement.
GUARANTY AGREEMENT: The Company has a guaranty agreement with Golden
American. In consideration of an annual fee, payable June 30, the Company
guarantees to Golden American that it will make funds available, if needed,
to Golden American to pay the contractual claims made under the provisions of
Golden American's life insurance and annuity contracts. The agreement is not,
and nothing contained therein or done pursuant thereto by the Company shall
be deemed to constitute, a direct or indirect guaranty by the Company of the
payment of any debt or other obligation, indebtedness or liability, of any
kind or character whatsoever, of Golden American. The agreement does not
guarantee the value of the underlying assets held in separate accounts in
which funds of variable life insurance and variable annuity policies have
been invested. The calculation of the annual fee is based on risk based
capital. As Golden American's risk based capital level was above required
amounts, no annual fee was paid in 1997.
LINE OF CREDIT: The Company maintained a line of credit agreement with
Equitable to facilitate the handling of unusual and/or unanticipated short-
term cash requirements. Under the agreement which expired on December 31,
1997, the Company could borrow up to $130,000,000. Interest on any
outstanding borrowings was charged at a rate of Equitable's monthly average
aggregate cost of short-term funds plus 1.00%. Under this agreement, the
Company incurred interest expense on the note totaling $150,000, $1,880,000
and $2,527,000 for the period January 1, 1997 through October 24, 1997 and
for the years ended December 31, 1996 and 1995, respectively. At December
31, 1997, no amounts were outstanding under the line of credit.
PROMISSORY NOTE: On April 15, 1997, the Company issued a promissory note in
the amount of $50,000,000 to Equitable. Interest is charged at an annual
rate of 8.75%. The Company incurred interest totaling $724,000 and $2,364,000
for the periods October 25, 1997 through December 31, 1997 and April 15, 1997
through October 24, 1997.
RECIPROCAL LOAN AGREEMENTS: The Company and USG (collectively "the
parties"), maintain reciprocal loan agreements with ING America Insurance
Holdings, Inc. ("ING America"), a Delaware corporation and affiliate of EIC,
to facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Under this agreement, which became effective January 1, 1998
and expires December 31, 2007, for the Company (January 1, 1998 and December
31, 1998, respectively, for USG), the parties and ING America can borrow up
to $130,000,000 from one another. Interest on any of the parties' borrowings
is charged at the rate of ING America's cost of funds for the interest period
plus 0.15%. Interest on any ING America borrowings is charged at a rate based
on the prevailing interest rate of U.S. commercial paper available for purchase
with a similar arrangement.
Equitable Life Insurance Company of Iowa
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance
Sheet
December 31, 1997 Cost 1 Value Amount
_______________________________________________________________________________
<S> <C> <C> <C>
TYPE OF INVESTMENT
Fixed maturities, available for sale:
Bonds:
United States government and govern-
mental agencies and authorities $249,174 $250,259 $250,259
States, municipalities and
political subdivisions 16,095 16,113 16,113
Foreign governments 13,738 14,266 14,266
Public utilities 1,183,863 1,201,933 1,201,933
Investment grade corporate 3,290,428 3,333,507 3,333,507
Below investment grade corporate 802,539 805,035 805,035
Mortgage-backed securities 2,541,194 2,559,542 2,559,542
Redeemable preferred stocks 382 382 382
______________________________________
Total fixed maturities, available
for sale 8,097,413 8,181,037 8,181,037
Equity securities:
Common stocks:
Affiliates 4,159 3,982 3,982
Industrial, miscellaneous and
all other 57,172 63,712 63,712
______________________________________
Total equity securities 61,331 67,694 67,694
Mortgage loans on real estate 2,087,057 2,087,057
Real estate:
Investment properties 6,179 6,179
Acquired in satisfaction of debt 10,240 10,240
____________ ____________
Total real estate 16,419 16,419
Policy loans 191,375 191,375
Short-term investments 86,185 86,185
____________ ____________
Total investments $10,539,780 $10,629,767
============ ============
<FN>
Note 1: Cost is defined as original cost for stocks and other invested assets,
amortized cost for bonds and unpaid principal loans on real estate,
adjusted for amortization of premiums, accrual of discounts and cost
less allowances for depreciation for real estate.
</TABLE>
Equitable Life Insurance Company of Iowa
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
<TABLE>
<CAPTION>
Column Column Column Column Column Column
A B C D E F
_______________________________________________________________________________
Future
Policy Other
De- Benefits, Policy
ferred Losses, Claims Insur-
Policy Claims Un- and ance
Acqui- and earned Bene- Premiums
sition Loss Revenue fits and
Segment Costs Expenses Reserve Payable Charges
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
POST-MERGER
_______________________________________________________________________________
Period October 25, 1997 through
December 31, 1997:
Life insurance $27,592 $9,880,778 $15,996 $11,720 $20,520
PRE-MERGER
_______________________________________________________________________________
Period January 1, 1997 through
October 24, 1997:
Life insurance N/A N/A N/A N/A 102,509
Year ended December 31, 1996:
Life insurance 721,690 9,102,184 18,398 7,481 102,204
Year ended December 31, 1995:
Life insurance 554,179 8,218,604 14,326 8,980 94,891
</TABLE>
Equitable Life Insurance Company of Iowa
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Column Column Column Column Column Column
A G H I J K
_______________________________________________________________________________
Amorti-
Benefits zation
Claims, of
Losses Deferred
Net and Policy Other
Invest- Settle- Acqui- Opera-
ment ment sition ting Premiums
Segment Income Expenses Costs Expenses Written
_______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
POST-MERGER
_______________________________________________________________________________
Period October 25, 1997 through
December 31, 1997:
Life insurance $120,466 $95,359 $1,823 $16,860 --
PRE-MERGER
_______________________________________________________________________________
Period January 1, 1997 through
October 24, 1997:
Life insurance 624,122 455,794 81,119 61,267 --
Year ended December 31, 1996:
Life insurance 705,074 513,876 79,306 30,264 --
Year ended December 31, 1995:
Life insurance 638,056 487,031 72,537 54,504 --
</TABLE>
Equitable Life Insurance Company of Iowa
SCHEDULE IV
REINSURANCE
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
________________________________________________________________________________
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Life insurance in
force $11,684,447 $1,569,159 -- $10,115,288 --
==========================================================
Period October 25, 1997
through December 31, 1997:
Insurance premiums
and charges 22,432 1,921 $9 20,520 --
==========================================================
Period January 1, 1997
through October 24, 1997:
Insurance premiums
and charges 108,142 5,685 52 102,509 --
==========================================================
Year ended December 31, 1996:
Life insurance in
force 11,507,009 1,482,900 -- 10,024,109 --
==========================================================
Insurance premiums
and charges 109,015 6,850 39 102,204 --
==========================================================
Year ended December 31, 1995:
Life insurance in
force 10,927,445 1,459,523 -- 9,467,922 --
==========================================================
Insurance premiums
and charges 101,095 6,271 67 94,891 --
==========================================================
</TABLE>
Financial Statements
Equitable Life Insurance Company of Iowa
Separate Account A
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
Equitable Life Insurance Company of Iowa
Separate Account A
Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors
Audited Financial Statements
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Report of Independent Auditors
The Board of Directors
Equitable Life Insurance Company of Iowa
We have audited the accompanying statement of net assets of Equitable Life
Insurance Company of Iowa Separate Account A as of December 31, 1997, and the
related statements of operations for the year then ended and the changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
Our procedures included confirmation of securities owned as of December 31,
1997, by correspondence with the transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account A at December
31, 1997, and the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended
in conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
Des Moines, Iowa
February 12, 1998
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
Advantage
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961) $17,828,042
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Advantage
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $17,828,042
============
NET ASSETS REPRESENTED BY:
Units 1,505,743
Unit Value 11.84
____________
Net Assets $17,828,042
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Inter-
national
Fixed
Income
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228) $11,904,652
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Inter-
national
Fixed
Income
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $11,904,652
============
NET ASSETS REPRESENTED BY:
Units 1,003,152
Unit Value 11.87
____________
Net Assets $11,904,652
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Money
Market
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814) $35,584,814
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Money
Market
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $35,584,814
============
NET ASSETS REPRESENTED BY:
Units 3,178,723
Unit Value 11.19
____________
Net Assets $35,584,814
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Mortgage-
Backed
Securities
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297) $17,673,788
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Mortgage-
Backed
Securities
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $17,673,788
============
NET ASSETS REPRESENTED BY:
Units 1,427,178
Unit Value 12.38
____________
Net Assets $17,673,788
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
OTC
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263) $89,356,864
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
OTC
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $89,356,864
============
NET ASSETS REPRESENTED BY:
Units 4,824,991
Unit Value 18.52
____________
Net Assets $89,356,864
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Research
Account
______________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089) $204,520,177
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Research
Account
______________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
______________
TOTAL NET ASSETS (cost - $947,980,910) $204,520,177
==============
NET ASSETS REPRESENTED BY:
Units 10,840,733
Unit Value 18.87
______________
Net Assets $204,520,177
==============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Total
Return
Account
_____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390) $148,851,655
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Total
Return
Account
_____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
_____________
TOTAL NET ASSETS (cost - $947,980,910) $148,851,655
=============
NET ASSETS REPRESENTED BY:
Units 9,244,077
Unit Value 16.10
_____________
Net Assets $148,851,655
=============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Growth &
Income
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144) $87,808,343
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Growth &
Income
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $87,808,343
============
NET ASSETS REPRESENTED BY:
Units 5,699,245
Unit Value 15.41
____________
Net Assets $87,808,343
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Value +
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249) $56,373,954
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Value +
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $56,373,954
============
NET ASSETS REPRESENTED BY:
Units 4,326,368
Unit Value 13.03
____________
Net Assets $56,373,954
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Inter-
national
Equity
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623) $38,713,392
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Inter-
national
Equity
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $38,713,392
============
NET ASSETS REPRESENTED BY:
Units 3,908,832
Unit Value 9.90
____________
Net Assets $38,713,392
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Fully
Managed
Account
___________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226) $8,456,130
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Fully
Managed
Account
___________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
___________
TOTAL NET ASSETS (cost - $947,980,910) $8,456,130
===========
NET ASSETS REPRESENTED BY:
Units 430,012
Unit Value 19.66
___________
Net Assets $8,456,130
===========
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Rising
Dividends
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355) $31,374,717
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Rising
Dividends
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $31,374,717
============
NET ASSETS REPRESENTED BY:
Units 1,561,703
Unit Value 20.09
____________
Net Assets $31,374,717
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Small
Cap
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103) $11,401,411
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Small
Cap
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $11,401,411
============
NET ASSETS REPRESENTED BY:
Units 885,024
Unit Value 12.88
____________
Net Assets $11,401,411
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Income and
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789) $74,829,676
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Income and
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $74,829,676
============
NET ASSETS REPRESENTED BY:
Units 4,211,810
Unit Value 17.77
____________
Net Assets $74,829,676
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
International
Equity
Account
_____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530) $23,573,048
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
International
Equity
Account
_____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
_____________
TOTAL NET ASSETS (cost - $947,980,910) $23,573,048
=============
NET ASSETS REPRESENTED BY:
Units 1,734,132
Unit Value 13.59
_____________
Net Assets $23,573,048
=============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
High
Income
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483) $21,190,553
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
High
Income
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $21,190,553
============
NET ASSETS REPRESENTED BY:
Units 1,544,897
Unit Value 13.72
____________
Net Assets $21,190,553
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Money
Market
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824) $12,538,824
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Money
Market
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $12,538,824
============
NET ASSETS REPRESENTED BY:
Units 1,142,815
Unit Value 10.97
____________
Net Assets $12,538,824
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Appreciation
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696) $30,520,554
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Appreciation
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $30,520,554
============
NET ASSETS REPRESENTED BY:
Units 2,177,729
Unit Value 14.01
____________
Net Assets $30,520,554
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
High
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
High
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874) $20,287,782
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $20,287,782
============
NET ASSETS REPRESENTED BY:
Units 1,866,333
Unit Value 10.87
____________
Net Assets $20,287,782
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Growth
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589) $30,576,929
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $30,576,929
============
NET ASSETS REPRESENTED BY:
Units 2,767,613
Unit Value 11.05
____________
Net Assets $30,576,929
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Balanced
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Balanced
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533) $29,506,512
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $29,506,512
============
NET ASSETS REPRESENTED BY:
Units 2,668,341
Unit Value 11.06
____________
Net Assets $29,506,512
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Conservative
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Conservative
Account
____________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159) $7,429,120
Select Income Portfolio,
247,661 shares (cost - $2,665,691)
____________
TOTAL NET ASSETS (cost - $947,980,910) $7,429,120
============
NET ASSETS REPRESENTED BY:
Units 671,234
Unit Value 11.07
____________
Net Assets $7,429,120
============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Income
Account
___________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961)
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228)
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814)
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297)
OTC Portfolio,
5,648,116 shares (cost - $83,367,263)
Research Portfolio,
11,398,759 shares (cost - $184,647,089)
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390)
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144)
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249)
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623)
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226)
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355)
Small Cap Series,
860,484 shares (cost - $10,749,103)
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789)
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530)
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483)
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824)
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696)
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Select
Income
Account
___________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874)
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589)
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533)
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159)
Select Income Portfolio,
247,661 shares (cost - $2,665,691) $2,766,373
___________
TOTAL NET ASSETS (cost - $947,980,910) $2,766,373
===========
NET ASSETS REPRESENTED BY:
Units 250,841
Unit Value 11.03
___________
Net Assets $2,766,373
===========
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Combined
_______________
<S> <C>
ASSETS
Investments at net asset value:
Equi-Select Series Trust:
Advantage Portfolio,
1,694,430 shares (cost - $18,108,961) $17,828,042
International Fixed Income Portfolio,
1,144,498 shares (cost - $12,724,228) 11,904,652
Money Market Portfolio,
35,584,814 shares (cost - $35,584,814) 35,584,814
Mortgage-Backed Securities Portfolio,
1,617,870 shares (cost - $17,616,297) 17,673,788
OTC Portfolio,
5,648,116 shares (cost - $83,367,263) 89,356,864
Research Portfolio,
11,398,759 shares (cost - $184,647,089) 204,520,177
Total Return Portfolio,
9,691,999 shares (cost - $131,573,390) 148,851,655
Growth & Income Portfolio,
6,070,023 shares (cost - $80,996,144) 87,808,343
Value + Growth Portfolio,
4,265,584 shares (cost - $55,051,249) 56,373,954
Warburg Pincus Trust:
International Equity Portfolio,
3,690,504 shares (cost - $43,663,623) 38,713,392
The GCG Trust:
Fully Managed Series,
537,580 shares (cost - $8,575,226) 8,456,130
Rising Dividends Series,
1,565,605 shares (cost - $29,772,355) 31,374,717
Small Cap Series,
860,484 shares (cost - $10,749,103) 11,401,411
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio,
3,923,947 shares (cost - $63,259,789) 74,829,676
Smith Barney International Equity Portfolio,
1,827,368 shares (cost - $22,969,530) 23,573,048
Smith Barney High Income Portfolio,
1,571,999 shares (cost - $19,290,483) 21,190,553
Smith Barney Money Market Portfolio,
12,538,824 shares (cost - $12,538,824) 12,538,824
Greenwich Street Series Fund:
Appreciation Portfolio,
1,629,501 shares (cost - $29,402,696) 30,520,554
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Combined
_______________
<S> <C>
ASSETS
Investments at net asset value:
Smith Barney Concert Allocation Series, Inc.:
Select High Growth Portfolio,
1,842,669 shares (cost - $20,177,874) 20,287,782
Select Growth Portfolio,
2,732,523 shares (cost - $29,674,589) 30,576,929
Select Balanced Portfolio,
2,634,510 shares (cost - $28,388,533) 29,506,512
Select Conservative Portfolio,
662,723 shares (cost - $7,183,159) 7,429,120
Select Income Portfolio,
247,661 shares (cost - $2,665,691) 2,766,373
_______________
TOTAL NET ASSETS (cost - $947,980,910) $1,013,067,310
===============
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
<TABLE>
<CAPTION>
International
Fixed Money
Advantage Income Market
Account Account Account
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends $782,675 $542,440 $1,632,508
Capital gains distributions -- 54,527 --
______________________________________
Total investment income 782,675 596,967 1,632,508
Expenses:
Annual contract charges 7,758 6,435 6,084
Transfer charges 138 -- 6,410
Administrative charges 1,932 1,066 2,638
Mortality and expense risk charges 242,386 142,095 454,136
______________________________________
Net investment income (loss) 530,461 447,371 1,163,240
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 256,338 124,849 --
Net unrealized appreciation
(depreciation) of investments (68,673) (614,411) --
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $718,126 ($42,191) $1,163,240
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Mortgage-
Backed
Securities OTC Research
Account Account Account
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends $782,654 $3,725,445 $2,126,136
Capital gains distributions -- 39,178 4,275,288
______________________________________
Total investment income 782,654 3,764,623 6,401,424
Expenses:
Annual contract charges 8,137 48,350 83,047
Transfer charges (7) 852 796
Administrative charges 1,420 5,537 10,322
Mortality and expense risk charges 191,871 918,764 1,962,985
______________________________________
Net investment income (loss) 581,233 2,791,120 4,344,274
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments (49,663) 3,085,650 3,990,034
Net unrealized appreciation
(depreciation) of investments 372,723 4,758,266 12,924,937
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $904,293 $10,635,036 $21,259,245
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Total Growth & Value +
Return Income Growth
Account Account Account
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends $3,515,543 $7,042,003 $13,977
Capital gains distributions 1,453,371 13,264 --
______________________________________
Total investment income 4,968,914 7,055,267 13,977
Expenses:
Annual contract charges 62,200 27,213 16,215
Transfer charges 36 167 142
Administrative charges 7,854 3,887 1,957
Mortality and expense risk charges 1,420,362 810,049 502,582
______________________________________
Net investment income (loss) 3,478,462 6,213,951 (506,919)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 637,746 1,221,709 1,030,463
Net unrealized appreciation
(depreciation) of investments 13,098,517 4,340,296 347,125
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $17,214,725 $11,775,956 $870,669
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
International Fully Rising
Equity Managed Dividends
Account Account(a) Account(b)
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends $1,263,347 $250,821 $191,362
Capital gains distributions 1,202,927 366,432 515,186
______________________________________
Total investment income 2,466,274 617,253 706,548
Expenses:
Annual contract charges 20,536 321 2,238
Transfer charges 251 12 761
Administrative charges 2,780 -- --
Mortality and expense risk charges 461,343 49,420 169,295
______________________________________
Net investment income (loss) 1,981,364 567,500 534,254
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 175,065 13,366 689,163
Net unrealized appreciation
(depreciation) of investments (5,059,005) (119,096) 1,602,362
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($2,902,576) $461,770 $2,825,779
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith Barney Smith Barney
Income and International
Small Cap Growth Equity
Account(a) Account Account
_______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends -- -- --
Capital gains distributions -- -- --
_______________________________________
Total investment income -- -- --
Expenses:
Annual contract charges $570 $19,604 $9,423
Transfer charges 45 -- --
Administrative charges -- 3,044 1,449
Mortality and expense risk charges 71,459 645,047 252,207
_______________________________________
Net investment income (loss) (72,074) (667,695) (263,079)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 250,413 173,271 62,891
Net unrealized appreciation
(depreciation) of investments 652,308 9,763,541 (159,210)
_______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $830,647 $9,269,117 ($359,398)
=======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith Barney
Smith Barney Money
High Income Market Appreciation
Account Account Account
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends -- $416,443 $355,211
Capital gains distributions -- -- 1,549,430
______________________________________
Total investment income -- 416,443 1,904,641
Expenses:
Annual contract charges $5,629 1,040 5,977
Transfer charges -- -- --
Administrative charges 1,108 498 792
Mortality and expense risk charges 206,204 120,594 214,970
______________________________________
Net investment income (loss) (212,941) 294,311 1,682,902
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 109,408 -- 7,316
Net unrealized appreciation
(depreciation) of investments 1,805,213 -- 1,159,392
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,701,680 $294,311 $2,849,610
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select High Select Select
Growth Growth Balanced
Account(c) Account(d) Account(c)
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends -- -- --
Capital gains distributions -- -- --
______________________________________
Total investment income -- -- --
Expenses:
Annual contract charges $168 $136 $188
Transfer charges -- -- --
Administrative charges -- -- --
Mortality and expense risk charges 96,196 142,411 150,373
______________________________________
Net investment income (loss) (96,364) (142,547) (150,561)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 36,105 3,569 3,850
Net unrealized appreciation
(depreciation) of investments 109,908 902,340 1,117,979
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $49,649 $763,362 $971,268
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
For the year December 31, 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select Select
Conservative Income
Account(f) Account(e) Combined
______________________________________
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends -- -- $22,640,565
Capital gains distributions -- -- 9,469,603
______________________________________
Total investment income -- -- 32,110,168
Expenses:
Annual contract charges $20 $15 331,304
Transfer charges -- -- 9,603
Administrative charges -- -- 46,284
Mortality and expense risk charges 34,177 14,489 9,273,415
______________________________________
Net investment income (loss) (34,197) (14,504) 22,449,562
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 21,770 19,963 11,863,276
Net unrealized appreciation
(depreciation) of investments 245,961 100,682 47,281,155
______________________________________
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $233,534 $106,141 $81,593,993
======================================
<FN>
(a) Commencement of Operations, February 5, 1997
(b) Commencement of Operations, February 10, 1997
(c) Commencement of Operations, February 21, 1997
(d) Commencement of Operations, March 6, 1997
(e) Commencement of Operations, March 19, 1997
(f) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
<TABLE>
<CAPTION>
Advantage
Account
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $3,744,237
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 422,472
Net realized gain (loss) on investments 57,513
Net unrealized appreciation (depreciation) of investments (111,913)
____________
Net increase in net assets resulting from operations 368,072
Changes from principal transactions:
Purchase payments 7,649,569
Contract distributions and terminations (381,407)
Transfer payments from (to) other Accounts and Fixed Account 3,638,478
____________
Increase in net assets derived from principal transactions 10,906,640
____________
Total increase 11,274,712
____________
NET ASSETS AT DECEMBER 31, 1996 15,018,949
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Advantage
Account
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $530,461
Net realized gain (loss) on investments 256,338
Net unrealized appreciation (depreciation) of investments (68,673)
____________
Net increase (decrease) in net assets resulting from operations 718,126
Changes from principal transactions:
Purchase payments 8,221,506
Contract distributions and terminations (1,615,795)
Transfer payments from (to) other Accounts and Fixed Account (4,514,744)
____________
Increase in net assets derived from principal transactions 2,090,967
____________
Total increase 2,809,093
____________
NET ASSETS AT DECEMBER 31, 1997 $17,828,042
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
International
Fixed
Income
Account
_____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $3,599,567
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 455,330
Net realized gain (loss) on investments 48,607
Net unrealized appreciation (depreciation) of investments (239,063)
_____________
Net increase in net assets resulting from operations 264,874
Changes from principal transactions:
Purchase payments 2,509,049
Contract distributions and terminations (213,335)
Transfer payments from (to) other Accounts and Fixed Account 2,279,493
_____________
Increase in net assets derived from principal transactions 4,575,207
_____________
Total increase 4,840,081
_____________
NET ASSETS AT DECEMBER 31, 1996 8,439,648
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
International
Fixed
Income
Account
_____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $447,371
Net realized gain (loss) on investments 124,849
Net unrealized appreciation (depreciation) of investments (614,411)
_____________
Net increase (decrease) in net assets resulting from operations (42,191)
Changes from principal transactions:
Purchase payments 2,503,059
Contract distributions and terminations (603,475)
Transfer payments from (to) other Accounts and Fixed Account 1,607,611
_____________
Increase in net assets derived from principal transactions 3,507,195
_____________
Total increase 3,465,004
_____________
NET ASSETS AT DECEMBER 31, 1997 $11,904,652
=============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Money
Market
Account
_____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $5,732,221
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 430,243
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
_____________
Net increase in net assets resulting from operations 430,243
Changes from principal transactions:
Purchase payments 97,297,490
Contract distributions and terminations (409,078)
Transfer payments from (to) other Accounts and Fixed Account (83,912,504)
_____________
Increase in net assets derived from principal transactions 12,975,908
_____________
Total increase 13,406,151
_____________
NET ASSETS AT DECEMBER 31, 1996 19,138,372
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Money
Market
Account
_____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $1,163,240
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
_____________
Net increase (decrease) in net assets resulting from operations 1,163,240
Changes from principal transactions:
Purchase payments 180,384,044
Contract distributions and terminations (3,652,032)
Transfer payments from (to) other Accounts and Fixed Account (161,448,810)
_____________
Increase in net assets derived from principal transactions 15,283,202
_____________
Total increase 16,446,442
_____________
NET ASSETS AT DECEMBER 31, 1997 $35,584,814
=============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Mortgage-
Backed
Securities
Account
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $4,339,520
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 462,928
Net realized gain (loss) on investments 3,182
Net unrealized appreciation (depreciation) of investments (236,988)
____________
Net increase in net assets resulting from operations 229,122
Changes from principal transactions:
Purchase payments 3,866,835
Contract distributions and terminations (272,503)
Transfer payments from (to) other Accounts and Fixed Account 2,670,273
____________
Increase in net assets derived from principal transactions 6,264,605
____________
Total increase 6,493,727
____________
NET ASSETS AT DECEMBER 31, 1996 10,833,247
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Mortgage-
Backed
Securities
Account
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $581,233
Net realized gain (loss) on investments (49,663)
Net unrealized appreciation (depreciation) of investments 372,723
____________
Net increase (decrease) in net assets resulting from operations 904,293
Changes from principal transactions:
Purchase payments 3,918,784
Contract distributions and terminations (720,003)
Transfer payments from (to) other Accounts and Fixed Account 2,737,467
____________
Increase in net assets derived from principal transactions 5,936,248
____________
Total increase 6,840,541
____________
NET ASSETS AT DECEMBER 31, 1997 $17,673,788
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
OTC
Account
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $10,036,697
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 1,743,322
Net realized gain (loss) on investments 61,629
Net unrealized appreciation (depreciation) of investments 1,203,795
____________
Net increase in net assets resulting from operations 3,008,746
Changes from principal transactions:
Purchase payments 16,302,789
Contract distributions and terminations (628,676)
Transfer payments from (to) other Accounts and Fixed Account 12,133,266
____________
Increase in net assets derived from principal transactions 27,807,379
____________
Total increase 30,816,125
____________
NET ASSETS AT DECEMBER 31, 1996 40,852,822
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
OTC
Account
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $2,791,120
Net realized gain (loss) on investments 3,085,650
Net unrealized appreciation (depreciation) of investments 4,758,266
____________
Net increase (decrease) in net assets resulting from operations 10,635,036
Changes from principal transactions:
Purchase payments 25,660,915
Contract distributions and terminations (2,959,153)
Transfer payments from (to) other Accounts and Fixed Account 15,167,244
____________
Increase in net assets derived from principal transactions 37,869,006
____________
Total increase 48,504,042
____________
NET ASSETS AT DECEMBER 31, 1997 $89,356,864
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Research
Account
_____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $16,446,948
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 1,534,737
Net realized gain (loss) on investments 662,781
Net unrealized appreciation (depreciation) of investments 5,420,258
_____________
Net increase in net assets resulting from operations 7,617,776
Changes from principal transactions:
Purchase payments 32,407,473
Contract distributions and terminations (1,057,801)
Transfer payments from (to) other Accounts and Fixed Account 21,760,887
_____________
Increase in net assets derived from principal transactions 53,110,559
_____________
Total increase 60,728,335
_____________
NET ASSETS AT DECEMBER 31, 1996 77,175,283
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Research
Account
_____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $4,344,274
Net realized gain (loss) on investments 3,990,034
Net unrealized appreciation (depreciation) of investments 12,924,937
_____________
Net increase (decrease) in net assets resulting from operations 21,259,245
Changes from principal transactions:
Purchase payments 67,831,805
Contract distributions and terminations (5,188,911)
Transfer payments from (to) other Accounts and Fixed Account 43,442,755
_____________
Increase in net assets derived from principal transactions 106,085,649
_____________
Total increase 127,344,894
_____________
NET ASSETS AT DECEMBER 31, 1997 $204,520,177
=============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Total
Return
Account
_____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $15,821,842
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 1,115,103
Net realized gain (loss) on investments 120,266
Net unrealized appreciation (depreciation) of investments 3,147,975
_____________
Net increase in net assets resulting from operations 4,383,344
Changes from principal transactions:
Purchase payments 23,245,480
Contract distributions and terminations (1,235,631)
Transfer payments from (to) other Accounts and Fixed Account 16,620,130
_____________
Increase in net assets derived from principal transactions 38,629,979
_____________
Total increase 43,013,323
_____________
NET ASSETS AT DECEMBER 31, 1996 58,835,165
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Total
Return
Account
_____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $3,478,462
Net realized gain (loss) on investments 637,746
Net unrealized appreciation (depreciation) of investments 13,098,517
_____________
Net increase (decrease) in net assets resulting from operations 17,214,725
Changes from principal transactions:
Purchase payments 46,890,224
Contract distributions and terminations (5,975,954)
Transfer payments from (to) other Accounts and Fixed Account 31,887,495
_____________
Increase in net assets derived from principal transactions 72,801,765
_____________
Total increase 90,016,490
_____________
NET ASSETS AT DECEMBER 31, 1997 $148,851,655
=============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Growth &
Income
Account(a)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($49,590)
Net realized gain (loss) on investments 30,064
Net unrealized appreciation (depreciation) of investments 2,471,903
____________
Net increase in net assets resulting from operations 2,452,377
Changes from principal transactions:
Purchase payments 12,034,879
Contract distributions and terminations (227,921)
Transfer payments from (to) other Accounts and Fixed Account 13,570,237
____________
Increase in net assets derived from principal transactions 25,377,195
____________
Total increase 27,829,572
____________
NET ASSETS AT DECEMBER 31, 1996 27,829,572
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Growth &
Income
Account(a)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $6,213,951
Net realized gain (loss) on investments 1,221,709
Net unrealized appreciation (depreciation) of investments 4,340,296
____________
Net increase (decrease) in net assets resulting from operations 11,775,956
Changes from principal transactions:
Purchase payments 26,757,151
Contract distributions and terminations (2,887,153)
Transfer payments from (to) other Accounts and Fixed Account 24,332,817
____________
Increase in net assets derived from principal transactions 48,202,815
____________
Total increase 59,978,771
____________
NET ASSETS AT DECEMBER 31, 1997 $87,808,343
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Value +
Growth
Account(a)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $78,608
Net realized gain (loss) on investments 4,559
Net unrealized appreciation (depreciation) of investments 975,580
____________
Net increase in net assets resulting from operations 1,058,747
Changes from principal transactions:
Purchase payments 5,855,390
Contract distributions and terminations (86,176)
Transfer payments from (to) other Accounts and Fixed Account 7,308,004
____________
Increase in net assets derived from principal transactions 13,077,218
____________
Total increase 14,135,965
____________
NET ASSETS AT DECEMBER 31, 1996 14,135,965
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Value +
Growth
Account(a)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($506,919)
Net realized gain (loss) on investments 1,030,463
Net unrealized appreciation (depreciation) of investments 347,125
____________
Net increase (decrease) in net assets resulting from operations 870,669
Changes from principal transactions:
Purchase payments 18,435,971
Contract distributions and terminations (1,778,873)
Transfer payments from (to) other Accounts and Fixed Account 24,710,222
____________
Increase in net assets derived from principal transactions 41,367,320
____________
Total increase 42,237,989
____________
NET ASSETS AT DECEMBER 31, 1997 $56,373,954
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
International
Equity
Account(a)
_____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $315,884
Net realized gain (loss) on investments (10,354)
Net unrealized appreciation (depreciation) of investments 108,774
_____________
Net increase in net assets resulting from operations 414,304
Changes from principal transactions:
Purchase payments 4,679,176
Contract distributions and terminations (172,244)
Transfer payments from (to) other Accounts and Fixed Account 15,903,022
_____________
Increase in net assets derived from principal transactions 20,409,954
_____________
Total increase 20,824,258
_____________
NET ASSETS AT DECEMBER 31, 1996 20,824,258
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
International
Equity
Account(a)
_____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $1,981,364
Net realized gain (loss) on investments 175,065
Net unrealized appreciation (depreciation) of investments (5,059,005)
_____________
Net increase (decrease) in net assets resulting from operations (2,902,576)
Changes from principal transactions:
Purchase payments 11,101,209
Contract distributions and terminations (2,232,677)
Transfer payments from (to) other Accounts and Fixed Account 11,923,178
_____________
Increase in net assets derived from principal transactions 20,791,710
_____________
Total increase 17,889,134
_____________
NET ASSETS AT DECEMBER 31, 1997 $38,713,392
=============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Fully
Managed
Account(c)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Fully
Managed
Account(c)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $567,500
Net realized gain (loss) on investments 13,366
Net unrealized appreciation (depreciation) of investments (119,096)
____________
Net increase (decrease) in net assets resulting from operations 461,770
Changes from principal transactions:
Purchase payments 3,479,979
Contract distributions and terminations (75,626)
Transfer payments from (to) other Accounts and Fixed Account 4,590,007
____________
Increase in net assets derived from principal transactions 7,994,360
____________
Total increase 8,456,130
____________
NET ASSETS AT DECEMBER 31, 1997 $8,456,130
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Rising
Dividends
Account(d)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Rising
Dividends
Account(d)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $534,254
Net realized gain (loss) on investments 689,163
Net unrealized appreciation (depreciation) of investments 1,602,362
____________
Net increase (decrease) in net assets resulting from operations 2,825,779
Changes from principal transactions:
Purchase payments 10,120,021
Contract distributions and terminations (591,899)
Transfer payments from (to) other Accounts and Fixed Account 19,020,816
____________
Increase in net assets derived from principal transactions 28,548,938
____________
Total increase 31,374,717
____________
NET ASSETS AT DECEMBER 31, 1997 $31,374,717
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Small Cap
Account(c)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Small Cap
Account(c)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($72,074)
Net realized gain (loss) on investments 250,413
Net unrealized appreciation (depreciation) of investments 652,308
____________
Net increase (decrease) in net assets resulting from operations 830,647
Changes from principal transactions:
Purchase payments 4,226,747
Contract distributions and terminations (466,764)
Transfer payments from (to) other Accounts and Fixed Account 6,810,781
____________
Increase in net assets derived from principal transactions 10,570,764
____________
Total increase 11,401,411
____________
NET ASSETS AT DECEMBER 31, 1997 $11,401,411
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Income and
Growth
Account
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $3,554,954
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 331,124
Net realized gain (loss) on investments 113,961
Net unrealized appreciation (depreciation) of investments 1,617,928
____________
Net increase in net assets resulting from operations 2,063,013
Changes from principal transactions:
Purchase payments 12,391,247
Contract distributions and terminations (313,379)
Transfer payments from (to) other Accounts and Fixed Account 4,775,045
____________
Increase in net assets derived from principal transactions 16,852,913
____________
Total increase 18,915,926
____________
NET ASSETS AT DECEMBER 31, 1996 22,470,880
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Income and
Growth
Account
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($667,695)
Net realized gain (loss) on investments 173,271
Net unrealized appreciation (depreciation) of investments 9,763,541
____________
Net increase (decrease) in net assets resulting from operations 9,269,117
Changes from principal transactions:
Purchase payments 32,706,984
Contract distributions and terminations (1,296,354)
Transfer payments from (to) other Accounts and Fixed Account 11,679,049
____________
Increase in net assets derived from principal transactions 43,089,679
____________
Total increase 52,358,796
____________
NET ASSETS AT DECEMBER 31, 1997 $74,829,676
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
International
Equity
Account
_____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $1,785,234
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) (71,888)
Net realized gain (loss) on investments 17,392
Net unrealized appreciation (depreciation) of investments 731,168
_____________
Net increase in net assets resulting from operations 676,672
Changes from principal transactions:
Purchase payments 6,290,530
Contract distributions and terminations (32,636)
Transfer payments from (to) other Accounts and Fixed Account 2,085,262
_____________
Increase in net assets derived from principal transactions 8,343,156
_____________
Total increase 9,019,828
_____________
NET ASSETS AT DECEMBER 31, 1996 10,805,062
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
International
Equity
Account
_____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($263,079)
Net realized gain (loss) on investments 62,891
Net unrealized appreciation (depreciation) of investments (159,210)
_____________
Net increase (decrease) in net assets resulting from operations (359,398)
Changes from principal transactions:
Purchase payments 10,522,332
Contract distributions and terminations (391,223)
Transfer payments from (to) other Accounts and Fixed Account 2,996,275
_____________
Increase in net assets derived from principal transactions 13,127,384
_____________
Total increase 12,767,986
_____________
NET ASSETS AT DECEMBER 31, 1997 $23,573,048
=============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
High
Income
Account
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $790,940
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 399,698
Net realized gain (loss) on investments 22,650
Net unrealized appreciation (depreciation) of investments 94,928
____________
Net increase in net assets resulting from operations 517,276
Changes from principal transactions:
Purchase payments 5,464,065
Contract distributions and terminations (30,888)
Transfer payments from (to) other Accounts and Fixed Account 1,453,238
____________
Increase in net assets derived from principal transactions 6,886,415
____________
Total increase 7,403,691
____________
NET ASSETS AT DECEMBER 31, 1996 8,194,631
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
High
Income
Account
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($212,941)
Net realized gain (loss) on investments 109,408
Net unrealized appreciation (depreciation) of investments 1,805,213
____________
Net increase (decrease) in net assets resulting from operations 1,701,680
Changes from principal transactions:
Purchase payments 9,444,101
Contract distributions and terminations (348,882)
Transfer payments from (to) other Accounts and Fixed Account 2,199,023
____________
Increase in net assets derived from principal transactions 11,294,242
____________
Total increase 12,995,922
____________
NET ASSETS AT DECEMBER 31, 1997 $21,190,553
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Money
Market
Account
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $1,279,525
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 86,557
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations 86,557
Changes from principal transactions:
Purchase payments 16,828,214
Contract distributions and terminations (12,087)
Transfer payments from (to) other Accounts and Fixed Account (14,488,219)
____________
Increase in net assets derived from principal transactions 2,327,908
____________
Total increase 2,414,465
____________
NET ASSETS AT DECEMBER 31, 1996 3,693,990
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Smith
Barney
Money
Market
Account
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $294,311
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase (decrease) in net assets resulting from operations 294,311
Changes from principal transactions:
Purchase payments 72,869,826
Contract distributions and terminations (272,427)
Transfer payments from (to) other Accounts and Fixed Account (64,046,876)
____________
Increase in net assets derived from principal transactions 8,550,523
____________
Total increase 8,844,834
____________
NET ASSETS AT DECEMBER 31, 1997 $12,538,824
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Appreciation
Account(b)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $407,946
Net realized gain (loss) on investments 8,262
Net unrealized appreciation (depreciation) of investments (41,534)
____________
Net increase in net assets resulting from operations 374,674
Changes from principal transactions:
Purchase payments 4,266,029
Contract distributions and terminations (3,440)
Transfer payments from (to) other Accounts and Fixed Account 948,901
____________
Increase in net assets derived from principal transactions 5,211,490
____________
Total increase 5,586,164
____________
NET ASSETS AT DECEMBER 31, 1996 5,586,164
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Appreciation
Account(b)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $1,682,902
Net realized gain (loss) on investments 7,316
Net unrealized appreciation (depreciation) of investments 1,159,392
____________
Net increase (decrease) in net assets resulting from operations 2,849,610
Changes from principal transactions:
Purchase payments 17,038,981
Contract distributions and terminations (366,425)
Transfer payments from (to) other Accounts and Fixed Account 5,412,224
____________
Increase in net assets derived from principal transactions 22,084,780
____________
Total increase 24,934,390
____________
NET ASSETS AT DECEMBER 31, 1997 $30,520,554
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
High
Growth
Account(e)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
High
Growth
Account(e)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($96,364)
Net realized gain (loss) on investments 36,105
Net unrealized appreciation (depreciation) of investments 109,908
____________
Net increase (decrease) in net assets resulting from operations 49,649
Changes from principal transactions:
Purchase payments 15,566,252
Contract distributions and terminations (243,694)
Transfer payments from (to) other Accounts and Fixed Account 4,915,575
____________
Increase in net assets derived from principal transactions 20,238,133
____________
Total increase 20,287,782
____________
NET ASSETS AT DECEMBER 31, 1997 $20,287,782
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Growth
Account(f)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Growth
Account(f)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($142,547)
Net realized gain (loss) on investments 3,569
Net unrealized appreciation (depreciation) of investments 902,340
____________
Net increase (decrease) in net assets resulting from operations 763,362
Changes from principal transactions:
Purchase payments 22,739,599
Contract distributions and terminations (161,932)
Transfer payments from (to) other Accounts and Fixed Account 7,235,900
____________
Increase in net assets derived from principal transactions 29,813,567
____________
Total increase 30,576,929
____________
NET ASSETS AT DECEMBER 31, 1997 $30,576,929
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Balanced
Account(e)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Balanced
Account(e)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($150,561)
Net realized gain (loss) on investments 3,850
Net unrealized appreciation (depreciation) of investments 1,117,979
____________
Net increase (decrease) in net assets resulting from operations 971,268
Changes from principal transactions:
Purchase payments 20,980,292
Contract distributions and terminations (142,490)
Transfer payments from (to) other Accounts and Fixed Account 7,697,442
____________
Increase in net assets derived from principal transactions 28,535,244
____________
Total increase 29,506,512
____________
NET ASSETS AT DECEMBER 31, 1997 $29,506,512
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Conservative
Account(h)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Conservative
Account(h)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($34,197)
Net realized gain (loss) on investments 21,770
Net unrealized appreciation (depreciation) of investments 245,961
____________
Net increase (decrease) in net assets resulting from operations 233,534
Changes from principal transactions:
Purchase payments 5,636,991
Contract distributions and terminations (77,916)
Transfer payments from (to) other Accounts and Fixed Account 1,636,511
____________
Increase in net assets derived from principal transactions 7,195,586
____________
Total increase 7,429,120
____________
NET ASSETS AT DECEMBER 31, 1997 $7,429,120
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Income
Account(g)
____________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 --
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) --
Net realized gain (loss) on investments --
Net unrealized appreciation (depreciation) of investments --
____________
Net increase in net assets resulting from operations --
Changes from principal transactions:
Purchase payments --
Contract distributions and terminations --
Transfer payments from (to) other Accounts and Fixed Account --
____________
Increase in net assets derived from principal transactions --
____________
Total increase --
____________
NET ASSETS AT DECEMBER 31, 1996 --
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Select
Income
Account(g)
____________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ($14,504)
Net realized gain (loss) on investments 19,963
Net unrealized appreciation (depreciation) of investments 100,682
____________
Net increase (decrease) in net assets resulting from operations 106,141
Changes from principal transactions:
Purchase payments 2,217,986
Contract distributions and terminations (55,407)
Transfer payments from (to) other Accounts and Fixed Account 497,653
____________
Increase in net assets derived from principal transactions 2,660,232
____________
Total increase 2,766,373
____________
NET ASSETS AT DECEMBER 31, 1997 $2,766,373
============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Combined
_______________
<S> <C>
NET ASSETS AT JANUARY 1, 1996 $67,131,685
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) 7,662,474
Net realized gain (loss) on investments 1,140,512
Net unrealized appreciation (depreciation) of investments 15,142,811
_______________
Net increase in net assets resulting from operations 23,945,797
Changes from principal transactions:
Purchase payments 251,088,215
Contract distributions and terminations (5,077,202)
Transfer payments from (to) other Accounts and Fixed Account 6,745,513
_______________
Increase in net assets derived from principal transactions 252,756,526
_______________
Total increase 276,702,323
_______________
NET ASSETS AT DECEMBER 31, 1996 343,834,008
</TABLE>
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years December 31, 1996 and 1997, Except as Noted
(Continued)
<TABLE>
<CAPTION>
Combined
_______________
<S> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) $22,449,562
Net realized gain (loss) on investments 11,863,276
Net unrealized appreciation (depreciation) of investments 47,281,155
_______________
Net increase (decrease) in net assets resulting from operations 81,593,993
Changes from principal transactions:
Purchase payments 619,254,759
Contract distributions and terminations (32,105,065)
Transfer payments from (to) other Accounts and Fixed Account 489,615
_______________
Increase in net assets derived from principal transactions 587,639,309
_______________
Total increase 669,233,302
_______________
NET ASSETS AT DECEMBER 31, 1997 $1,013,067,310
===============
<FN>
(a) Commencement of Operations, April 1, 1996
(b) Commencement of Operations, March 25, 1996
(c) Commencement of Operations, February 5, 1997
(d) Commencement of Operations, February 10, 1997
(e) Commencement of Operations, February 21, 1997
(f) Commencement of Operations, March 6, 1997
(g) Commencement of Operations, March 19, 1997
(h) Commencement of Operations, March 26, 1997
</TABLE>
See accompanying notes.
EQUITABLE LIFE INSURANCE COMPANY OF IOWA
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - INVESTMENT AND ACCOUNTING POLICIES
Equitable Life Insurance Company of Iowa Separate Account A (the "Separate
Account") was established by Equitable Life Insurance Company of Iowa (the
"Company") in accordance with the provisions of Iowa Insurance laws and is a
part of the total operations of the Company. The assets and liabilities of
the Separate Account are clearly identified and distinguished from the other
assets and liabilities of the Company. Commencement of operations is defined
as the date of initial sale of contract units to Contractowners. Investments
are stated at the closing net asset values per share on December 31, 1997.
The Separate Account is a unit investment trust, registered with the
Securities and Exchange Commission under the Investment Company Act of 1940,
as amended. As of December 31, 1997, the Separate Account consisted of
twenty-three investment accounts. The assets in each account are invested
in shares of a designated Series ("Series," which may also be referred to as
a "Portfolio") of mutual funds of the Equi-Select Series Trust, the Warburg
Pincus Trust, The GCG Trust, Travelers Series Fund, Inc., the Greenwich
Street Series Fund (formerly the Smith Barney Series Fund, Inc.), or Smith
Barney Concert Allocation Series, Inc. (the "Trusts"). The Trusts are open
ended management investment companies. Nine of the accounts (the
Advantage, International Fixed Income, Money Market, Mortgage-Backed Securities,
OTC, Research, Total Return, Growth & Income and Value + Growth) are invested
in specified portfolios of the Equi-Select Series Trust, one of which
(International Equity) is invested in the International Equity Portfolio of the
Warburg Pincus Trust and three of which (the Fully Managed Series, Rising
Dividends Series, and Small Cap Series) are invested in specific series of
the GCG Trust as directed by eligible Contractowners. Activity in these
thirteen investment accounts is available to Contractowners of the
Equi-Select Variable Annuity product.
The remaining ten investment accounts are invested in specific portfolios,
four of which (Smith Barney Income and Growth, Smith Barney International
Equity, Smith Barney High Income, and Smith Barney Money Market) are invested
in the Travelers Series Fund, Inc., one of which (Appreciation) is invested in
the Greenwich Street Series Fund, and five of which (Select High Growth, Select
Growth, Select Balanced, Select Conservative, and Select Income) are invested
in the Smith Barney Concert Allocation Series, Inc. These ten investment
accounts and the Research, OTC, and Total Return Accounts, which invest in the
Equi-Select Series Trust, are available to Contractowners of the PrimeElite
Variable Annuity product.
In 1997, the Separate Account began offering certain accounts in The GCG
Trust. These accounts include the Fully Managed and Small Cap Series which
commenced operations in the Separate Account on February 5, 1997 and the
Rising Dividends on February 10, 1997. Also in 1997, the Separate Account
began offering certain accounts in the Smith Barney Concert Allocation
Series, Inc. These include the Select High Growth and Select Balanced which
commenced operations on February 21, 1997, Select Growth on March 6, 1997,
Select Income on March 19, 1997 and the Select Conservative on March 26, 1997.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 1 - INVESTMENT AND ACCOUNTING POLICIES - CONTINUED
Investments are made in shares of a Series or Portfolio of the Trusts and are
valued at the net asset value per share of the respective Series or Portfolio
of the Trusts. Investment transactions in each Series or Portfolio of the
Trusts are recorded on the trade date. Distributions of net investment
income and capital gains of each Series or Portfolio of the Trusts are
recognized on the ex-distribution date. Realized gains and losses on
redemptions of the shares of the Series or Portfolio of the Trusts are
determined on the specific identification basis.
NOTE 2 - EXPENSES
The Company is compensated for mortality and expense risks and administrative
costs by a charge equivalent to an annual rate of 1.25% and 0.15%,
respectively, of the total net assets of each account. These charges
amounted to $9,273,415 and $46,284, respectively, for the period ended December
31, 1997 ($2,218,969 and $266,096, respectively, for the year ended December
31, 1996).
An annual contract charge of $30 is deducted on each contract anniversary
prior to the maturity date, upon full withdrawal of a contract's value or
upon commencement of annuity payments if such withdrawal is made or annuity
payments commence on a date other than the contract anniversary. For the
period ended December 31, 1997, annual contract charges amounted to
$331,304, and for the year ended December 31, 1996, these charges
amounted to $71,621.
A transfer charge computed as the lesser of 2% of the contract value
transferred or $25 will be imposed on each transfer between accounts in
excess of twelve in any one calendar year. For the year ended December 31,
1997, transfer charges amounted to $9,603, and for the year ended
December 31, 1996 these charges amounted to $622. A withdrawal charge may
be imposed in the event of withdrawal of any portion of the contract value or
upon annuitization. The withdrawal charge is 8% of the amount withdrawn
prior to the first anniversary of any purchase payment and reduces by 1% at
each subsequent purchase payment anniversary.
NOTE 3 - FEDERAL INCOME TAXES
Operations of the Separate Account form a part of the operations of the
Company which is taxed as a life insurance company under the Internal Revenue
Code. Under current law, no federal income taxes are payable with respect to
operations of the Separate Account.
NOTE 4 - PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were
as follows:
<TABLE>
<CAPTION>
Period ended
December 31, 1997
____________________________
Purchases Sales
____________________________
<S> <C> <C>
Equi-Select Series Trust:
Advantage Portfolio $12,290,477 $9,124,418
International Fixed Income Portfolio 7,088,301 2,619,891
Money Market Portfolio 104,148,794 87,620,830
Mortgage-Backed Securities Portfolio 8,725,334 1,628,960
OTC Portfolio 55,385,944 12,741,646
Research Portfolio 124,115,511 11,674,173
Total Return Portfolio 79,757,256 1,933,369
Growth & Income Portfolio 60,425,134 5,940,764
Value + Growth Portfolio 45,480,583 4,477,639
Warburg Pincus Trust:
International Equity Portfolio 27,122,604 4,349,530
The GCG Trust:
Fully Managed Series 8,851,683 289,823
Rising Dividends Series 33,451,931 4,368,739
Small Cap Series 12,148,404 1,649,714
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio 42,878,168 456,184
Smith Barney International Equity Portfolio 13,044,815 180,510
Smith Barney High Income Portfolio 11,885,456 804,155
Smith Barney Money Market Portfolio 32,473,459 23,622,410
Greenwich Street Series Fund:
Appreciation Portfolio 23,836,834 69,152
Smith Barney Concert
Allocation Series, Inc.:
Select High Growth Portfolio 20,497,724 355,955
Select Growth Portfolio 29,748,889 77,869
Select Balanced Portfolio 28,437,186 52,503
Select Conservative Portfolio 7,503,480 342,091
Select Income Portfolio 2,914,165 268,437
____________________________
Total $792,212,132 $174,648,762
============================
</TABLE>
NOTE 4 - PURCHASES AND SALES OF INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
Period ended
December 31, 1996
____________________________
Purchases Sales
____________________________
<S> <C> <C>
Equi-Select Series Trust:
Advantage Portfolio $13,475,395 $2,445,892
International Fixed Income Portfolio 5,234,780 557,676
Money Market Portfolio 43,852,637 30,504,481
Mortgage-Backed Securities Portfolio 8,065,695 1,682,068
OTC Portfolio 28,902,017 341,386
Research Portfolio 54,653,079 1,744,943
Total Return Portfolio 39,063,198 532,334
Growth & Income Portfolio 25,439,201 179,200
Value + Growth Portfolio 13,221,408 208,125
Warburg Pincus Trust:
International Equity Portfolio 21,093,357 367,519
The GCG Trust:
Fully Managed Series -- --
Rising Dividends Series -- --
Small Cap Series -- --
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Portfolio 17,726,592 542,555
Smith Barney International Equity Portfolio 8,397,915 126,647
Smith Barney High Income Portfolio 7,606,805 320,692
Smith Barney Money Market Portfolio 11,135,757 8,725,874
Greenwich Street Series Fund:
Appreciation Portfolio 5,719,716 100,280
Smith Barney Concert
Allocation Series, Inc.:
Select High Growth Portfolio -- --
Select Growth Portfolio -- --
Select Balanced Portfolio -- --
Select Conservative Portfolio -- --
Select Income Portfolio -- --
____________________________
Total $303,587,552 $48,379,672
============================
</TABLE>
NOTE 5 - SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units were as follows:
<TABLE>
<CAPTION>
Period ended
December 31, 1997
____________________________
Purchases Sales
____________________________
<S> <C> <C>
Equi-Select Series Trust:
Advantage Account 988,376 805,145
International Fixed Income Account 511,014 213,732
Money Market Account 9,788,350 8,382,113
Mortgage-Backed Securities Account 637,610 141,260
OTC Account 2,986,261 763,994
Research Account 6,629,166 633,673
Total Return Account 5,022,503 132,764
Growth & Income Account 3,939,022 468,665
Value + Growth Account 3,422,916 334,897
Warburg Pincus Trust:
International Equity Account 2,309,409 427,281
The GCG Trust:
Fully Managed Account 445,585 15,573
Rising Dividends Account 1,786,818 225,115
Small Cap Account 1,013,794 128,770
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Account 2,652,067 19,906
Smith Barney International Equity Account 939,196 10,039
Smith Barney High Income Account 935,447 61,286
Smith Barney Money Market Account 3,064,438 2,270,529
Greenwich Street Series Fund:
Appreciation Account 1,684,041 3,346
Smith Barney Concert
Allocation Series, Inc.:
Select High Growth Account 1,899,205 32,872
Select Growth Account 2,774,943 7,330
Select Balanced Account 2,672,747 4,406
Select Conservative Account 702,940 31,706
Select Income Account 275,346 24,505
</TABLE>
NOTE 5 - SUMMARY OF CHANGES FROM UNIT TRANSACTIONS - CONTINUED
<TABLE>
<CAPTION>
Period ended
December 31, 1996
____________________________
Purchases Sales
____________________________
<S> <C> <C>
Equi-Select Series Trust:
Advantage Account 1,374,019 396,282
International Fixed Income Account 502,939 108,758
Money Market Account 9,656,473 8,432,754
Mortgage-Backed Securities Account 806,213 255,416
OTC Account 2,002,398 159,271
Research Account 3,947,429 357,941
Total Return Account 3,298,269 256,496
Growth & Income Account 2,280,154 51,266
Value + Growth Account 1,294,691 56,342
Warburg Pincus Trust:
International Equity Account 2,094,800 68,096
The GCG Trust:
Fully Managed Account -- --
Rising Dividends Account -- --
Small Cap Account -- --
Travelers Series Fund, Inc.:
Smith Barney Income and Growth Account 1,330,977 46,462
Smith Barney International Equity Account 663,194 12,607
Smith Barney High Income Account 623,760 25,307
Smith Barney Money Market Account 1,696,660 1,472,802
Greenwich Street Series Fund:
Appreciation Account 509,854 12,820
Smith Barney Concert
Allocation Series, Inc.:
Select High Growth Account -- --
Select Growth Account -- --
Select Balanced Account -- --
Select Conservative Account -- --
Select Income Account -- --
</TABLE>
NOTE 6 - NET ASSETS
Net assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
International Mortgage-
Fixed Money Backed
Advantage Income Market Securities
Account Account Account Account
________________________________________________________
<S> <C> <C> <C> <C>
Unit transactions $16,689,180 $11,557,842 $34,338,801 $16,420,839
Accumulated net invest-
ment income (loss) 1,419,781 1,166,386 1,246,013 1,195,458
Net unrealized appre-
ciation (depreciation)
of investments (280,919) (819,576) -- 57,491
________________________________________________________
$17,828,042 $11,904,652 $35,584,814 $17,673,788
========================================================
</TABLE>
<TABLE>
<CAPTION>
Total Growth &
OTC Research Return Income
Account Account Account Account
________________________________________________________
<S> <C> <C> <C> <C>
Unit transactions $74,852,626 $174,593,032 $126,121,822 $73,610,074
Accumulated net invest-
ment income (loss) 8,514,637 10,054,057 5,451,568 7,386,070
Net unrealized appre-
ciation (depreciation)
of investments 5,989,601 19,873,088 17,278,265 6,812,199
________________________________________________________
$89,356,864 $204,520,177 $148,851,655 $87,808,343
========================================================
</TABLE>
<TABLE>
<CAPTION>
Value + International Fully Rising
Growth Equity Managed Dividends
Account Account Account Account
________________________________________________________
<S> <C> <C> <C> <C>
Unit transactions $54,449,097 $41,191,310 $7,994,360 $28,548,938
Accumulated net invest-
ment income (loss) 602,152 2,472,313 580,866 1,223,417
Net unrealized appre-
ciation (depreciation)
of investments 1,322,705 (4,950,231) (119,096) 1,602,362
________________________________________________________
$56,373,954 $38,713,392 $8,456,130 $31,374,717
========================================================
</TABLE>
NOTE 6 - NET ASSETS - CONTINUED
<TABLE>
<CAPTION>
Smith Smith Smith
Barney Barney Barney
Small Income and International High
Cap Growth Equity Income
Account Account Account Account
________________________________________________________
<S> <C> <C> <C> <C>
Unit transactions $10,570,764 $63,380,035 $23,245,235 $18,963,957
Accumulated net invest-
ment income (loss) 178,339 (120,246) (275,705) 326,526
Net unrealized appre-
ciation (depreciation)
of investments 652,308 11,569,887 603,518 1,900,070
________________________________________________________
$11,401,411 $74,829,676 $23,573,048 $21,190,553
========================================================
</TABLE>
<TABLE>
<CAPTION>
Smith
Barney Select
Money High Select
Market Appreciation Growth Growth
Account Account Account Account
________________________________________________________
<S> <C> <C> <C> <C>
Unit transactions $12,226,693 $27,304,532 $20,238,133 $29,813,567
Accumulated net invest-
ment income (loss) 312,131 2,098,164 (60,259) (138,978)
Net unrealized appre-
ciation (depreciation)
of investments -- 1,117,858 109,908 902,340
________________________________________________________
$12,538,824 $30,520,554 $20,287,782 $30,576,929
========================================================
</TABLE>
<TABLE>
<CAPTION>
Select
Select Conser- Select
Balanced vative Income
Account Account Account Combined
________________________________________________________
<S> <C> <C> <C> <C>
Unit transactions $28,535,244 $7,195,586 $2,660,232 $904,501,899
Accumulated net invest-
ment income (loss) (146,711) (12,427) 5,459 43,479,011
Net unrealized appre-
ciation (depreciation)
of investments 1,117,979 245,961 100,682 $65,086,400
________________________________________________________
$29,506,512 $7,429,120 $2,766,373 $1,013,067,310
========================================================
</TABLE>
NOTE 7 - YEAR 2000 (UNAUDITED):
Based on a study of its computer software and hardware, Equitable of Iowa
Companies, Inc. ("EIC"), the Company's parent, has determined the Company's
exposure to the Year 2000 change of the century date issue. EIC has
developed a plan to modify its information technology to be ready for the
Year 2000. Efforts began in 1997 to modify its systems. This project is
expected to be substantially completed by the second quarter of 1999. While
additional testing will be conducted on its systems through the Year 2000,
the Company does not expect this project to have a significant effect on
operations. To mitigate the effect of outside influences and other
dependencies relative to the Year 2000, the Company will be contacting
significant customers, suppliers and other third parties. To the extent
these third parties would be unable to transact business in the Year 2000 and
thereafter, the Company's operations could be adversely affected.
<PAGE>]
